COMMERCIAL LAW CODAL

BAR 2020

Table of Contents
Civil Code Of The Philippines.............................................................. 3
Transportation .......................................................................................................... 3
Surety And Guaranty ............................................................................................... 5
Mortgage .................................................................................................................. 7
Concurrence And Preference Of Credits ................................................................. 9
Laws And Regulations ........................................................................ 12
The Insurance Code ............................................................................................... 12
An Act Establishing The Pre-Need Code Of The Phillpplnes ............................... 73
Intellectual Property Code Of The Philippines .................................................... 266
Use Of Duly-Stamped And Marked Containers .................................................. 308
Philippine Regulations Implementing The Protocol Relating To The Madrid
Agreement Concerning The International Registration Of Marks Of 2017 ........ 309
Real Estate Mortgage Law................................................................................... 313
Anti-Money Laundering Act Of 2001 ................................................................. 314
Financial Rehabilitation And Insolvency Act Of 2010 ....................................... 322
Data Privacy Act Of 2012.................................................................................... 347
Implementing Rules And Regulations Of The Data Privacy Act .................... 356
Personal Property Security Act ............................................................................ 372
Implementing Rules And Regulations Of The Personal Property Security Act
......................................................................................................................... 381

The Salvage Law ................................................................................................... 87 Philippine Competition Act ................................................................................. 395

Implementing Rules And Regulations Of The Philippine Competition Act .... 408
Carriage Of Goods By Sea Act .............................................................................. 89
Public Service Law ................................................................................................ 93
Maritime Commerce Law .................................................................................... 105
Warsaw Convention ............................................................................................. 125
An Act Allowing Foreign Vessels To Transport And Co-Load Foreign Cargoes
For Domestic Transshipment And For Other Purposes ....................................... 131
Revised Corporation Code Of The Philippines ................................................... 133
Foreign Investments Act Of 1991 ........................................................................ 170
Inventor’s Lease Act ............................................................................................ 174
Special Economic Zone Act Of 1995 .................................................................. 176
Eleventh Regular Foreign Investment Negative List ........................................... 186
Securities Regulation Code .................................................................................. 189
Law On Secrecy Of Bank Deposits ..................................................................... 216
Philippine Deposit Insurance Corporation Act .................................................... 217
Truth In Lending Act ........................................................................................... 224
The New Central Bank Act .................................................................................. 226
General Banking Law Of 2000 ............................................................................ 250
Lending Company Regulation Act Of 2007 ........................................................ 264
 CIVIL CODE OF THE PHILIPPINES
TRANSPORTATION
SECTION 4
Common Carriers
SUBSECTION 1. General Provisions
Article 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public.
Article 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in
articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for
the safety of the passengers is further set forth in articles 1755 and 1756.
SUBSECTION 2. Vigilance Over Goods
Article 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following causes only:
1. Flood, storm, earthquake, lightning, or other natural disaster or calamity;
2. Act of the public enemy in war, whether international or civil;
3. Act or omission of the shipper or owner of the goods;
4. The character of the goods or defects in the packing or in the containers;
5. Order or act of competent public authority.
Article 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence as required in article 1733.
Article 1736. The extraordinary responsibility of the common carrier lasts from the
time the goods are unconditionally placed in the possession of, and received by the
carrier for transportation until the same are delivered, actually or constructively, by
the carrier to the consignee, or to the person who has a right to receive them, without
prejudice to the provisions of article 1738.
3
Article 1737. The common carrier's duty to observe extraordinary diligence over the
goods remains in full force and effect even when they are temporarily unloaded or
stored in transit, unless the shipper or owner has made use of the right of stoppage in
transitu.
Article 1738. The extraordinary liability of the common carrier continues to be
operative even during the time the goods are stored in a warehouse of the carrier at the
place of destination, until the consignee has been advised of the arrival of the goods
and has had reasonable opportunity thereafter to remove them or otherwise dispose of
them.
Article 1739. In order that the common carrier may be exempted from responsibility,
the natural disaster must have been the proximate and only cause of the loss. However,
the common carrier must exercise due diligence to prevent or minimize loss before,
during and after the occurrence of flood, storm or other natural disaster in order that
the common carrier may be exempted from liability for the loss, destruction, or
deterioration of the goods. The same duty is incumbent upon the common carrier in
case of an act of the public enemy referred to in article 1734, No. 2.
Article 1740. If the common carrier negligently incurs in delay in transporting the
goods, a natural disaster shall not free such carrier from responsibility.
Article 1741. If the shipper or owner merely contributed to the loss, destruction or
deterioration of the goods, the proximate cause thereof being the negligence of the
common carrier, the latter shall be liable in damages, which however, shall be
equitably reduced.
Article 1742. Even if the loss, destruction, or deterioration of the goods should be
caused by the character of the goods, or the faulty nature of the packing or of the
containers, the common carrier must exercise due diligence to forestall or lessen the
loss.
Article 1743. If through the order of public authority the goods are seized or
destroyed, the common carrier is not responsible, provided said public authority had
power to issue the order.
Article 1744. A stipulation between the common carrier and the shipper or owner
limiting the liability of the former for the loss, destruction, or deterioration of the goods
to a degree less than extraordinary diligence shall be valid, provided it be:
1. In writing, signed by the shipper or owner;
2. Supported by a valuable consideration other than the service rendered by the
common carrier; and
3. Reasonable, just and not contrary to public policy.

Article 1745. Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy:
1. That the goods are transported at the risk of the owner or shipper;
2. That the common carrier will not be liable for any loss, destruction, or
deterioration of the goods;
3. That the common carrier need not observe any diligence in the custody of the
goods;
4. That the common carrier shall exercise a degree of diligence less than that of
a good father of a family, or of a man of ordinary prudence in the vigilance
over the movables transported;
5. That the common carrier shall not be responsible for the acts or omission of
his or its employees;
6. That the common carrier's liability for acts committed by thieves, or of
robbers who do not act with grave or irresistible threat, violence or force, is
dispensed with or diminished;
7. That the common carrier is not responsible for the loss, destruction, or
deterioration of goods on account of the defective condition of the car,
vehicle, ship, airplane or other equipment used in the contract of carriage.
Article 1746. An agreement limiting the common carrier's liability may be annulled
by the shipper or owner if the common carrier refused to carry the goods unless the
former agreed to such stipulation.
Article 1747. If the common carrier, without just cause, delays the transportation of
the goods or changes the stipulated or usual route, the contract limiting the common
carrier's liability cannot be availed of in case of the loss, destruction, or deterioration
of the goods.
Article 1748. An agreement limiting the common carrier's liability for delay on
account of strikes or riots is valid.
Article 1749. A stipulation that the common carrier's liability is limited to the value
of the goods appearing in the bill of lading, unless the shipper or owner declares a
greater value, is binding.
Article 1750. A contract fixing the sum that may be recovered. by the owner or shipper
for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and
just under the circumstances, and has been fairly and freely agreed upon.
Article 1751. The fact that the common carrier has no competitor along the line or
route, or a part thereof, to which the contract refers shall be taken into consideration
on the question of whether or not a stipulation limiting the common carrier's liability
is reasonable, just and in consonance with public policy.
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Article 1752. Even when there is an agreement limiting the liability of the common
carrier in the vigilance over the goods, the common carrier is disputably presumed to
have been negligent in case of their loss, destruction or deterioration.
Article 1753. The law of the country to which the goods are to be transported shall
govern the liability of the common carrier for their loss, destruction or deterioration.
Article 1754. The provisions of articles 1733 to 1753 shall apply to the passenger's
baggage which is not in his personal custody or in that of his employee. As to other
baggage, the rules in articles 1998 and 2000 to 2003 concerning the responsibility of
hotel-keepers shall be applicable.
SUBSECTION 3. Safety of Passengers
Article 1755. A common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances.
Article 1756. In case of death of or injuries to passengers, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence as prescribed in articles 1733 and 1755.
Article 1757. The responsibility of a common carrier for the safety of passengers as
required in articles 1733 and 1755 cannot be dispensed with or lessened by stipulation,
by the posting of notices, by statements on tickets, or otherwise.
Article 1758. When a passenger is carried gratuitously, a stipulation limiting the
common carrier's liability for negligence is valid, but not for wilful acts or gross
negligence.
The reduction of fare does not justify any limitation of the common carrier's liability.
Article 1759. Common carriers are liable for the death of or injuries to passengers
through the negligence or wilful acts of the former's employees, although such
employees may have acted beyond the scope of their authority or in violation of the
orders of the common carriers.
This liability of the common carriers does not cease upon proof that they exercised all
the diligence of a good father of a family in the selection and supervision of their
employees.
Article 1760. The common carrier's responsibility prescribed in the preceding article
cannot be eliminated or limited by stipulation, by the posting of notices, by statements
on the tickets or otherwise.
Article 1761. The passenger must observe the diligence of a good father of a family
to avoid injury to himself.
Article 1762. The contributory negligence of the passenger does not bar recovery of
damages for his death or injuries, if the proximate cause thereof is the negligence of
the common carrier, but the amount of damages shall be equitably reduced.
Article 1763. A common carrier is responsible for injuries suffered by a passenger on
account of the wilful acts or negligence of other passengers or of strangers, if the
common carrier's employees through the exercise of the diligence of a good father of
a family could have prevented or stopped the act or omission.
SUBSECTION 4. Common Provisions
Article 1764. Damages in cases comprised in this Section shall be awarded in
accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall
also apply to the death of a passenger caused by the breach of contract by a common
carrier.
Article 1765. The Public Service Commission may, on its own motion or on petition
of any interested party, after due hearing, cancel the certificate of public convenience
granted to any common carrier that repeatedly fails to comply with his or its duty to
observe extraordinary diligence as prescribed in this Section.
Article 1766. In all matters not regulated by this Code, the rights and obligations of
common carriers shall be governed by the Code of Commerce and by special laws.
SURETY AND GUARANTY
TITLE XV
GUARANTY
CHAPTER 1
Nature and Extent of Guaranty
Article 2047. By guaranty a person, called the guarantor, binds himself to the creditor
to fulfill the obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section
4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called
a suretyship.
Article 2048. A guaranty is gratuitous, unless there is a stipulation to the contrary. (n)
5
Article 2049. A married woman may guarantee an obligation without the husband's
consent, but shall not thereby bind the conjugal partnership, except in cases provided
by law. (n)
Article 2050. If a guaranty is entered into without the knowledge or consent, or against
the will of the principal debtor, the provisions of articles 1236 and 1237 shall apply.
(n)
Article 2051. A guaranty may be conventional, legal or judicial, gratuitous, or by
onerous title.
It may also be constituted, not only in favor of the principal debtor, but also in favor
of the other guarantor, with the latter's consent, or without his knowledge, or even over
his objection.
Article 2052. A guaranty cannot exist without a valid obligation.
Nevertheless, a guaranty may be constituted to guarantee the performance of a
voidable or an unenforceable contract. It may also guarantee a natural obligation.
Article 2053. A guaranty may also be given as security for future debts, the amount
of which is not yet known; there can be no claim against the guarantor until the debt
is liquidated. A conditional obligation may also be secured.
Article 2054. A guarantor may bind himself for less, but not for more than the
principal debtor, both as regards the amount and the onerous nature of the conditions.
Should he have bound himself for more, his obligations shall be reduced to the limits
of that of the debtor.
Article 2055. A guaranty is not presumed; it must be express and cannot extend to
more than what is stipulated therein.
If it be simple or indefinite, it shall compromise not only the principal obligation, but
also all its accessories, including the judicial costs, provided with respect to the latter,
that the guarantor shall only be liable for those costs incurred after he has been
judicially required to pay.
Article 2056. One who is obliged to furnish a guarantor shall present a person who
possesses integrity, capacity to bind himself, and sufficient property to answer for the
obligation which he guarantees. The guarantor shall be subject to the jurisdiction of
the court of the place where this obligation is to be complied with.
Article 2057. If the guarantor should be convicted in first instance of a crime involving
dishonesty or should become insolvent, the creditor may demand another who has all
the qualifications required in the preceding article. The case is excepted where the
creditor has required and stipulated that a specified person should be the guarantor.
CHAPTER 2
Effects of Guaranty
SECTION 1
Effects of Guaranty Between the Guarantor and the Creditor
Article 2058. The guarantor cannot be compelled to pay the creditor unless the latter
has exhausted all the property of the debtor, and has resorted to all the legal remedies
against the debtor.
Article 2059. The excussion shall not take place:
1. If the guarantor has expressly renounced it;
2. If he has bound himself solidarily with the debtor;
3. In case of insolvency of the debtor;
4. When he has absconded, or cannot be sued within the Philippines unless he
has left a manager or representative;
5. If it may be presumed that an execution on the property of the principal debtor
would not result in the satisfaction of the obligation.
Article 2060. In order that the guarantor may make use of the benefit of exclusion, he
must set it up against the creditor upon the latter's demand for payment from him, and
point out to the creditor available property of the debtor within Philippine territory,
sufficient to cover the amount of the debt.
Article 2061. The guarantor having fulfilled all the conditions required in the
preceding article, the creditor who is negligent in exhausting the property pointed out
shall suffer the loss, to the extent of said property, for the insolvency of the debtor
resulting from such negligence.
Article 2062. In every action by the creditor, which must be against the principal
debtor alone, except in the cases mentioned in article 2059, the former shall ask the
court to notify the guarantor of the action. The guarantor may appear so that he may,
if he so desire, set up such defenses as are granted him by law. The benefit of excussion
mentioned in article 2058 shall always be unimpaired, even if judgment should be
rendered against the principal debtor and the guarantor in case of appearance by the
latter.
Article 2063. A compromise between the creditor and the principal debtor benefits the
guarantor but does not prejudice him. That which is entered into between the guarantor
and the creditor benefits but does not prejudice the principal debtor.
6
Article 2064. The guarantor of a guarantor shall enjoy the benefit of excussion, both
with respect to the guarantor and to the principal debtor.
Article 2065. Should there be several guarantors of only one debtor and for the same
debt, the obligation to answer for the same is divided among all. The creditor cannot
claim from the guarantors except the shares which they are respectively bound to pay,
unless solidarity has been expressly stipulated.
The benefit of division against the co-guarantors ceases in the same cases and for the
same reasons as the benefit of excussion against the principal debtor.
SECTION 2
Effects of Guaranty Between the Debtor and the Guarantor
Article 2066. The guarantor who pays for a debtor must be indemnified by the latter.
The indemnity comprises:
1. The total amount of the debt;
2. The legal interests thereon from the time the payment was made known to the
debtor, even though it did not earn interest for the creditor;
3. The expenses incurred by the guarantor after having notified the debtor that
payment had been demanded of him;
4. Damages, if they are due.
Article 2067. The guarantor who pays is subrogated by virtue thereof to all the rights
which the creditor had against the debtor.
If the guarantor has compromised with the creditor, he cannot demand of the debtor
more than what he has really paid.
Article 2068. If the guarantor should pay without notifying the debtor, the latter may
enforce against him all the defenses which he could have set up against the creditor at
the time the payment was made.
Article 2069. If the debt was for a period and the guarantor paid it before it became
due, he cannot demand reimbursement of the debtor until the expiration of the period
unless the payment has been ratified by the debtor.
Article 2070. If the guarantor has paid without notifying the debtor, and the latter not
being aware of the payment, repeats the payment, the former has no remedy whatever
against the debtor, but only against the creditor. Nevertheless, in case of a gratuitous
guaranty, if the guarantor was prevented by a fortuitous event from advising the debtor
of the payment, and the creditor becomes insolvent, the debtor shall reimburse the
guarantor for the amount paid.
Article 2071. The guarantor, even before having paid, may proceed against the
principal debtor:
1. When he is sued for the payment;
2. In case of insolvency of the principal debtor;
3. When the debtor has bound himself to relieve him from the guaranty within a
specified period, and this period has expired;
4. When the debt has become demandable, by reason of the expiration of the
period for payment;
5. After the lapse of ten years, when the principal obligation has no fixed period
for its maturity, unless it be of such nature that it cannot be extinguished except
within a period longer than ten years;
6. If there are reasonable grounds to fear that the principal debtor intends to
abscond;
7. If the principal debtor is in imminent danger of becoming insolvent.
2. In all these cases, the action of the guarantor is to obtain release from the
guaranty, or to demand a security that shall protect him from any proceedings
by the creditor and from the danger of insolvency of the debtor.
Article 2072. If one, at the request of another, becomes a guarantor for the debt of a
third person who is not present, the guarantor who satisfies the debt may sue either the
person so requesting or the debtor for reimbursement. (n)
SECTION 3.
Effects of Guaranty as Between Co-Guarantors
Article 2073. When there are two or more guarantors of the same debtor and for the
same debt, the one among them who has paid may demand of each of the others the
share which is proportionally owing from him.
If any of the guarantors should be insolvent, his share shall be borne by the others,
including the payer, in the same proportion.
The provisions of this article shall not be applicable, unless the payment has been made
by virtue of a judicial demand or unless the principal debtor is insolvent.
Article 2074. In the case of the preceding article, the co-guarantors may set up against
the one who paid, the same defenses which would have pertained to the principal
debtor against the creditor, and which are not purely personal to the debtor. (1845)
ARTICLE 2075. A sub-guarantor, in case of the insolvency of the guarantor for whom
he bound himself, is responsible to the co-guarantors in the same terms as the
guarantor.
CHAPTER 3
Extinguishment of Guaranty
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Article 2076. The obligation of the guarantor is extinguished at the same time as that
of the debtor, and for the same causes as all other obligations.
Article 2077. If the creditor voluntarily accepts immovable or other property in
payment of the debt, even if he should afterwards lose the same through eviction, the
guarantor is released.
Article 2078. A release made by the creditor in favor of one of the guarantors, without
the consent of the others, benefits all to the extent of the share of the guarantor to
whom it has been granted.
Article 2079. An extension granted to the debtor by the creditor without the consent
of the guarantor extinguishes the guaranty. The mere failure on the part of the creditor
to demand payment after the debt has become due does not of itself constitute any
extension of time referred to herein.
Article 2080. The guarantors, even though they be solidary, are released from their
obligation whenever by some act of the creditor they cannot be subrogated to the
rights, mortgages, and preference of the latter. (
Article 2081. The guarantor may set up against the creditor all the defenses which
pertain to the principal debtor and are inherent in the debt; but not those that are
personal to the debtor.
CHAPTER 4
Legal and Judicial Bonds
Article 2082. The bondsman who is to be offered in virtue of a provision of law or of
a judicial order shall have the qualifications prescribed in article 2056 and in special
laws.
Article 2083. If the person bound to give a bond in the cases of the preceding article,
should not be able to do so, a pledge or mortgage considered sufficient to cover his
obligation shall be admitted in lieu thereof.
Article 2084. A judicial bondsman cannot demand the exhaustion of the property of
the principal debtor.
A sub-surety in the same case, cannot demand the exhaustion of the property of the
debtor or of the surety.
MORTGAGE
 TITLE XVI
PLEDGE, MORTGAGE AND ANTICHRESIS
CHAPTER 1
Provisions Common to Pledge and Mortgage
Article 2085. The following requisites are essential to the contracts of pledge and
mortgage:
1. That they be constituted to secure the fulfillment of a principal obligation;
2. That the pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged;
3. That the persons constituting the pledge or mortgage have the free disposal
of their property, and in the absence thereof, that they be legally authorized
for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property. (1857)
Article 2086. The provisions of article 2052 are applicable to a pledge or mortgage.
Article 2087. It is also of the essence of these contracts that when the principal
obligation becomes due, the things in which the pledge or mortgage consists may be
alienated for the payment to the creditor.
Article 2088. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void.
Article 2089. A pledge or mortgage is indivisible, even though the debt may be
divided among the successors in interest of the debtor or of the creditor.
Therefore, the debtor's heir who has paid a part of the debt cannot ask for the
proportionate extinguishment of the pledge or mortgage as long as the debt is not
completely satisfied.
Neither can the creditor's heir who received his share of the debt return the pledge or
cancel the mortgage, to the prejudice of the other heirs who have not been paid.
From these provisions is excepted the case in which, there being several things given
in mortgage or pledge, each one of them guarantees only a determinate portion of the
credit.
8
The debtor, in this case, shall have a right to the extinguishment of the pledge or
mortgage as the portion of the debt for which each thing is specially answerable is
satisfied.
Article 2090. The indivisibility of a pledge or mortgage is not affected by the fact that
the debtors are not solidarily liable. (n)
Article 2091. The contract of pledge or mortgage may secure all kinds of obligations,
be they pure or subject to a suspensive or resolutory condition.
Article 2092. A promise to constitute a pledge or mortgage gives rise only to a
personal action between the contracting parties, without prejudice to the criminal
responsibility incurred by him who defrauds another, by offering in pledge or
mortgage as unencumbered, things which he knew were subject to some burden, or by
misrepresenting himself to be the owner of the same.
CHAPTER 3
Mortgage
Article 2124. Only the following property may be the object of a contract of mortgage:
1. Immovables;
2. Alienable real rights in accordance with the laws, imposed upon immovables.
Nevertheless, movables may be the object of a chattel mortgage.
Article 2125. In addition to the requisites stated in article 2085, it is indispensable, in
order that a mortgage may be validly constituted, that the document in which it appears
be recorded in the Registry of Property. If the instrument is not recorded, the mortgage
is nevertheless binding between the parties.
The persons in whose favor the law establishes a mortgage have no other right than to
demand the execution and the recording of the document in which the mortgage is
formalized.
Article 2126. The mortgage directly and immediately subjects the property upon
which it is imposed, whoever the possessor may be, to the fulfillment of the obligation
for whose security it was constituted.
Article 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation becomes
due, and to the amount of the indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of expropriation for public use, with
the declarations, amplifications and limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes into the hands of a third person.
Article 2128. The mortgage credit may be alienated or assigned to a third person, in
whole or in part, with the formalities required by law.
Article 2129. The creditor may claim from a third person in possession of the
mortgaged property, the payment of the part of the credit secured by the property
which said third person possesses, in the terms and with the formalities which the law
establishes.
Article 2130. A stipulation forbidding the owner from alienating the immovable
mortgaged shall be void.
Article 2131. The form, extent and consequences of a mortgage, both as to its
constitution, modification and extinguishment, and as to other matters not included in
this Chapter, shall be governed by the provisions of the Mortgage Law and of the Land
Registration Law.
CONCURRENCE AND PREFERENCE OF CREDITS
TITLE XII
CONCURRENCE AND PREFERENCE OF CREDITS
CHAPTER 1
General Provisions
Article 2236. The debtor is liable with all his property, present and future, for the
fulfillment of his obligations, subject to the exemptions provided by law.
Article 2237. Insolvency shall be governed by special laws insofar as they are not
inconsistent with this Code.
Article 2238. So long as the conjugal partnership or absolute community subsists, its
property shall not be among the assets to be taken possession of by the assignee for
the payment of the insolvent debtor's obligations, except insofar as the latter have
redounded to the benefit of the family. If it is the husband who is insolvent, the
administration of the conjugal partnership or absolute community may, by order of the
court, be transferred to the wife or to a third person other than the assignee.
Article 2239. If there is property, other than that mentioned in the preceding article,
owned by two or more persons, one of whom is the insolvent debtor, his undivided
share or interest therein shall be among the assets to be taken possession of by the
assignee for the payment of the insolvent debtor's obligations.
Article 2240. Property held by the insolvent debtor as a trustee of an express or
implied trust, shall be excluded from the insolvency proceedings.
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CHAPTER 2
Classification of Credits
Article 2241. With reference to specific movable property of the debtor, the following
claims or liens shall be preferred:
1. Duties, taxes and fees due thereon to the State or any subdivision thereof;
2. Claims arising from misappropriation, breach of trust, or malfeasance by
public officials committed in the performance of their duties, on the
movables, money or securities obtained by them;
3. Claims for the unpaid price of movables sold, on said movables, so long as
they are in the possession of the debtor, up to the value of the same; and if
the movable has been resold by the debtor and the price is still unpaid, the
lien may be enforced on the price; this right is not lost by the immobilization
of the thing by destination, provided it has not lost its form, substance and
identity; neither is the right lost by the sale of the thing together with other
property for a lump sum, when the price thereof can be determined
proportionally;
4. Credits guaranteed with a pledge so long as the things pledged are in the
hands of the creditor, or those guaranteed by a chattel mortgage, upon the
things pledged or mortgaged, up to the value thereof;
5. Credits for the making, repair, safekeeping or preservation of personal
property, on the movable thus made, repaired, kept or possessed;
6. Claims for laborers' wages, on the goods manufactured or the work done;
7. For expenses of salvage, upon the goods salvaged;
8. Credits between the landlord and the tenant, arising from the contract of
tenancy on shares, on the share of each in the fruits or harvest;
9. Credits for transportation, upon the goods carried, for the price of the contract
and incidental expenses, until their delivery and for thirty days thereafter;
10. Credits for lodging and supplies usually furnished to travellers by hotel
keepers, on the movables belonging to the guest as long as such movables are
in the hotel, but not for money loaned to the guests;
11. Credits for seeds and expenses for cultivation and harvest advanced to the
debtor, upon the fruits harvested;
12. Credits for rent for one year, upon the personal property of the lessee existing
on the immovable leased and on the fruits of the same, but not on money or
instruments of credit;
13. Claims in favor of the depositor if the depositary has wrongfully sold the
thing deposited, upon the price of the sale.
In the foregoing cases, if the movables to which the lien or preference attaches have
been wrongfully taken, the creditor may demand them from any possessor, within
thirty days from the unlawful seizure.
Article 2242. With reference to specific immovable property and real rights of the
debtor, the following claims, mortgages and liens shall be preferred, and shall
constitute an encumbrance on the immovable or real right:
1. Taxes due upon the land or building;
2. For the unpaid price of real property sold, upon the immovable sold;
3. Claims of laborers, masons, mechanics and other workmen, as well as of
architects, engineers and contractors, engaged in the construction,
reconstruction or repair of buildings, canals or other works, upon said
buildings, canals or other works;
4. Claims of furnishers of materials used in the construction, reconstruction, or
repair of buildings, canals or other works, upon said buildings, canals or other
works;
5. Mortgage credits recorded in the Registry of Property, upon the real estate
mortgaged;
6. Expenses for the preservation or improvement of real property when the law
authorizes reimbursement, upon the immovable preserved or improved;
7. Credits annotated in the Registry of Property, in virtue of a judicial order, by
attachments or executions, upon the property affected, and only as to later
credits;
8. Claims of co-heirs for warranty in the partition of an immovable among them,
upon the real property thus divided;
9. Claims of donors or real property for pecuniary charges or other conditions
imposed upon the donee, upon the immovable donated;
10. Credits of insurers, upon the property insured, for the insurance premium for
two years.
Article 2243. The claims or credits enumerated in the two preceding articles shall be
considered as mortgages or pledges of real or personal property, or liens within the
purview of legal provisions governing insolvency. Taxes mentioned in No. 1, article
2241, and No. 1, article 2242, shall first be satisfied.
Article 2244. With reference to other property, real and personal, of the debtor, the
following claims or credits shall be preferred in the order named:
1. Proper funeral expenses for the debtor, or children under his or her parental
authority who have no property of their own, when approved by the court;
2. Credits for services rendered the insolvent by employees, laborers, or
household helpers for one year preceding the commencement of the
proceedings in insolvency;
3. Expenses during the last illness of the debtor or of his or her spouse and
children under his or her parental authority, if they have no property of their
own;
4. Compensation due the laborers or their dependents under laws providing for
indemnity for damages in cases of labor accident, or illness resulting from the
nature of the employment;
10
5. Credits and advancements made to the debtor for support of himself or
herself, and family, during the last year preceding the insolvency;
6. Support during the insolvency proceedings, and for three months thereafter;
7. Fines and civil indemnification arising from a criminal offense;
8. Legal expenses, and expenses incurred in the administration of the insolvent's
estate for the common interest of the creditors, when properly authorized and
approved by the court;
9. Taxes and assessments due the national government, other than those
mentioned in articles 2241, No. 1, and 2242, No. 1;
10. Taxes and assessments due any province, other than those referred to in
articles 2241, No. 1, and 2242, No. 1;
11. Taxes and assessments due any city or municipality, other than those
indicated in articles 2241, No. 1, and 2242, No. 1;
12. Damages for death or personal injuries caused by a quasi-delict;
13. Gifts due to public and private institutions of charity or beneficence;
14. Credits which, without special privilege, appear in (a) a public instrument; or
(b) in a final judgment, if they have been the subject of litigation. These
credits shall have preference among themselves in the order of priority of the
dates of the instruments and of the judgments, respectively.
Article 2245. Credits of any other kind or class, or by any other right or title not
comprised in the four preceding articles, shall enjoy no preference. (1925)
CHAPTER 3
Order of Preference of Credits
Article 2246. Those credits which enjoy preference with respect to specific movables,
exclude all others to the extent of the value of the personal property to which the
preference refers.
Article 2247. If there are two or more credits with respect to the same specific movable
property, they shall be satisfied pro rata, after the payment of duties, taxes and fees
due the State or any subdivision thereof.
Article 2248. Those credits which enjoy preference in relation to specific real property
or real rights, exclude all others to the extent of the value of the immovable or real
right to which the preference refers.
Article 2249. If there are two or more credits with respect to the same specific real
property or real rights, they shall be satisfied pro rata, after the payment of the taxes
and assessments upon the immovable property or real right.
Article 2250. The excess, if any, after the payment of the credits which enjoy
preference with respect to specific property, real or personal, shall be added to the free
property which the debtor may have, for the payment of the other credits.

Article 2251. Those credits which do not enjoy any preference with respect to specific
property, and those which enjoy preference, as to the amount not paid, shall be satisfied
according to the following rules:
1. In the order established in article 2244;
2. Common credits referred to in article 2245 shall be paid pro rata regardless
of dates.

11
 LAWS AND REGULATIONS
THE INSURANCE CODE
P.D. No. 612 as amended by R.A. No. 10607
GENERAL PROVISIONS
SECTION 1. This Decree shall be known as ‘The Insurance Code’.
SEC. 2. Whenever used in this Code, the following terms shall have the respective
meanings hereinafter set forth or indicated, unless the context otherwise requires:
(a) A contract of insurance is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event.
A contract of suretyship shall be deemed to be an insurance contract, within the
meaning of this Code, only if made by a surety who or which, as such, is doing
an insurance business as hereinafter provided.
(b) The term doing an insurance business or transacting an insurance business,
within the meaning of this Code, shall include:
1. Making or proposing to make, as insurer, any insurance contract;
2. Making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety;
3. Doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the
meaning of this Code;
4. Doing or proposing to do any business in substance equivalent to any of
the foregoing in a manner designed to evade the provisions of this Code.
In the application of the provisions of this Code, the fact that no profit is
derived from the making of insurance contracts, agreements or transactions
or that no separate or direct consideration is received therefor, shall not be
deemed conclusive to show that the making thereof does not constitute the
doing or transacting of an insurance business.
(c) As used in this Code, the term Commissioner means the Insurance
Commissioner.
CHAPTER I
THE CONTRACT OF INSURANCE
TITLE 1
12
What May Be Insured
SEC. 3. Any contingent or unknown event, whether past or future, which may damnify
a person having an insurable interest, or create a liability against him, may be insured
against, subject to the provisions of this chapter.
The consent of the spouse is not necessary for the validity of an insurance policy taken
out by a married person on his or her life or that of his or her children.
All rights, title and interest in the policy of insurance taken out by an original owner
on the life or health of the person insured shall automatically vest in the latter upon the
death of the original owner, unless otherwise provided for in the policy.
SEC. 4. The preceding section does not authorize an insurance for or against the
drawing of any lottery, or for or against any chance or ticket in a lottery drawing a
prize.
SEC. 5. All kinds of insurance are subject to the provisions of this chapter so far as
the provisions can apply.
TITLE 2
Parties To The Contract
SEC. 6. Every corporation, partnership, or association, duly authorized to transact
insurance business as elsewhere provided in this Code, may be an insurer.
SEC. 7. Anyone except a public enemy may be insured.
SEC. 8. Unless the policy otherwise provides, where a mortgagor of property effects
insurance in his own name providing that the loss shall be payable to the mortgagee,
or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon
the interest of the mortgagor, who does not cease to be a party to the original contract,
and any act of his, prior to the loss, which would otherwise avoid the insurance, will
have the same effect, although the property is in the hands of the mortgagee, but any
act which, under the contract of insurance, is to be performed by the mortgagor, may
be performed by the mortgagee therein named, with the same effect as if it had been
performed by the mortgagor.
SEC. 9. If an insurer assents to the transfer of an insurance from a mortgagor to a
mortgagee, and, at the time of his assent, imposes further obligations on the assignee,
making a new contract with him, the acts of the mortgagor cannot affect the rights of
said assignee.
TITLE 3
Insurable Interest
SEC. 10. Every person has an insurable interest in the life and health:
 (a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in part for education or support,
or in whom he has a pecuniary interest;
(c) Of any person under a legal obligation to him for the payment of money, or
respecting property or services, of which death or illness might delay or
prevent the performance; and
(d) Of any person upon whose life any estate or interest vested in him depends.
SEC. 11. The insured shall have the right to change the beneficiary he designated in
the policy, unless he has expressly waived this right in said policy. Notwithstanding
the foregoing, in the event the insured does not change the beneficiary during his
lifetime, the designation shall be deemed irrevocable.
SEC. 12. The interest of a beneficiary in a life insurance policy shall be forfeited when
the beneficiary is the principal, accomplice, or accessory in willfully bringing about
the death of the insured. In such a case, the share forfeited shall pass on to the other
beneficiaries, unless otherwise disqualified. In the absence of other beneficiaries, the
proceeds shall be paid in accordance with the policy contract. If the policy contract is
silent, the proceeds shall be paid to the estate of the insured.
SEC. 13. Every interest in property, whether real or personal, or any relation thereto,
or liability in respect thereof, of such nature that a contemplated peril might directly
damnify the insured, is an insurable interest.
SEC. 14. An insurable interest in property may consist in:
(a) An existing interest;
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that out of which the
expectancy arises.
SEC. 15. A carrier or depository of any kind has an insurable interest in a thing held
by him as such, to the extent of his liability but not to exceed the value thereof.
SEC. 16. A mere contingent or expectant interest in any thing, not founded on an
actual right to the thing, nor upon any valid contract for it, is not insurable.
SEC. 17. The measure of an insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof.
SEC. 18. No contract or policy of insurance on property shall be enforceable except
for the benefit of some person having an insurable interest in the property insured.
SEC. 19. An interest in property insured must exist when the insurance takes effect,
and when the loss occurs, but need not exist in the meantime; and interest in the life or
13
health of a person insured must exist when the insurance takes effect, but need not
exist thereafter or when the loss occurs.
SEC. 20. Except in the cases specified in the next four sections, and in the cases of
life, accident, and health insurance, a change of interest in any part of a thing insured
unaccompanied by a corresponding change of interest in the insurance, suspends the
insurance to an equivalent extent, until the interest in the thing and the interest in the
insurance are vested in the same person.
SEC. 21. A change of interest in a thing insured, after the occurrence of an injury
which results in a loss, does not affect the right of the insured to indemnity for the loss.
SEC. 22. A change of interest in one or more of several distinct things, separately
insured by one policy, does not avoid the insurance as to the others.
SEC. 23. A change of interest, by will or succession, on the death of the insured, does
not avoid an insurance; and his interest in the insurance passes to the person taking his
interest in the thing insured.
SEC. 24. A transfer of interest by one of several partners, joint owners, or owners in
common, who are jointly insured, to the others, does not avoid an insurance even
though it has been agreed that the insurance shall cease upon an alienation of the thing
insured.
SEC. 25. Every stipulation in a policy of insurance for the payment of loss whether
the person insured has or has not any interest in the property insured, or that the policy
shall be received as proof of such interest, and every policy executed by way of gaming
or wagering, is void.
TITLE 4
Concealment
SEC. 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.
SEC. 27. A concealment whether intentional or unintentional entitles the injured party
to rescind a contract of insurance.
SEC. 28. Each party to a contract of insurance must communicate to the other, in good
faith, all facts within his knowledge which are material to the contract and as to which
he makes no warranty, and which the other has not the means of ascertaining.
SEC. 29. An intentional and fraudulent omission, on the part of one insured, to
communicate information of matters proving or tending to prove the falsity of a
warranty, entitles the insurer to rescind.
SEC. 30. Neither party to a contract of insurance is bound to communicate information
of the matters following, except in answer to the inquiries of the other:
(a) Those which the other knows;
(b) Those which, in the exercise of ordinary care, the other ought to know, and
of which the former has no reason to suppose him ignorant;
(c) Those of which the other waives communication;
(d) Those which prove or tend to prove the existence of a risk excluded by a
warranty, and which are not otherwise material; and
(e) Those which relate to a risk excepted from the policy and which are not
otherwise material.
SEC. 31. Materiality is to be determined not by the event, but solely by the probable
and reasonable influence of the facts upon the party to whom the communication is
due, in forming his estimate of the disadvantages of the proposed contract, or in
making his inquiries.
SEC. 32. Each party to a contract of insurance is bound to know all the general causes
which are open to his inquiry, equally with that of the other, and which may affect the
political or material perils contemplated; and all general usages of trade.
SEC. 33. The right to information of material facts may be waived, either by the terms
of insurance or by neglect to make inquiry as to such facts, where they are distinctly
implied in other facts of which information is communicated.
SEC. 34. Information of the nature or amount of the interest of one insured need not
be communicated unless in answer to an inquiry, except as prescribed by Section 51.
SEC. 35. Neither party to a contract of insurance is bound to communicate, even upon
inquiry, information of his own judgment upon the matters in question.
TITLE 5
Representation
SEC. 36. A representation may be oral or written.
SEC. 37. A representation may be made at the time of, or before, issuance of the
policy.
SEC. 38. The language of a representation is to be interpreted by the same rules as the
language of contracts in general.
SEC. 39. A representation as to the future is to be deemed a promise, unless it appears
that it was merely a statement of belief or expectation.
14
SEC. 40. A representation cannot qualify an express provision in a contract of
insurance, but it may qualify an implied warranty.
SEC. 41. A representation may be altered or withdrawn before the insurance is
effected, but not afterwards.
SEC. 42. A representation must be presumed to refer to the date on which the contract
goes into effect.
SEC. 43. When a person insured has no personal knowledge of a fact, he may
nevertheless repeat information which he has upon the subject, and which he believes
to be true, with the explanation that he does so on the information of others; or he may
submit the information, in its whole extent, to the insurer; and in neither case is he
responsible for its truth, unless it proceeds from an agent of the insured, whose duty it
is to give the information.
SEC. 44. A representation is to be deemed false when the facts fail to correspond with
its assertions or stipulations.
SEC. 45. If a representation is false in a material point, whether affirmative or
promissory, the injured party is entitled to rescind the contract from the time when the
representation becomes false.
SEC. 46. The materiality of a representation is determined by the same rules as the
materiality of a concealment.
SEC. 47. The provisions of this chapter apply as well to a modification of a contract
of insurance as to its original formation.
SEC. 48. Whenever a right to rescind a contract of insurance is given to the insurer by
any provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two (2) years from the
date of its issue or of its last reinstatement, the insurer cannot prove that the policy is
void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
TITLE 6
The Policy
SEC. 49. The written instrument in which a contract of insurance is set forth, is called
a policy of insurance.
SEC. 50. The policy shall be in printed form which may contain blank spaces; and any
word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to
complete the contract of insurance shall be written on the blank spaces provided
therein.
Any rider, clause, warranty or endorsement purporting to be part of the contract of
insurance and which is pasted or attached to said policy is not binding on the insured,
unless the descriptive title or name of the rider, clause, warranty or endorsement is also
mentioned and written on the blank spaces provided in the policy.
Unless applied for by the insured or owner, any rider, clause, warranty or endorsement
issued after the original policy shall be countersigned by the insured or owner, which
countersignature shall be taken as his agreement to the contents of such rider, clause,
warranty or endorsement.
Notwithstanding the foregoing, the policy may be in electronic form subject to the
pertinent provisions of Republic Act No. 8792, otherwise known as the ‘Electronic
Commerce Act’ and to such rules and regulations as may be prescribed by the
Commissioner.
SEC. 51. A policy of insurance must specify:
(a) The parties between whom the contract is made;
(b) The amount to be insured except in the cases of open or running policies;
(c) The premium, or if the insurance is of a character where the exact premium
is only determinable upon the termination of the contract, a statement of the
basis and rates upon which the final premium is to be determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not the absolute owner
thereof;
(f) The risks insured against; and
(g) The period during which the insurance is to continue.
SEC. 52. Cover notes may be issued to bind insurance temporarily pending the
issuance of the policy. Within sixty (60) days after issue of a cover note, a policy shall
be issued in lieu thereof, including within its terms the identical insurance bound under
the cover note and the premium therefor.
Cover notes may be extended or renewed beyond such sixty (60) days with the written
approval of the Commissioner if he determines that such extension is not contrary to
and is not for the purpose of violating any provisions of this Code. The Commissioner
may promulgate rules and regulations governing such extensions for the purpose of
preventing such violations and may by such rules and regulations dispense with the
requirement of written approval by him in the case of extension in compliance with
such rules and regulations.
15
SEC. 53. The insurance proceeds shall be applied exclusively to the proper interest of
the person in whose name or for whose benefit it is made unless otherwise specified
in the policy.
SEC. 54. When an insurance contract is executed with an agent or trustee as the
insured, the fact that his principal or beneficiary is the real party in interest may be
indicated by describing the insured as agent or trustee, or by other general words in
the policy.
SEC. 55. To render an insurance effected by one partner or part-owner, applicable to
the interest of his co-partners or other part-owners, it is necessary that the terms of the
policy should be such as are applicable to the joint or common interest.
SEC. 56. When the description of the insured in a policy is so general that it may
comprehend any person or any class of persons, only he who can show that it was
intended to include him, can claim the benefit of the policy.
SEC. 57. A policy may be so framed that it will inure to the benefit of whomsoever,
during the continuance of the risk, may become the owner of the interest insured.
SEC. 58. The mere transfer of a thing insured does not transfer the policy, but suspends
it until the same person becomes the owner of both the policy and the thing insured.
SEC. 59. A policy is either open, valued or running.
SEC. 60. An open policy is one in which the value of the thing insured is not agreed
upon, and the amount of the insurance merely represents the insurer’s maximum
liability. The value of such thing insured shall be ascertained at the time of the loss.
SEC. 61. A valued policy is one which expresses on its face an agreement that the
thing insured shall be valued at a specific sum.
SEC. 62. A running policy is one which contemplates successive insurances, and
which provides that the object of the policy may be from time to time defined,
especially as to the subjects of insurance, by additional statements or indorsements.
SEC. 63. A condition, stipulation, or agreement in any policy of insurance, limiting
the time for commencing an action thereunder to a period of less than one (1) year
from the time when the cause of action accrues, is void.
SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except
upon prior notice thereof to the insured, and no notice of cancellation shall be effective
unless it is based on the occurrence, after the effective date of the policy, of one or
more of the following:
(a) Nonpayment of premium;
 (b) Conviction of a crime arising out of acts increasing the hazard insured
against;
(c) Discovery of fraud or material misrepresentation;
(d) Discovery of willful or reckless acts or omissions increasing the hazard
insured against;
(e) Physical changes in the property insured which result in the property
becoming uninsurable;
(f) Discovery of other insurance coverage that makes the total insurance in
excess of the value of the property insured; or
(g) A determination by the Commissioner that the continuation of the policy
would violate or would place the insurer in violation of this Code.
SEC. 65. All notices of cancellation mentioned in the preceding section shall be in
writing, mailed or delivered to the named insured at the address shown in the policy,
or to his broker provided the broker is authorized in writing by the policy owner to
receive the notice of cancellation on his behalf, and shall state:
(a) Which of the grounds set forth in Section 64 is relied upon; and
(b) That, upon written request of the named insured, the insurer will furnish the
facts on which the cancellation is based.
SEC. 66. In case of insurance other than life, unless the insurer at least forty-five (45)
days in advance of the end of the policy period mails or delivers to the named insured
at the address shown in the policy notice of its intention not to renew the policy or to
condition its renewal upon reduction of limits or elimination of coverages, the named
insured shall be entitled to renew the policy upon payment of the premium due on the
effective date of the renewal. Any policy written for a term of less than one (1) year
shall be considered as if written for a term of one (1) year. Any policy written for a
term longer than one (1) year or any policy with no fixed expiration date shall be
considered as if written for successive policy periods or terms of one (1) year.
TITLE 7
Warranties
SEC. 67. A warranty is either expressed or implied.
SEC. 68. A warranty may relate to the past, the present, the future, or to any or all of
these.
SEC. 69. No particular form of words is necessary to create a warranty.
SEC. 70. Without prejudice to Section 51, every express warranty, made at or before
the execution of a policy, must be contained in the policy itself, or in another
instrument signed by the insured and referred to in the policy as making a part of it.
16
SEC. 71. A statement in a policy, of a matter relating to the person or thing insured,
or to the risk, as fact, is an express warranty thereof.
SEC. 72. A statement in a policy, which imparts that it is intended to do or not to do a
thing which materially affects the risk, is a warranty that such act or omission shall
take place.
SEC. 73. When, before the time arrives for the performance of a warranty relating to
the future, a loss insured against happens, or performance becomes unlawful at the
place of the contract, or impossible, the omission to fulfill the warranty does not avoid
the policy.
SEC. 74. The violation of a material warranty, or other material provision of a policy,
on the part of either party thereto, entitles the other to rescind.
SEC. 75. A policy may declare that a violation of specified provisions thereof shall
avoid it, otherwise the breach of an immaterial provision does not avoid the policy.
SEC. 76. A breach of warranty without fraud merely exonerates an insurer from the
time that it occurs, or where it is broken in its inception, prevents the policy from
attaching to the risk.
TITLE 8
Premium
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured
is exposed to the peril insured against. Notwithstanding any agreement to the contrary,
no policy or contract of insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision applies, or whenever under
the broker and agency agreements with duly licensed intermediaries, a ninety (90)-day
credit extension is given. No credit extension to a duly licensed intermediary should
exceed ninety (90) days from date of issuance of the policy.
SEC. 78. Employees of the Republic of the Philippines, including its political
subdivisions and instrumentalities, and government-owned or -controlled
corporations, may pay their insurance premiums and loan obligations through salary
deduction: Provided, That the treasurer, cashier, paymaster or official of the entity
employing the government employee is authorized, notwithstanding the provisions of
any existing law, rules and regulations to the contrary, to make deductions from the
salary, wage or income of the latter pursuant to the agreement between the insurer and
the government employee and to remit such deductions to the insurer concerned, and
collect such reasonable fee for its services.
SEC. 79. An acknowledgment in a policy or contract of insurance or the receipt of
premium is conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until the premium
is actually paid.
SEC. 80. A person insured is entitled to a return of premium, as follows:
(a) To the whole premium if no part of his interest in the thing insured be exposed
to any of the perils insured against;
(b) Where the insurance is made for a definite period of time and the insured
surrenders his policy, to such portion of the premium as corresponds with the
unexpired time, at a pro rata rate, unless a short period rate has been agreed
upon and appears on the face of the policy, after deducting from the whole
premium any claim for loss or damage under the policy which has previously
accrued: Provided, That no holder of a life insurance policy may avail himself
of the privileges of this paragraph without sufficient cause as otherwise
provided by law.
SEC. 81. If a peril insured against has existed, and the insurer has been liable for any
period, however short, the insured is not entitled to return of premiums, so far as that
particular risk is concerned.
SEC. 82. A person insured is entitled to a return of the premium when the contract is
voidable, and subsequently annulled under the provisions of the Civil Code; or on
account of the fraud or misrepresentation of the insurer, or of his agent, or on account
of facts, or the existence of which the insured was ignorant of without his fault; or
when by any default of the insured other than actual fraud, the insurer never incurred
any liability under the policy.
A person insured is not entitled to a return of premium if the policy is annulled,
rescinded or if a claim is denied by reason of fraud.
SEC. 83. In case of an over insurance by several insurers other than life, the insured
is entitled to a ratable return of the premium, proportioned to the amount by which the
aggregate sum insured in all the policies exceeds the insurable value of the thing at
risk.
SEC. 84. An insurer may contract and accept payments, in addition to regular
premium, for the purpose of paying future premiums on the policy or to increase the
benefits thereof.
TITLE 9
Loss
SEC. 85. An agreement not to transfer the claim of the insured against the insurer after
the loss has happened, is void if made before the loss except as otherwise provided in
the case of life insurance.
17
SEC. 86. Unless otherwise provided by the policy, an insurer is liable for a loss of
which a peril insured against was the proximate cause, although a peril not
contemplated by the contract may have been a remote cause of the loss; but he is not
liable for a loss of which the peril insured against was only a remote cause.
SEC. 87. An insurer is liable where the thing insured is rescued from a peril insured
against that would otherwise have caused a loss, if, in the course of such rescue, the
thing is exposed to a peril not insured against, which permanently deprives the insured
of its possession, in whole or in part; or where a loss is caused by efforts to rescue the
thing insured from a peril insured against.
SEC. 88. Where a peril is especially excepted in a contract of insurance, a loss, which
would not have occurred but for such peril, is thereby excepted although the immediate
cause of the loss was a peril which was not excepted.
SEC. 89. An insurer is not liable for a loss caused by the willful act or through the
connivance of the insured; but he is not exonerated by the negligence of the insured,
or of the insurance agents or others.
TITLE 10
Notice Of Loss
SEC. 90. In case of loss upon an insurance against fire, an insurer is exonerated, if
written notice thereof be not given to him by an insured, or some person entitled to the
benefit of the insurance, without unnecessary delay. For other non-life insurance, the
Commissioner may specify the period for the submission of the notice of loss.
SEC. 91. When a preliminary proof of loss is required by a policy, the insured is not
bound to give such proof as would be necessary in a court of justice; but it is sufficient
for him to give the best evidence which he has in his power at the time.
SEC. 92. All defects in a notice of loss, or in preliminary proof thereof, which the
insured might remedy, and which the insurer omits to specify to him, without
unnecessary delay, as grounds of objection, are waived.
SEC. 93. Delay in the presentation to an insurer of notice or proof of loss is waived if
caused by any act of him, or if he omits to take objection promptly and specifically
upon that ground.
SEC. 94. If the policy requires, by way of preliminary proof of loss, the certificate or
testimony of a person other than the insured, it is sufficient for the insured to use
reasonable diligence to procure it, and in case of the refusal of such person to give it,
then to furnish reasonable evidence to the insurer that such refusal was not induced by
any just grounds of disbelief in the facts necessary to be certified or testified.
Title 11
 Double Insurance
SEC. 95. A double insurance exists where the same person is insured by several
insurers separately in respect to the same subject and interest.
SEC. 96. Where the insured in a policy other than life is over insured by double
insurance:
(a) The insured, unless the policy otherwise provides, may claim payment from
the insurers in such order as he may select, up to the amount for which the
insurers are severally liable under their respective contracts;
(b) Where the policy under which the insured claims is a valued policy, any sum
received by him under any other policy shall be deducted from the value of
the policy without regard to the actual value of the subject matter insured;
(c) Where the policy under which the insured claims is an unvalued policy, any
sum received by him under any policy shall be deducted against the full
insurable value, for any sum received by him under any policy;
(d) Where the insured receives any sum in excess of the valuation in the case of
valued policies, or of the insurable value in the case of unvalued policies, he
must hold such sum in trust for the insurers, according to their right of
contribution among themselves;
(e) Each insurer is bound, as between himself and the other insurers, to contribute
ratably to the loss in proportion to the amount for which he is liable under his
contract.
TITLE 12
Reinsurance
SEC. 97. A contract of reinsurance is one by which an insurer procures a third person
to insure him against loss or liability by reason of such original insurance.
SEC. 98. Where an insurer obtains reinsurance, except under automatic reinsurance
treaties, he must communicate all the representations of the original insured, and also
all the knowledge and information he possesses, whether previously or subsequently
acquired, which are material to the risk.
SEC. 99. A reinsurance is presumed to be a contract of indemnity against liability, and
not merely against damage.
SEC. 100. The original insured has no interest in a contract of reinsurance.
CHAPTER II
CLASSES OF INSURANCE
TITLE I
Marine Insurance
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SUB-TITLE 1-A
Definition
SEC. 101. Marine Insurance includes:
(a) Insurance against loss of or damage to:
(1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise,
effects, disbursements, profits, moneys, securities, choses in action,
instruments of debts, valuable papers, bottomry, and respondentia
interests and all other kinds of property and interests therein, in respect
to, appertaining to or in connection with any and all risks or perils of
navigation, transit or transportation, or while being assembled, packed,
crated, baled, compressed or similarly prepared for shipment or while
awaiting shipment, or during any delays, storage, transhipment, or
reshipment incident thereto, including war risks, marine builder’s risks,
and all personal property floater risks;
(2) Person or property in connection with or appertaining to a marine, inland
marine, transit or transportation insurance, including liability for loss of
or damage arising out of or in connection with the construction, repair,
operation, maintenance or use of the subject matter of such insurance
(but not including life insurance or surety bonds nor insurance against
loss by reason of bodily injury to any person arising out of ownership,
maintenance, or use of automobiles);
(3) Precious stones, jewels, jewelry, precious metals, whether in course of
transportation or otherwise; and
(4) Bridges, tunnels and other instrumentalities of transportation and
communication (excluding buildings, their furniture and furnishings,
fixed contents and supplies held in storage); piers, wharves, docks and
slips, and other aids to navigation and transportation, including dry docks
and marine railways, dams and appurtenant facilities for the control of
waterways.
(b) Marine protection and indemnity insurance, meaning insurance against, or
against legal liability of the insured for loss, damage, or expense incident to
ownership, operation, chartering, maintenance, use, repair, or construction of
any vessel, craft or instrumentality in use of ocean or inland waterways,
including liability of the insured for personal injury, illness or death or for
loss of or damage to the property of another person.
SUB-TITLE 1-B
Insurable Interest
SEC. 102. The owner of a ship has in all cases an insurable interest in it, even when it
has been chartered by one who covenants to pay him its value in case of loss: Provided,
That in this case the insurer shall be liable for only that part of the loss which the
insured cannot recover from the charterer.

SEC. 103. The insurable interest of the owner of the ship hypothecated by bottomry is
only the excess of its value over the amount secured by bottomry.
SEC. 104. Freightage, in the sense of a policy of marine insurance, signifies all the
benefits derived by the owner, either from the chartering of the ship or its employment
for the carriage of his own goods or those of others.
SEC. 105. The owner of a ship has an insurable interest in expected freightage which
according to the ordinary and probable course of things he would have earned but for
the intervention of a peril insured against or other peril incident to the voyage.
SEC. 106. The interest mentioned in the last section exists, in case of a charter party,
when the ship has broken ground on the chartered voyage. If a price is to be paid for
the carriage of goods it exists when they are actually on board, or there is some contract
for putting them on board, and both ship and goods are ready for the specified voyage.
SEC. 107. One who has an interest in the thing from which profits are expected to
proceed has an insurable interest in the profits.
SEC. 108. The charterer of a ship has an insurable interest in it, to the extent that he is
liable to be damnified by its loss.
SUB-TITLE 1-C
Concealment
SEC. 109. In marine insurance, each party is bound to communicate, in addition to
what is required by Section 28, all the information which he possesses, material to the
risk, except such as is mentioned in Section 30, and to state the exact and whole truth
in relation to all matters that he represents, or upon inquiry discloses or assumes to
disclose.
SEC. 110. In marine insurance, information of the belief or expectation of a third
person, in reference to a material fact, is material.
SEC. 111. A person insured by a contract of marine insurance is presumed to have
knowledge, at the time of insuring, of a prior loss, if the information might possibly
have reached him in the usual mode of transmission and at the usual rate of
communication.
SEC. 112. A concealment in a marine insurance, in respect to any of the following
matters, does not vitiate the entire contract, but merely exonerates the insurer from a
loss resulting from the risk concealed:
(a) The national character of the insured;
(b) The liability of the thing insured to capture and detention;
(c) The liability to seizure from breach of foreign laws of trade;
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(d) The want of necessary documents; and
(e) The use of false and simulated papers.
SUB-TITLE 1-D
Representation
SEC. 113. If a representation by a person insured by a contract of marine insurance, is
intentionally false in any material respect, or in respect of any fact on which the
character and nature of the risk depends, the insurer may rescind the entire contract.
SEC. 114. The eventual falsity of a representation as to expectation does not, in the
absence of fraud, avoid a contract of marine insurance.
SUB-TITLE 1-E
Implied Warranties
SEC. 115. In every marine insurance upon a ship or freight, or freightage, or upon any
thing which is the subject of marine insurance, a warranty is implied that the ship is
seaworthy.
SEC. 116. A ship is seaworthy when reasonably fit to perform the service and to
encounter the ordinary perils of the voyage contemplated by the parties to the policy.
SEC. 117. An implied warranty of seaworthiness is complied with if the ship be
seaworthy at the time of the commencement of the risk, except in the following cases:
(a) When the insurance is made for a specified length of time, the implied
warranty is not complied with unless the ship be seaworthy at the
commencement of every voyage it undertakes during that time;
(b) When the insurance is upon the cargo which, by the terms of the policy,
description of the voyage, or established custom of the trade, is to be
transhipped at an intermediate port, the implied warranty is not complied with
unless each vessel upon which the cargo is shipped, or transhipped, be
seaworthy at the commencement of each particular voyage.
SEC. 118. A warranty of seaworthiness extends not only to the condition of the
structure of the ship itself, but requires that it be properly laden, and provided with a
competent master, a sufficient number of competent officers and seamen, and the
requisite appurtenances and equipment, such as ballasts, cables and anchors, cordage
and sails, food, water, fuel and lights, and other necessary or proper stores and
implements for the voyage.
SEC. 119. Where different portions of the voyage contemplated by a policy differ in
respect to the things requisite to make the ship seaworthy therefor, a warranty of
seaworthiness is complied with if, at the commencement of each portion, the ship is
seaworthy with reference to that portion.
SEC. 120. When the ship becomes unseaworthy during the voyage to which an
insurance relates, an unreasonable delay in repairing the defect exonerates the insurer
on ship or shipowner’s interest from liability from any loss arising therefrom.
SEC. 121. A ship which is seaworthy for the purpose of an insurance upon the ship
may, nevertheless, by reason of being unfitted to receive the cargo, be unseaworthy
for the purpose of insurance upon the cargo.
SEC. 122. Where the nationality or neutrality of a ship or cargo is expressly warranted,
it is implied that the ship will carry the requisite documents to show such nationality
or neutrality and that it will not carry any documents which cast reasonable suspicion
thereon.
SUB-TITLE 1-F
The Voyage And Deviation
SEC. 123. When the voyage contemplated by a marine insurance policy is described
by the places of beginning and ending, the voyage insured is one which conforms to
the course of sailing fixed by mercantile usage between those places.
SEC. 124. If the course of sailing is not fixed by mercantile usage, the voyage insured
by a marine insurance policy is that way between the places specified, which to a
master of ordinary skill and discretion, would mean the most natural, direct and
advantageous.
SEC. 125. Deviation is a departure from the course of the voyage insured, mentioned
in the last two (2) sections, or an unreasonable delay in pursuing the voyage or the
commencement of an entirely different voyage.
SEC. 126. A deviation is proper:
(a) When caused by circumstances over which neither the master nor the owner
of the ship has any control;
(b) When necessary to comply with a warranty, or to avoid a peril, whether or
not the peril is insured against;
(c) When made in good faith, and upon reasonable grounds of belief in its
necessity to avoid a peril; or
(d) When made in good faith, for the purpose of saving human life or relieving
another vessel in distress.
SEC. 127. Every deviation not specified in the last section is improper.
SEC. 128. An insurer is not liable for any loss happening to the thing insured
subsequent to an improper deviation.
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SUB-TITLE 1-G
Loss
SEC. 129. A loss may be either total or partial.
SEC. 130. Every loss which is not total is partial.
SEC. 131. A total loss may be either actual or constructive.
SEC. 132. An actual total loss is caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the
purpose for which he held it; or
(d) (d) Any other event which effectively deprives the owner of the possession,
at the port of destination, of the thing insured.
SEC. 133. A constructive total loss is one which gives to a person insured a right to
abandon, under Section 141.
SEC. 134. An actual loss may be presumed from the continued absence of a ship
without being heard of. The length of time which is sufficient to raise this presumption
depends on the circumstances of the case.
SEC. 135. When a ship is prevented, at an intermediate port, from completing the
voyage, by the perils insured against, the liability of a marine insurer on the cargo
continues after they are thus reshipped.
Nothing in this section shall prevent an insurer from requiring an additional premium
if the hazard be increased by this extension of liability.
SEC. 136. In addition to the liability mentioned in the last section, a marine insurer is
bound for damages, expenses of discharging, storage, reshipment, extra freightage,
and all other expenses incurred in saving cargo reshipped pursuant to the last section,
up to the amount insured.
Nothing in this or in the preceding section shall render a marine insurer liable for any
amount in excess of the insured value or, if there be none, of the insurable value.
SEC. 137. Upon an actual total loss, a person insured is entitled to payment without
notice of abandonment.
SEC. 138. Where it has been agreed that an insurance upon a particular thing, or class
of things, shall be free from particular average, a marine insurer is not liable for any
particular average loss not depriving the insured of the possession, at the port of
destination, of the whole of such thing, or class of things, even though it becomes
entirely worthless; but such insurer is liable for his proportion of all general average
loss assessed upon the thing insured.
SEC. 139. An insurance confined in terms to an actual loss does not cover a
constructive total loss, but covers any loss, which necessarily results in depriving the
insured of the possession, at the port of destination, of the entire thing insured.
SUB-TITLE 1-H
Abandonment
SEC. 140. Abandonment, in marine insurance, is the act of the insured by which, after
a constructive total loss, he declares the relinquishment to the insurer of his interest in
the thing insured.
SEC. 141. A person insured by a contract of marine insurance may abandon the thing
insured, or any particular portion thereof separately valued by the policy, or otherwise
separately insured, and recover for a total loss thereof, when the cause of the loss is a
peril insured against:
(a) If more than three-fourths (¾) thereof in value is actually lost, or would have
to be expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths
(¾);
(c) If the thing insured is a ship, and the contemplated voyage cannot be lawfully
performed without incurring either an expense to the insured of more than
three-fourths (¾) the value of the thing abandoned or a risk which a prudent
man would not take under the circumstances; or
(d) If the thing insured, being cargo or freightage, and the voyage cannot be
performed, nor another ship procured by the master, within a reasonable time
and with reasonable diligence, to forward the cargo, without incurring the like
expense or risk mentioned in the preceding subparagraph. But freightage
cannot in any case be abandoned unless the ship is also abandoned.
SEC. 142. An abandonment must be neither partial nor conditional.
SEC. 143. An abandonment must be made within a reasonable time after receipt of
reliable information of the loss, but where the information is of a doubtful character,
the insured is entitled to a reasonable time to make inquiry.
SEC. 144. Where the information upon which an abandonment has been made proves
incorrect, or the thing insured was so far restored when the abandonment was made
that there was then in fact no total loss, the abandonment becomes ineffectual.
SEC. 145. Abandonment is made by giving notice thereof to the insurer, which may
be done orally, or in writing: Provided, That if the notice be done orally, a written
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notice of such abandonment shall be submitted within seven (7) days from such oral
notice.
SEC. 146. A notice of abandonment must be explicit, and must specify the particular
cause of the abandonment, but need state only enough to show that there is probable
cause therefor, and need not be accompanied with proof of interest or of loss.
SEC. 147. An abandonment can be sustained only upon the cause specified in the
notice thereof.
SEC. 148. An abandonment is equivalent to a transfer by the insured of his interest to
the insurer, with all the chances of recovery and indemnity.
SEC. 149. If a marine insurer pays for a loss as if it were an actual total loss, he is
entitled to whatever may remain of the thing insured, or its proceeds or salvage, as if
there had been a formal abandonment.
SEC. 150. Upon an abandonment, acts done in good faith by those who were agents
of the insured in respect to the thing insured, subsequent to the loss, are at the risk of
the insurer, and for his benefit.
SEC. 151. Where notice of abandonment is properly given, the rights of the insured
are not prejudiced by the fact that the insurer refuses to accept the abandonment.
SEC. 152. The acceptance of an abandonment may be either express or implied from
the conduct of the insurer. The mere silence of the insurer for an unreasonable length
of time after notice shall be construed as an acceptance.
SEC. 153. The acceptance of an abandonment, whether express or implied, is
conclusive upon the parties, and admits the loss and the sufficiency of the
abandonment.
SEC. 154. An abandonment once made and accepted is irrevocable, unless the ground
upon which it was made proves to be unfounded.
SEC. 155. On an accepted abandonment of a ship, freightage earned previous to the
loss belongs to the insurer of said freightage; but freightage subsequently earned
belongs to the insurer of the ship.
SEC. 156. If an insurer refuses to accept a valid abandonment, he is liable as upon an
actual total loss, deducting from the amount any proceeds of the thing insured which
may have come to the hands of the insured.
SEC. 157. If a person insured omits to abandon, he may nevertheless recover his actual
loss.
 SUB-TITLE 1-I
Measure Of Indemnity
SEC. 158. A valuation in a policy of marine insurance is conclusive between the
parties thereto in the adjustment of either a partial or total loss, if the insured has some
interest at risk, and there is no fraud on his part; except that when a thing has been
hypothecated by bottomry or respondentia, before its insurance, and without the
knowledge of the person actually procuring the insurance, he may show the real value.
But a valuation fraudulent in fact, entitles the insurer to rescind the contract.
SEC. 159. A marine insurer is liable upon a partial loss, only for such proportion of
the amount insured by him as the loss bears to the value of the whole interest of the
insured in the property insured.
SEC. 160. Where profits are separately insured in a contract of marine insurance, the
insured is entitled to recover, in case of loss, a proportion of such profits equivalent to
the proportion which the value of the property lost bears to the value of the whole.
SEC. 161. In case of a valued policy of marine insurance on freightage or cargo, if a
part only of the subject is exposed to risk, the valuation applies only in proportion to
such part.
SEC. 162. When profits are valued and insured by a contract of marine insurance, a
loss of them is conclusively presumed from a loss of the property out of which they
are expected to arise, and the valuation fixes their amount.
SEC. 163. In estimating a loss under an open policy of marine insurance the following
rules are to be observed:
(a) The value of a ship is its value at the beginning of the risk, including all
articles or charges which add to its permanent value or which are necessary
to prepare it for the voyage insured;
(b) The value of the cargo is its actual cost to the insured, when laden on board,
or where the cost cannot be ascertained, its market value at the time and place
of lading, adding the charges incurred in purchasing and placing it on board,
but without reference to any loss incurred in raising money for its purchase,
or to any drawback on its exportation, or to the fluctuation of the market at
the port of destination, or to expenses incurred on the way or on arrival;
(c) The value of freightage is the gross freightage, exclusive of primage, without
reference to the cost of earning it; and
(d) The cost of insurance is in each case to be added to the value thus estimated.
SEC. 164. If cargo insured against partial loss arrives at the port of destination in a
damaged condition, the loss of the insured is deemed to be the same proportion of the
value which the market price at that port, of the thing so damaged, bears to the market
price it would have brought if sound.
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SEC. 165. A marine insurer is liable for all the expenses attendant upon a loss which
forces the ship into port to be repaired; and where it is stipulated in the policy that the
insured shall labor for the recovery of the property, the insurer is liable for the expense
incurred thereby, such expense, in either case, being in addition to a total loss, if that
afterwards occurs.
SEC. 166. A marine insurer is liable for a loss falling upon the insured, through a
contribution in respect to the thing insured, required to be made by him towards a
general average loss called for by a peril insured against: Provided, That the liability
of the insurer shall be limited to the proportion of contribution attaching to his policy
value where this is less than the contributing value of the thing insured.
SEC. 167. When a person insured by a contract of marine insurance has a demand
against others for contribution, he may claim the whole loss from the insurer,
subrogating him to his own right to contribution. But no such claim can be made upon
the insurer after the separation of the interests liable to contribution, nor when the
insured, having the right and opportunity to enforce contribution from others, has
neglected or waived the exercise of that right.
SEC. 168. In the case of a partial loss of ship or its equipment, the old materials are to
be applied towards payment for the new. Unless otherwise stipulated in the policy, a
marine insurer is liable for only two-thirds (2/3) of the remaining cost of repairs after
such deduction, except that anchors must be paid in full.
TITLE 2
Fire Insurance
SEC. 169. As used in this Code, the term fire insurance shall include insurance against
loss by fire, lightning, windstorm, tornado or earthquake and other allied risks, when
such risks are covered by extension to fire insurance policies or under separate
policies.
SEC. 170. An alteration in the use or condition of a thing insured from that to which
it is limited by the policy made without the consent of the insurer, by means within the
control of the insured, and increasing the risks, entitles an insurer to rescind a contract
of fire insurance.
SEC. 171. An alteration in the use or condition of a thing insured from that to which
it is limited by the policy, which does not increase the risk, does not affect a contract
of fire insurance.
SEC. 172. A contract of fire insurance is not affected by any act of the insured
subsequent to the execution of the policy, which does not violate its provisions, even
though it increases the risk and is the cause of the loss.
SEC. 173. If there is no valuation in the policy, the measure of indemnity in an
insurance against fire is the expense it would be to the insured at the time of the
commencement of the fire to replace the thing lost or injured in the condition in which
it was at the time of the injury; but if there is a valuation in a policy of fire insurance,
the effect shall be the same as in a policy of marine insurance.
SEC. 174. Whenever the insured desires to have a valuation named in his policy,
insuring any building or structure against fire, he may require such building or
structure to be examined by an independent appraiser and the value of the insured’s
interest therein may then be fixed as between the insurer and the insured. The cost of
such examination shall be paid for by the insured. A clause shall be inserted in such
policy stating substantially that the value of the insured’s interest in such building or
structure has been thus fixed. In the absence of any change increasing the risk without
the consent of the insurer or of fraud on the part of the insured, then in case of a total
loss under such policy, the whole amount so insured upon the insured’s interest in such
building or structure, as stated in the policy upon which the insurers have received a
premium, shall be paid, and in case of a partial loss the full amount of the partial loss
shall be so paid, and in case there are two (2) or more policies covering the insured’s
interest therein, each policy shall contribute pro rata to the payment of such whole or
partial loss. But in no case shall the insurer be required to pay more than the amount
thus stated in such policy. This section shall not prevent the parties from stipulating in
such policies concerning the repairing, rebuilding or replacing of buildings or
structures wholly or partially damaged or destroyed.
SEC. 175. No policy of fire insurance shall be pledged, hypothecated, or transferred
to any person, firm or company who acts as agent for or otherwise represents the
issuing company, and any such pledge, hypothecation, or transfer hereafter made shall
be void and of no effect insofar as it may affect other creditors of the insured.
TITLE 3
Casualty Insurance
SEC. 176. Casualty insurance is insurance covering loss or liability arising from
accident or mishap, excluding certain types of loss which by law or custom are
considered as falling exclusively within the scope of other types of insurance such as
fire or marine. It includes, but is not limited to, employer’s liability insurance, motor
vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal
accident and health insurance as written by non-life insurance companies, and other
substantially similar kinds of insurance.
TITLE 4
Suretyship
SEC. 177. A contract of suretyship is an agreement whereby a party called the surety
guarantees the performance by another party called the principal or obligor of an
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obligation or undertaking in favor of a third party called the obligee. It includes official
recognizances, stipulations, bonds or undertakings issued by any company by virtue
of and under the provisions of Act No. 536, as amended by Act No. 2206.
SEC. 178. The liability of the surety or sureties shall be joint and several with the
obligor and shall be limited to the amount of the bond. It is determined strictly by the
terms of the contract of suretyship in relation to the principal contract between the
obligor and the obligee.
SEC. 179. The surety is entitled to payment of the premium as soon as the contract of
suretyship or bond is perfected and delivered to the obligor. No contract of suretyship
or bonding shall be valid and binding unless and until the premium therefor has been
paid, except where the obligee has accepted the bond, in which case the bond becomes
valid and enforceable irrespective of whether or not the premium has been paid by the
obligor to the surety: Provided, That if the contract of suretyship or bond is not
accepted by, or filed with the obligee, the surety shall collect only a reasonable amount,
not exceeding fifty percent (50%) of the premium due thereon as service fee plus the
cost of stamps or other taxes imposed for the issuance of the contract or
bond: Provided, however, That if the nonacceptance of the bond be due to the fault or
negligence of the surety, no such service fee, stamps or taxes shall be collected.
In the case of a continuing bond, the obligor shall pay the subsequent annual premium
as it falls due until the contract of suretyship is cancelled by the obligee or by the
Commissioner or by a court of competent jurisdiction, as the case may be.
SEC. 180. Pertinent provisions of the Civil Code of the Philippines shall be applied in
a suppletory character whenever necessary in interpreting the provisions of a contract
of suretyship.
TITLE 5
Life Insurance
SEC. 181. Life insurance is insurance on human lives and insurance appertaining
thereto or connected therewith.
“Every contract or undertaking for the payment of annuities including contracts for the
payment of lump sums under a retirement program where a life insurance company
manages or acts as a trustee for such retirement program shall be considered a life
insurance contract for purposes of this Code.
SEC. 182. An insurance upon life may be made payable on the death of the person, or
on his surviving a specified period, or otherwise contingently on the continuance or
cessation of life.
Every contract or pledge for the payment of endowments or annuities shall be
considered a life insurance contract for purposes of this Code.

In the absence of a judicial guardian, the father, or in the latter’s absence or incapacity,
the mother, of any minor, who is an insured or a beneficiary under a contract of life,
health, or accident insurance, may exercise, in behalf of said minor, any right under
the policy, without necessity of court authority or the giving of a bond, where the
interest of the minor in the particular act involved does not exceed Five hundred
thousand pesos (P500,000.00) or in such reasonable amount as may be determined by
the Commissioner. Such right may include, but shall not be limited to, obtaining a
policy loan, surrendering the policy, receiving the proceeds of the Policy, and giving
the minor’s consent to any transaction on the policy.
In the absence or in case of the incapacity of the father or mother, the grandparent, the
eldest brother or sister at least eighteen (18) years of age, or any relative who has actual
custody of the minor insured or beneficiary, shall act as a guardian without need of a
court order or judicial appointment as such guardian, as long as such person is not
otherwise disqualified or incapacitated. Payment made by the insurer pursuant to this
section shall relieve such insurer of any liability under the contract.
SEC. 183. The insurer in a life insurance contract shall be liable in case of suicide only
when it is committed after the policy has been in force for a period of two (2) years
from the date of its issue or of its last reinstatement, unless the policy provides a shorter
period: Provided, however, That suicide committed in the state of insanity shall be
compensable regardless of the date of commission.
SEC. 184. A policy of insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable interest or not, and such person
may recover upon it whatever the insured might have recovered.
SEC. 185. Notice to an insurer of a transfer or bequest thereof is not necessary to
preserve the validity of a policy of insurance upon life or health, unless thereby
expressly required.
SEC. 186. Unless the interest of a person insured is susceptible of exact pecuniary
measurement, the measure of indemnity under a policy of insurance upon life or health
is the sum fixed in the policy.
TITLE 6
Microinsurance
SEC. 187. Microinsurance is a financial product or service that meets the risk
protection needs of the poor where:
(a) The amount of contributions, premiums, fees or charges, computed on a daily
basis, does not exceed seven and a half percent (7.5%) of the current daily
minimum wage rate for nonagricultural workers in Metro Manila; and
24
(b) The maximum sum of guaranteed benefits is not more than one thousand
(1,000) times of the current daily minimum wage rate for nonagricultural
workers in Metro Manila.
SEC. 188. No insurance company or mutual benefit association shall engage in the
business of microinsurance unless it possesses all the requirements as may be
prescribed by the Commissioner. The Commissioner shall issue such rules and
regulations governing microinsurance.
CHAPTER II-A
FINANCIAL REPORTING FRAMEWORK
SEC. 189. All companies regulated by the Commission, unless otherwise required by
law, should comply with the financial reporting frameworks adopted by the
Commission for purposes of creating the statutory financial reports and the annual
statements to be submitted to the Commission. Financial reporting framework means
a set of accounting and reporting principles, standards, interpretations and
pronouncements that must be adopted in the preparation and submission of the
statutory financial statements and reports required by the Commission. This financial
reporting framework is not the same as the financial reporting framework used to
prepare the financial statements that the Securities and Exchange Commission may
require. The main purpose of the statutory statements is to present important
information about the level of risk and solvency situation of insurers. In prescribing
the applicable statutory financial reporting framework, the Commissioner shall take
into account international standards concerning solvency and insurance company
reporting as well as generally accepted actuarial principles concerning financial
reporting promulgated by the Actuarial Society of the Philippines.
The assets and investments discussed in Sections 204 to 215 shall be accounted for in
accordance with this section.
The valuation of reserves shall be accounted for in accordance with Title 5 of this
Code.
CHAPTER III
THE BUSINESS OF INSURANCE
TITLE 1
Insurance Companies, Organization,
Capitalization And Authorization
SEC. 190. For purposes of this Code, the term insurer or insurance company shall
include all partnerships, associations, cooperatives or corporations, including
government-owned or -controlled corporations or entities, engaged as principals in the
insurance business, excepting mutual benefit associations. Unless the context
otherwise requires, the term shall also include professional reinsurers defined in
Section 288. Domestic company shall include companies formed, organized or
existing under the laws of the Philippines. Foreign company when used without
limitation shall include companies formed, organized, or existing under any laws other
than those of the Philippines.
SEC. 191. The provisions of the Corporation Code, as amended, shall apply to all
insurance corporations now or hereafter engaged in business in the Philippines insofar
as they do not conflict with the provisions of this chapter.
SEC. 192. No corporation, partnership, or association of persons shall transact any
insurance business in the Philippines except as agent of a corporation, partnership or
association authorized to do the business of insurance in the Philippines, unless
possessed of the capital and assets required of an insurance corporation doing the same
kind of business in the Philippines and invested in the same manner; unless the
Commissioner shall have granted it a certificate to the effect that it has complied with
all the provisions of this Code.
Every entity receiving any such certificate of authority shall be subject to the insurance
and other applicable laws of the Philippines and to the jurisdiction and supervision of
the Commissioner.
SEC. 193. No insurance company shall transact any insurance business in the
Philippines until after it shall have obtained a certificate of authority for that purpose
from the Commissioner upon application therefor and payment by the company
concerned of the fees hereinafter prescribed.
The Commissioner may refuse to issue a certificate of authority to any insurance
company if, in his judgment, such refusal will best promote the interest of the people
of this country. No such certificate of authority shall be granted to any such company
until the Commissioner shall have satisfied himself by such examination as he may
make and such evidence as he may require that such company is qualified by the laws
of the Philippines to transact business therein, that the grant of such authority appears
to be justified in the light of local economic requirements, and that the direction and
administration, as well as the integrity and responsibility of the organizers and
administrators, the financial organization and the amount of capital, reasonably assure
the safety of the interests of the policyholders and the public.
In order to maintain the quality of the management of the insurance companies and
afford better protection to policyholders and the public in general, any person of good
moral character, unquestioned integrity and recognized competence may be elected or
appointed director or officer of insurance companies in accordance with the pertinent
provisions contained in the corporate governance circulars prescribed by the
Commissioner. In addition hereto, the Commissioner shall prescribe the qualifications
25
of directors, executive officers and other key officials of insurance companies for
purposes of this section.
No person shall concurrently be a Director and/or Officer of an insurance company
and an adjustment company.
Before issuing such certificate of authority, the Commissioner must be satisfied that
the name of the company is not that of any other known company transacting a similar
business in the Philippines, or a name so similar as to be calculated to mislead the
public. The Commissioner may issue rules and regulations on the use of names of
insurance companies and other supervised persons or entities.
The certificate of authority issued by the Commissioner shall expire on the last day of
December, three (3) years following its date of issuance, and shall be renewable every
three (3) years thereafter, subject to the company’s continuing compliance with the
provisions of this Code, circulars, instructions, rulings or decisions of the Commission.
Every company receiving any such certificates of authority shall be subject to the
provisions of this Code and other related laws and to the jurisdiction and supervision
of the Commissioner.
No insurance company may be authorized to transact in the Philippines the business
of life and non-life insurance concurrently, unless specifically authorized to do so by
the Commissioner: Provided, That the terms life and non–life insurance shall be
deemed to include health, accident and disability insurance.
No insurance company shall have equity in an adjustment company and neither shall
an adjustment company have equity in an insurance company.
No insurance company issued with a valid certificate of authority to transact insurance
business anywhere in the Philippines by the Insurance Commissioner, shall be barred,
prevented, or disenfranchised from issuing any insurance policy or from transacting
any insurance business within the scope or coverage of its certificate of authority,
anywhere in the Philippines, by any local government unit or authority, for whatever
guise or reason whatsoever, including under any kind of ordinance, accreditation
system, or scheme. Any local ordinance or local government unit regulatory issuance
imposing such restriction or disenfranchisement on any insurance company shall be
deemed null and void ab initio.
SEC. 194. Except as provided in Section 289, no new domestic life or non-life
insurance company shall, in a stock corporation, engage in business in the Philippines
unless possessed of a paid-up capital equal to at least One billion pesos
(P1,000,000,000.00): Provided, That a domestic insurance company already doing
business in the Philippines shall have a net worth by June 30, 2013 of Two hundred
fifty million pesos (P250,000,000.00). Furthermore, said company must have by
December 31, 2016, an additional Three hundred million pesos (P300,000,000.00) in
net worth; by December 31, 2019, an additional Three hundred fifty million pesos
(P350,000,000.00) in net worth; and by December 31, 2022, an additional Four
hundred million pesos (P400,000,000.00) in net worth.
The Commissioner may, as a pre-licensing requirement of a new insurance company,
in addition to the paid-up capital stock, require the stockholders to pay in cash to the
company in proportion to their subscription interests a contributed surplus fund of not
less than One hundred million pesos (P100,000,000.00). He may also require such
company to submit to him a business plan showing the company’s estimated receipts
and disbursements, as well as the basis therefor, for the next succeeding three (3) years.
If organized as a mutual company, in lieu of such net worth, it must have available
total members equity in an amount to be determined by the Insurance Commission
above all liabilities for losses reported; expenses, taxes, legal reserve, and reinsurance
of all outstanding risks, and the contributed surplus fund equal to the amounts required
of stock corporations. A stock insurance company doing business in the Philippines
may, subject to the pertinent law and regulation which now or hereafter may be in
force, alter its organization and transform itself into a mutual insurance company.
The Secretary of Finance may, upon recommendation of the Commissioner, increase
such minimum paid-up capital stock or cash assets requirement under such terms and
conditions as he may impose, to an amount which, in his opinion, would reasonably
assure the safety of the interests of the policyholders and the public. The minimum
paid-up capital and net worth requirement must remain unimpaired for the continuance
of the license. The Commissioner may require the adoption of the risk-based capital
approach and other internationally accepted forms of capital framework.
For the purpose of this section, net worth shall consist of:
(a) Paid-up capital;
(b) Retained earnings;
(c) Unimpaired surplus; and
(d) Revaluation of assets as may be approved by the Commissioner.
The Commission may adopt for purposes of compliance with capital build up
requirement under this Code the recognition as part of the capital account, capital notes
or debentures which are subordinate to all credits and senior only to common capital
stocks.
The President of the Philippines may order a periodic review every two (2) years the
capital structure set out above to determine the capital adequacy of the local insurance
industry from and after the integration and liberalization of the financial services,
including insurance, in the ASEAN Region. For this purpose, a review committee
consisting of representatives from the Department of Finance (DOF), the Insurance
Commission (IC), the National Economic and Development Authority (NEDA), the
Securities and Exchange Commission (SEC) and other agencies which the President
26
may designate shall conduct the review and may recommend to the President to adopt
for implementation the necessary capital adjustment.
SEC. 195. Every company must, before engaging in the business of insurance in the
Philippines, file with the Commissioner the following:
(a) A certified copy of the last annual statement or a verified financial statement
exhibiting the condition and affairs of such company;
(b) If incorporated under the laws of the Philippines, a copy of the articles of
incorporation and bylaws, and any amendments to either, certified by the
Securities and Exchange Commission to be a copy of that which is filed in its
Office;
(c) If incorporated under any laws other than those of the Philippines, a
certificate from the Securities and Exchange Commission showing that it is
duly registered in the mercantile registry of that Commission in accordance
with the Corporation Code. A copy of the articles of incorporation and
bylaws, and any amendments to either, if organized or formed under any law
requiring such to be filed, duly certified by the officer having the custody of
same, or if not so organized, a copy of the law, charter or deed of settlement
under which the deed of organization is made, duly certified by the proper
custodian thereof, or proved by affidavit to be a copy; also, a certificate under
the hand and seal of the proper officer of such state or country having
supervision of insurance business therein, if any there be, that such
corporation or company is organized under the laws of such state or country,
with the amount of capital stock or assets and legal reserve required by this
Code
(d) (d) If not incorporated and of foreign domicile, aside from the certificate
mentioned in paragraph (c) of this section, a certificate setting forth the nature
and character of the business, the location of the principal office, the name of
the individual or names of the persons composing the partnership or
association, the amount of actual capital employed or to be employed therein,
and the names of all officers and persons by whom the business is or may be
managed.
The certificate must be verified by the affidavit of the chief officer, secretary, agent,
or manager of the company; and if there are any written articles of agreement of the
company, a copy thereof must accompany such certificate.
SEC. 196. The Commissioner must require as a condition precedent to the transaction
of insurance business in the Philippines by any foreign insurance company, that such
company file in his office a written power of attorney designating some person who
shall be a resident of the Philippines as its general agent, on whom any notice provided
by law or by any insurance policy, proof of loss, summons and other legal processes
may be served in all actions or other legal proceedings against such company, and
consenting that service upon such general agent shall be admitted and held as valid as
if served upon the foreign company at its home office. Any such foreign company
shall, as further condition precedent to the transaction of insurance business in the
Philippines, make and file with the Commissioner an agreement or stipulation,
executed by the proper authorities of said company in form and substance as follows:
The (name of company) does hereby stipulate and agree in consideration of the
permission granted by the Insurance Commissioner to transact business in the
Philippines, that if at any time said company shall leave the Philippines, or cease to
transact business therein, or shall be without any agent in the Philippines on whom any
notice, proof of loss, summons, or legal process may be served, then in any action or
proceeding arising out of any business or transaction which occurred in the
Philippines, service of any notice provided by law, or insurance policy, proof of loss,
summons, or other legal process may be made upon the Insurance Commissioner, and
that such service upon the Insurance Commissioner shall have the same force and
effect as if made upon the company.
Whenever such service of notice, proof of loss, summons, or other legal process shall
be made upon the Commissioner, he must, within ten (10) days thereafter, transmit by
mail, postage paid, a copy of such notice, proof of loss, summons, or other legal
process to the company at its home or principal office. The sending of such copy by
the Commissioner shall be a necessary part of the service of the notice, proof of loss,
or other legal process.
SEC. 197. No insurance company organized or existing under the government or laws
other than those of the Philippines shall engage in business in the Philippines unless
possessed of unimpaired capital or assets and reserve of not less than One billion pesos
(P1,000,000,000.00), nor until it shall have deposited with the Commissioner for the
benefit and security of the policyholders and creditors of such company in the
Philippines, securities satisfactory to the Commissioner consisting of good securities
of the Philippines, including new issues of stock of registered enterprises, as this term
is defined in Executive Order No. 226 of 1987, as amended, to the actual market value
of not less than the amount herein required: Provided, That at least fifty percent (50%)
of such securities shall consist of bonds or other instruments of debt of the Government
of the Philippines, its political subdivisions and instrumentalities, or of government-
owned or -controlled corporations and entities, including the Bangko Sentral ng
Pilipinas: Provided, further, That the total investment of a foreign insurance company
in any registered enterprise shall not exceed twenty percent (20%) of the net worth of
said foreign insurance company nor twenty percent (20%) of the capital of the
registered enterprise, unless previously authorized in writing by the Commissioner.
The Commissioner may, as a pre-licensing requirement of a new branch office of a
foreign insurance company, in addition to the required asset or net worth, require the
company to have an additional surplus fund in an amount to be determined by the
Insurance Commission.
27
For purposes of this Code, the net worth of a foreign insurance company shall refer
only to its net worth in the Philippines.
SEC. 198. The Commissioner shall hold the securities, deposited as required in the
immediately preceding section, for the benefit and security of all the policyholders and
creditors of the company depositing the same: Provided, That the Commissioner may
as long as the company is solvent, permit the company to collect the interest or
dividends on the securities so deposited, and, from time to time, with his assent, to
withdraw any of such securities, upon depositing with said Commissioner other like
securities, the market value of which shall be equal to the market value of such as may
be withdrawn. In the event of any company ceasing to do business in the Philippines,
the securities deposited as aforesaid shall be returned to the company upon the
Commissioner’s written approval and only after the company has duly proven in its
application therefor that it has no further liability whatsoever under any of its policies
nor to any of its creditors in the Philippines.
SEC. 199. Every foreign company doing business in the Philippines shall set aside an
amount corresponding to the legal reserves of the policies written in the Philippines
and invest and keep the same therein in accordance with the provisions of this section.
The legal reserve therein required to be set aside shall be invested only in the classes
of Philippine securities described in Section 206: Provided, however, That no
investment in stocks or bonds of any single entity shall, in the aggregate exceed twenty
percent (20%) of the net worth of the investing company or twenty percent (20%) of
the capital of the issuing company, whichever is the lesser, unless otherwise approved
in writing by the Commissioner. The securities purchased and kept in the Philippines
under this section, shall not be sent out of the territorial jurisdiction of the Philippines
without the written consent of the Commissioner.
TITLE 2
Solvency
SEC. 200. An insurance company doing business in the Philippines shall at all times
maintain the minimum paid-up capital, and net worth requirements as prescribed by
the Commissioner. Such solvency requirements shall be based on internationally
accepted solvency frameworks and adopted only after due consultation with the
insurance industry associations.
Whenever the aforementioned requirement be found to be less than that herein
required to be maintained, the Commissioner shall forthwith direct the company to
make good any such deficiency by cash, to be contributed by all stockholders of record
in proportion to their respective interests, and paid to the treasurer of the company,
within fifteen (15) days from receipt of the order: Provided, That the company in the
interim shall not be permitted to take any new risk of any kind or character unless and
until it make good any such deficiency: Provided; further, That a stockholder who
aside from paying the contribution due from him, pays the contribution due from
another stockholder by reason of the failure or refusal of the latter to do so, shall have
a lien on the certificates of stock of the insurance company concerned appearing in its
books in the name of the defaulting stockholder on the date of default, as well as on
any interests or dividends that have accrued or will accrue to the said certificates of
stock, until the corresponding payment or reimbursement is made by the defaulting
stockholder.
SEC. 201. No domestic insurance corporation shall declare or distribute any dividend
on its outstanding stocks unless it has met the minimum paid-up capital and net worth
requirements under Section 194 and except from profits attested in a sworn statement
to the Commissioner by the president or treasurer of the corporation to be remaining
on hand after retaining unimpaired:
(a) The entire paid-up capital stock;
(b) The solvency requirements defined by Section 200;
(c) In the case of life insurance corporations, the legal reserve fund required by
Section 217;
(d) In the case of corporations other than life, the legal reserve fund required by
Section 219; and
(e) A sum sufficient to pay all net losses reported, or in the course of settlement,
and all liabilities for expenses and taxes.
Any dividend declared or distributed under the preceding paragraph shall be reported
to the Commissioner within thirty (30) days after such declaration or distribution.
If the Commissioner finds that any such corporation has declared or distributed any
such dividend in violation of this section, he may order such corporation to cease and
desist from doing business until the amount of such dividend or the portion thereof in
excess of the amount allowed under this section has been restored to said corporation.
The Commissioner shall prescribe solvency requirements for branches of foreign
insurance companies operating in the Philippines.
TITLE 3
Assets
SEC. 202. In any determination of the financial condition of any insurance company
doing business in the Philippines, there shall be allowed and admitted as assets only
such assets legally or beneficially owned by the insurance company concerned as
determined by the Commissioner which consist of:
(a) Cash in the possession of the insurance company or in transit under its
control, and the true and duly verified balance of any deposit of such company
28
in a financially sound bank or trust company duly authorized by the Bangko
Sentral ng Pilipinas.
(b) Investments in securities, including money market instruments, and in real
property acquired or held in accordance with and subject to the applicable
provisions of this Code and the income realized therefrom or accrued thereon.
(c) Loans granted by the insurance company concerned to the extent of that
portion thereof adequately secured by non-speculative assets with readily
realizable values in accordance with and subject to the limitations imposed
by applicable provisions of this Code.
(d) Policy loans and other policy assets and liens on policies, contracts or
certificates of a life insurance company, in an amount not exceeding legal
reserves and other policy liabilities carried on each individual life insurance
policy, contract or certificate.
(e) The net amount of uncollected and deferred premiums and annuity
considerations in the case of a life insurance company which carries the full
mean tabular reserve liability.
(f) Reinsurance recoverable by the ceding insurer:
(1) From an insurer authorized to transact business in this country, the full
amount thereof; or
(2) From an insurer not authorized in this country, in an amount not
exceeding the liabilities carried by the ceding insurer for amounts
withheld under a reinsurance treaty with such unauthorized insurer as
security for the payment of obligations thereunder if such funds are held
subject to withdrawal by, and under the control of, the ceding insurer.
The Commissioner may prescribe the conditions under which a ceding
insurer may be allowed credit, as an asset or as a deduction from loss and
unearned premium reserves, for reinsurance recoverable from an insurer
not authorized in this country but which presents satisfactory evidence
that it meets the applicable standards of solvency required in this country.
(g) Funds withheld by a ceding insurer under a reinsurance treaty, provided
reserves for unpaid losses and unearned premiums are adequately provided.
(h) Deposits or amounts recoverable from underwriting associations, syndicates
and reinsurance funds, or from any suspended banking institution, to the
extent deemed by the Commissioner to be available for the payment of losses
and claims and values to be determined by him.
(i) Electronic data processing machines, as may be authorized by the
Commissioner to be acquired by the insurance company concerned, the
acquisition cost of which to be amortized in equal annual amounts within a
period of five (5) years from the date of acquisition thereof.
(j) Investments in mutual funds, real estate investment trusts, salary loans, unit
investment trust funds and special deposit accounts, subject to the conditions
as may be provided for by the Commissioner.
(k) Other assets, not inconsistent with the provisions of paragraphs (a) to (j)
hereof, which are deemed by the Commissioner to be readily realizable and
 available for the payment of losses and claims at values to be determined by
him in a circular, rule or regulation.
SEC. 203. In addition to such assets as the Commissioner may from time to time
determine to be non-admitted assets of insurance companies doing business in the
Philippines, the following assets shall in no case be allowed as admitted assets of an
insurance company doing business in the Philippines, in any determination of its
financial condition:
(a) Goodwill, trade names, and other like intangible assets.
(b) Prepaid or deferred charges for expenses and commissions paid by such
insurance company.
(c) Advances to officers (other than policy loans), which are not adequately
secured and which are not previously authorized by the Commissioner, as
well as advances to employees, agents, and other persons on mere personal
security.
(d) Shares of stock of such insurance company, owned by it, or any equity
therein as well as loans secured thereby, or any proportionate interest in such
shares of stock through the ownership by such insurance company of an
interest in another corporation or business unit.
(e) Furniture, furnishing, fixtures, safes, equipment, library, stationery,
literature, and supplies.
(f) Items of bank credits representing checks, drafts or notes returned unpaid
after the date of statement.
(g) The amount, if any, by which the aggregate value of investments as carried
in the ledger assets of such insurance company exceeds the aggregate value
thereof as determined in accordance with the provisions of this Code and/or
the rules of the Commissioner.
All non-admitted assets and all other assets of doubtful value or character included as
ledger or non-ledger assets in any statement submitted by an insurance company to the
Commissioner, or in any insurance examiner’s report to him, shall also be reported, to
the extent of the value disallowed as deductions from the gross assets of such insurance
company, except where the Commissioner permits a reserve to be carried among the
liabilities of such insurance company in lieu of any such deduction.
TITLE 4
Investments
SEC. 204. A life insurance company may lend to any of its policyholders upon the
security of the value of its policy such sum as may be determined pursuant to the
provisions of the policy.
No insurance company shall loan any of its money or deposits to any person,
corporation or association, except upon the security of any of the following:
29
(a) First mortgage or deeds of trust of registered, unencumbered, improved or
unimproved real estate, including condominiums;
(b) First mortgages or deeds of trust of actually cultivated, improved and
unencumbered agricultural lands in the Philippines;
(c) Purchase money mortgages, lease purchase agreements or similar securities
executed or received by it on account of the sale or exchange of real property
acquired pursuant to Sections 206 and 208;
(d) Bonds or other instruments of indebtedness issued or guaranteed by the
Government of the Philippines or its political subdivisions authorized by law
to incur such obligations or issue such guarantees or of government-owned
or -controlled corporations and instrumentalities including the Bangko
Sentral ng Pilipinas; or
(e) Obligations issued or guaranteed by universal banks, commercial banks,
offshore banking units, investment houses or other financial intermediaries
duly registered with the Bangko Sentral ng Pilipinas; or
(f) Obligations issued or guaranteed by foreign banks or corporations, each of
which shall have total net worth of at least One hundred fifty million US
dollars ($US150,000,000.00) or such other higher net worth as may be
prescribed by the Insurance Commission, as shown in their financial
statements as of the immediately preceding fiscal year; or
(g) Assignments of monetary instruments such as cash deposits, deposit
certificates or other similar instruments of universal banks, commercial
banks, investment houses or other financial intermediaries duly registered
with the Bangko Sentral ng Pilipinas; or
(h) Pledges of shares of stock, bonds or other instruments of indebtedness
specified in Section 209; or
(i) Chattel mortgages over equipment not more than three (3) years old; and
(j) Such other security as may be approved by the Commissioner.
The loans provided in the preceding subsection shall be subject to the
following conditions:
(1) The amount of loan secured by real estate mortgage over a non-
agricultural land shall not exceed seventy percent (70%) of its appraised
value, and in the case of a loan secured by a real estate mortgage over an
agricultural land, the amount of loan shall not exceed forty percent (40%)
of its market value: Provided, That, in no case shall such loan have a
maturity period in excess of twenty-five (25) years;
(2) Unless approved by the Commissioner, no loan may be granted upon the
security of a mortgage on improved real estate if the improvements
thereon do not belong to the owner of the land, and the owner of the
improvements does not sign the deed of mortgage. However, if the owner
of the land is the Government of the Philippines or any of its political
subdivisions and a long-term lease has been executed in favor of the
owner of the improvements, the owner of the land need not be a party to
the deed of mortgage. The expiration date of the lease shall not, however,
 precede the maturity of the loan. The phrase ‘improved real estate’ as
used herein shall mean land with permanent building or buildings erected
thereon;
(3) Lease-agreements or similar securities received on the sale of real estate
property shall not exceed one hundred percent (100%) of the selling price
of said property, or one hundred percent (100%) of its market value at
the time of its disposition, whichever amount is lower. However, in no
case shall such agreement have a maturity period not exceeding thirty
(30) years;
(4) Loans secured by shares of stock of solvent corporations or institutions
shall not exceed fifty percent (50%) of:
i. The weighted average market price for the one hundred eighty (180)
days preceding the approval of the loan for shares listed in the stock
exchange; and
ii. For unlisted shares, the adjusted book value of such shares.
(5) Loans secured by the chattel mortgages over equipment shall not exceed
seventy percent (70%) of the market value of said equipment.
SEC. 205. No loan by any insurance company on the security of real estate shall be
made unless the title to such real estate shall have first been registered in accordance
with the existing Land Registration Act, or shall have been previously registered under
the provisions of the existing Mortgage Law and the lien or interest of the insurance
company as mortgagee has been registered.
SEC. 206. (a) An insurance company may purchase, hold, own and convey such
property, real and personal, as may have been mortgaged, pledged, or conveyed to it
in good faith in trust for its benefit by reason of money loaned by it in pursuance of
the regular business of the company, and such real or personal property as may have
been purchased by it at sales under pledges, mortgages or deeds of trust for its benefit
on account of money loaned by it; and such real and personal property as may have
been conveyed to it by borrowers in satisfaction and discharge of loans made by the
company in payment or by reason of any loan made by the company in payment or by
reason of any loan made by it shall be sold by the company within twenty (20) years
after the title thereto has been vested in it.
(b) An insurance company may purchase, hold, and own the following:
(1) Real properties which serve as its main place of business and/or branch
offices: Provided, That such investment shall not in the overall exceed twenty
percent (20%) of its net worth as shown by its latest financial statement
approved by the Commissioner.
(2) Bonds or other instruments of indebtedness of the Government of the
Philippines or its political subdivisions authorized by law to issue bonds at the
reasonable market value thereof.
(3) Bonds or other instruments of debt of government-owned or -controlled
corporations and entities, including the Bangko Sentral ng Pilipinas.
30
(4) Bonds, debentures or other instruments of indebtedness of any solvent
corporation or institution created or existing under the laws of the
Philippines: Provided, however, That the issuing, assuming or guaranteeing
entity or its predecessors shall not have defaulted in the payment of interest on
any of its securities and that during each of any three (3) including the last two
(2) of the five (5) fiscal years next preceding the date of acquisition by such
insurance company of such bonds, debentures, or other instruments of
indebtedness, the net earnings of the issuing, assuming or guaranteeing
institution available for its fixed charges, as hereinafter defined, shall have
been not less than one and one-quarter (1¼) times the total of its fixed charges
for such year: Provided, further, That no life insurance company shall invest
in or loan upon the obligations of any one institution in the kinds permitted
under this subsection an amount in excess of twenty-five percent (25%) of the
total admitted assets of such insurer as of December thirty-first next preceding
the date of such investment.
As used in this subsection the term net earnings available for fixed
charges shall mean net income after deducting operating and maintenance
expenses, taxes other than income taxes, depreciation and depletion; but
excluding extraordinary nonrecurring items of income or expense appearing
in the regular financial statement of the issuing, assuming or guaranteeing
institution. The term fixed charges shall include interest on funded and
unfunded debt, amortization of debt discount, and rentals for leased properties.
(5) Preferred or guaranteed stocks of any solvent corporation or institution created
or existing under the laws of the Philippines: Provided, That if the stocks are
guaranteed, the amount of stocks so guaranteed is not in excess of fifty percent
(50%) of the amount of the preferred or common stocks, as the case may be,
of the guaranteeing corporation: Provided, finally, That no life insurance
company shall invest in or loan upon obligations of any one institution in the
kinds permitted under this subsection an amount in excess of ten percent
(10%) of the total admitted assets of such insurer as of December thirty-first
next preceding the date of such investment.
(6) Common stocks of any solvent corporation or institution created or existing
under the laws of the Philippines: Provided, however, That no life insurance
company shall invest in or loan upon the obligations of any one corporation or
institution in the kinds permitted under this subsection an amount in excess of
ten percent (10%) of the total admitted assets of such insurer as of December
thirty-first next preceding the date of such investment.
(7) Securities issued by a registered enterprise, as this term is defined in Executive
Order No. 226, otherwise known as the Omnibus Investments Code of 1987,
as amended: Provided, That the total investment of a domestic non-life
insurance company in any registered enterprise shall not exceed twenty
percent (20%) of the net worth of said insurance company as shown by its
 aforesaid financial statement unless previously authorized by the
Commissioner.
(8) Certificates, notes and other obligations issued by the trustees or receivers of
any institution created or existing under the laws of the Philippines which, or
the assets of which, are being administered under the direction of any court
having jurisdiction: Provided, however, That such certificates, notes or other
obligations are adequately secured as to principal and interests.
(9) Equipment trust obligations or certificates which are adequately secured or
other adequately secured instruments evidencing an interest in equipment
wholly or in part within the Philippines: Provided, however, That there is a
right to receive determined portions of rental, purchase or other fixed
obligatory payments for the use or purchase of such equipment.
(10) Any obligation of any corporation or institution created or existing under the
laws of the Philippines which is, on the date of acquisition by the insurer,
adequately secured and has qualities and characteristics wherein the
speculative elements are not predominant.
(11) Such other securities as may be approved by the Commissioner.
(c) Any domestic insurer which has outstanding insurance, annuity or reinsurance
contracts in currencies other than the national currency of the Philippines may invest
in, or otherwise acquire or loan upon securities and investments in such currency
which are substantially of the same kinds, classes and investment grades as those
eligible for investment under the foregoing subdivisions of this section; but the
aggregate amount of such investments and of such cash in such currency which is at
any time held by such insurer shall not exceed one and one-half (1½) times the amount
of its reserves and other obligations under such contracts or the amount which such
insurer is required by the law of any country or possession outside the Republic of the
Philippines to be invested in such country or possession, whichever shall be greater.
SEC. 207. An insurance company may:
(1) Invest in equities of other financial institutions; and
(2) Engage in the buying and selling of long-term debt instruments: Provided,
That any or all of such investments shall be with the prior approval of the
Commissioner. Insurance companies may, however, invest in listed equities
of other financial institutions without need of prior approval by the
Commissioner.
SEC. 208. Any life insurance company may:
(a) Acquire or construct housing projects and, in connection with any such
project, may acquire land or any interest therein by purchase, lease or
otherwise, or use land acquired pursuant to any other provision of this Code.
Such company may thereafter own, maintain, manage, collect or receive
income from, or sell and convey, any land or interest therein so acquired and
any improvements thereon. The aggregate book value of the investments of
any such company in all such projects shall not exceed at the time of such
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investments twenty-five percent (25%) of the total admitted assets of such
company on the thirty-first day of December next preceding: Provided, That
the funds of the company for the payment of pending claims and obligations
shall not be used for such investments.
(b) Acquire real property, other than property to be used primarily for providing
housing and property for accommodation of its own business, as an
investment for the production of income, or may acquire real property to be
improved or developed for such investment purpose pursuant to a program
therefor, subject to the condition that the cost of each parcel of real property
so acquired under the authority of this paragraph (b), including the estimated
cost to the company of the improvement or development thereof, when added
to the book value of all other real property held by it pursuant to this
paragraph (b), shall not exceed twenty-five percent (25%) of its admitted
assets as of the thirty-first day of December next preceding.
SEC. 209. Every domestic insurance company shall, to the extent of an amount equal
in value to twenty-five percent (25%) of the minimum net worth required under
Section 194, invest its funds only in securities, satisfactory to the Commissioner,
consisting of bonds or other instruments of debt of the Government of the Philippines
or its political subdivisions or instrumentalities, or of government-owned or -
controlled corporations and entities, including the Bangko Sentral ng
Pilipinas: Provided, That such investments shall at all times be maintained free from
any lien or encumbrance: Provided, further, That such securities shall be deposited
with and held by the Commissioner for the faithful performance by the depositing
insurer of all its obligations under its insurance contracts. The provisions of Section
198 shall, so far as practicable, apply to the securities deposited under this section.
Except as otherwise provided in this Code, no judgment creditor or other claimant
shall have the right to levy upon any of the securities of the insurer held on deposit
under this section or held on deposit pursuant to the requirement of the Commissioner.
SEC. 210. After satisfying the requirements contained in the preceding section, any
domestic non-life insurance company, shall invest, to an amount prescribed below, its
funds in, or otherwise, acquire or loan upon, only the classes of investments described
in Section 206, including securities issued by any registered enterprise, as this term is
defined in Executive Order No. 226, otherwise known as ‘The Omnibus Investments
Code of 1987’ and such other classes of investments as may be authorized by the
Commissioner for purposes of this section: Provided, That:
(a) No more than twenty percent (20%) of the net worth of such company as
shown by its latest financial statement approved by the Commissioner shall
be invested in the lot and building in which the insurance company conducts
its business; and
(b) The total investment of an insurance company in any registered enterprise
shall not exceed twenty percent (20%) of the net worth of said insurance
company as shown by its aforesaid financial statement nor twenty percent
 (20%) of the paid-up capital of the registered enterprise excluding the
intended investment, unless previously authorized by the
Commissioner: Provided, further, That such investments, free from any lien
or encumbrance, shall be at least equal in amount to the aggregate amount of:
(1) its legal reserve, as provided in Section 219, and (2) its reserve fund held
for reinsurance as provided for in the pertinent treaty provision in the case of
reinsurance ceded to authorized insurers.
SEC. 211. After satisfying the requirements contained in Sections 197, 199, 209 and
210, any non-life insurance company may invest any portion of its funds representing
earned surplus in any of the investments described in Sections 204, 206 and 207, or in
any securities issued by a registered enterprise mentioned in the preceding
sections: Provided, That no investment in stocks or bonds of any single entity shall in
the aggregate, exceed twenty percent (20%) of the net worth of the insurance company
as shown in its latest financial statement approved by the Commissioner or twenty
percent (20%) of the paid-up capital of the issuing company, whichever is lesser,
unless otherwise approved by the Commissioner.
SEC. 212. After satisfying the minimum capital investment required in Section 209,
any life insurance company may invest its legal policy reserve, as provided in Section
217 or in Section 218, in any of the classes of securities or types of investments
described in Sections 204, 206, 207 and 208, subject to the limitations therein
contained, and in any securities issued by any registered enterprise mentioned in
Section 210, free from any lien or encumbrance, in such amounts as may be approved
by the Commissioner. Such company may likewise invest any portion of its earned
surplus in the aforesaid securities or investments subject to the aforesaid limitations.
SEC. 213. Any investment made in violation of the applicable provisions of this title
shall be considered non-admitted assets.
SEC. 214. (a) All bonds or other instruments of indebtedness having a fixed term and
rate of interest and held by any life insurance company authorized to do business in
this country, if amply secured and if not in default as to principal or interest, shall be
valued based on their amortized cost using effective interest method less impairment
and unrecoverable amount based on appropriate measurement methods which are
generally accepted in the industry and accepted by the Commissioner. The
Commissioner shall have the power to determine the eligibility of any such
investments for valuation on the basis of amortization, and may by regulation prescribe
or limit the classes of securities so eligible for amortization. All bonds or other
instruments of indebtedness which in the judgment of the Commissioner are not amply
secured shall not be eligible for amortization and shall be valued in accordance with
paragraph two. The Commissioner may, if he finds that the interest of policyholders
so permit or require, by official regulation permit or require any class or classes of
insurers, other than life insurance companies authorized to do business in this country,
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to value their bonds or other instruments of indebtedness in accordance with the
foregoing rule.
(b) The investments of all insurers authorized to do business in this country, except
securities subject to amortization and except as otherwise provided in this chapter,
shall be valued, in the discretion of the Commissioner, at their amortized cost using
effective interest method less impairment and unrecoverable amount or at valuation
representing their fair market value. If the Commissioner finds that in view of the
character of investments of any insurer authorized to do business in this country it
would be prudent for such insurer to establish a special reserve for possible losses or
fluctuations in the values of its investments, he may require such insurer to establish
such reserve, reasonable in amount, and include a report thereon in any statement or
report of the financial condition of such insurer. The Commissioner may, in connection
with any examination or required financial statement of an authorized insurer, require
such insurer to furnish him complete financial statements and audited report of the
financial condition of any corporation of which the securities are owned wholly or
partly by such insurer and may cause an examination to be made of any subsidiary or
affiliate of such insurer as appropriate to specific investments as provided in
appropriate circulars issued by the Commissioner.
(c) Investments in equity of an insurance company shall be valued as follows:
(1) Listed stocks shall be valued at market value and periodically adjusted to
reflect market changes through a special valuation account to reflect their
realizable value when sold;
(2) Unlisted stocks shall be valued at adjusted book value based on the latest
unqualified audited financial statements of the company which issued such
stocks; and
(3) Stocks of a corporation under the control of the insurer shall be valued using
the equity method which is the cost plus or minus the share of the controlling
company in the earnings or losses of the controlled company after acquisition
of such stocks.
(d) The stock of an insurance company shall be valued at the lesser of its market value
or its book value as shown by its last approved audited financial statement or the last
report on examination, whichever is more recent. The book value of a share of common
stock of an insurance company shall be ascertained by dividing (1) the amount of its
capital and surplus less the value of all of its preferred stock, if any, outstanding, by
(2) the number of shares of its common stock issued and outstanding.
“Notwithstanding the foregoing provisions, an insurer may, at its option, value its
holdings of stock in a subsidiary insurance company in an amount not less than
acquisition cost if such acquisition cost is less than the value determined as
hereinbefore provided.
(e) Real estate acquired by foreclosure or by deed in lieu thereof, in the absence of a
recent appraisal deemed by the Commissioner to be reliable, shall not be valued at an
amount greater than the unpaid principal of the defaulted loan at the date of such
foreclosure or deed, together with any taxes and expenses paid or incurred by such
insurer at such time in connection with such acquisition, and the cost of additions or
improvements thereafter paid by such insurer and any amount or amounts thereafter
paid by such insurer or any assessments levied for improvements in connection with
the property.
(f) Purchase money mortgages received on dispositions of real property held pursuant
to Section 208 shall be valued in an amount equivalent to ninety percent (90%) of the
value of such real property. Purchase money mortgages received on disposition of real
property otherwise held shall be valued in an amount not exceeding ninety percent
(90%) of the value of such real property as determined by an appraisal made by an
appraiser at or about the time of disposition of such real property.
(g) The stock of a subsidiary of an insurer shall be valued on the basis of the greater
of:
(1) The value of only such of the assets of such subsidiary as would constitute
lawful investments for the insurer if acquired or held directly by the insurer;
or
(2) Such other value determined pursuant to standards and cumulative
limitations, contained in a regulation to be promulgated by the
Commissioner.
(h) Notwithstanding any provision contained in this section or elsewhere in this
chapter, if the Commissioner finds that the interests of policyholders so permit or
require, he may permit or require any class or classes of insurers authorized to do
business in this country to value their investments or any class or classes thereof as of
any date heretofore or hereafter in accordance with any applicable valuation or
method.
SEC. 215. It shall be the duty of the officers of the insurance company to report within
the first fifteen (15) days of every month all such investments as may be made by them
during the preceding month, and the Commissioner may, if such investments or any
of them seem injudicious to him, require the sale or disposal of the same. The report
shall also include a list of investments sold or disposed of by the company during the
same period.
TITLE 5
Reserves
SEC. 216. Every life insurance company, doing business in the Philippines, shall
annually make a valuation of all policies, additions thereto, unpaid dividends, and all
other obligations outstanding on the thirty-first day of December of the preceding year.
All such valuations shall be made according to the standard adopted by the company,
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as prescribed by the Commissioner in accordance with internationally accepted
actuarial standards, which standard shall be stated in its annual report.
Such standard of valuations shall be according to a standard table of mortality with
interest to be determined by the Insurance Commissioner. When the preliminary term
basis is used, the term insurance shall be limited to the first policy year.
The results of such valuations shall be reported to the Commissioner on or before the
thirtieth day of April of each year accompanied by a sworn statement of a designated
company officer and stating the methods and assumptions used in arriving at the values
reported.
SEC. 217. The aggregate net value so ascertained of the policies of such company
shall be deemed its reserve liability, to provide for which it shall hold funds in secure
investments equal to such net value, above all its other liabilities; and it shall be the
duty of the Commissioner, after having verified, to such an extent as he may deem
necessary, the valuation of all policies in force, to satisfy himself that the company has
such amount in safe legal securities after all other debts and claims against it have been
provided for.
The reserve liability for variable contracts defined in Section 238 shall be established
in accordance with actuarial procedures that recognize the variable nature of the
benefits provided, and shall be approved by the Commissioner.
SEC. 218. Every life insurance company, conducted on the mutual plan or a plan in
which policyholders are by the terms of their policies entitled to share in the profits or
surplus shall, on all policies of life insurance heretofore or hereafter issued, under the
conditions of which the distribution of surplus is deferred to a fixed or specified time
and contingent upon the policy being in force and the insured living at that time,
annually ascertain the amount of the surplus to which all such policies as a separate
class are entitled, and shall annually apportion to such policies as a class the amount
of the surplus so ascertained, and carry the amount of such apportioned surplus, plus
the actual interest earnings and accretions to such fund, as a distinct and separate
liability to such class of policies on and for which the same was accumulated, and no
company or any of its officers shall be permitted to use any part of such apportioned
surplus fund for any purpose whatsoever other than for the express purpose for which
the same was accumulated.
SEC. 219. Every insurance company, other than life, shall maintain a reserve for
unearned premiums on its policies in force, which shall be charged as a liability in any
determination of its financial condition. Such reserve shall be calculated based on the
twenty-fourth (24th) method.
SEC. 220. In addition to its liabilities and reserves on contracts of insurance issued by
it, every insurance company shall be charged with the estimated amount of all of its
other liabilities, including taxes, expenses and other obligations due or accrued at the
date of statement, and including any special reserves required by the Commissioner
pursuant to the provisions of this Code.
TITLE 6
Limit Of Single Risk
SEC. 221. No insurance company other than life, whether foreign or domestic, shall
retain any risk on any one subject of insurance in an amount exceeding twenty percent
(20%) of its net worth. For purposes of this section, the term subject of insurance shall
include all properties or risks insured by the same insurer that customarily are
considered by non-life company underwriters to be subject to loss or damage from the
same occurrence of any hazard insured against.
The Commissioner may issue regulations providing for a maximum limit on the
overall retained risks of insurers to serve as a catastrophe cover requirement for the
same.
Reinsurance ceded as authorized under the succeeding title shall be deducted in
determining the risk retained. As to surety risk, deduction shall also be made of the
amount assumed by any other company authorized to transact surety business and the
value of any security mortgaged, pledged, or held subject to the surety’s control and
for the surety’s protection.
TITLE 7
Reinsurance Transactions
SEC. 222. An insurance company doing business in the Philippines may accept
reinsurances only of such risks, and retain risk thereon within such limits, as it is
otherwise authorized to insure.
SEC. 223. No insurance company doing business in the Philippines shall cede all or
part of any risks situated in the Philippines by way of reinsurance directly to any
foreign insurer not authorized to do business in the Philippines unless such foreign
insurer or, if the services of a nonresident broker are utilized, such nonresident broker
is represented in the Philippines by a resident agent duly registered with the
Commissioner as required in this Code.
The resident agent of such unauthorized foreign insurer or nonresident broker shall
immediately upon registration furnish the Commissioner with the annual statement of
such insurer, or of such company or companies where such broker may place
Philippine business as of the year preceding such registration, and annually thereafter
as soon as available.
SEC. 224. All insurance companies, both life and non-life, authorized to do business
in the Philippines shall cede their excess risks to other companies similarly authorized
to do business in the Philippines in such amounts and under such arrangements as
34
would be consistent with sound underwriting practices before they enter into
reinsurance arrangements with unauthorized foreign insurers.
SEC. 225. Any insurance company doing business in the Philippines desiring to cede
their excess risks to foreign insurance or reinsurance companies not authorized to
transact business in the Philippines may do so under such terms and conditions which
the Commissioner may prescribe.
Should any reinsurance agreement be for any reason cancelled or terminated, the
ceding company concerned shall inform the Commissioner in writing of such
cancellation or termination within thirty (30) days from the date of such cancellation
or termination or from the date notice or information of such cancellation or
termination is received by such company as the case may be.
SEC. 226. Every insurance company authorized to do business in the Philippines shall
report to the Commissioner on forms prescribed by him the particulars of reinsurance
treaties or any new treaties or changes in existing treaties within three (3) months from
their effectivity.
SEC. 227. No credit shall be allowed as an admitted asset or as a deduction from
liability, to any ceding insurer for reinsurance made, ceded, renewed, or otherwise
becoming effective after January 1, 1975, unless the reinsurance shall be payable by
the assuming insurer on the basis of the liability of the ceding insurer under the contract
or contracts reinsured without diminution because of the insolvency of the ceding
insurer nor unless under the contract or contracts of reinsurance the liability for such
reinsurance is assumed by the assuming insurer or insurers as of the same effective
date; nor unless the reinsurance agreement provides that payments by the assuming
insurer shall be made directly to the ceding insurer or to its liquidator, receiver, or
statutory successor except:
(a) Where the contract specifically provides another payee of such reinsurance
in the event of the insolvency of the ceding insurer; and
(b) Where the assuming insurer with the consent of the direct insured or insureds
has assumed such policy obligations of the ceding insurer as direct
obligations of the assuming insurer to the payees under such policies and in
substitution for the obligations of the ceding insurer to such payees.
SEC. 228. No life insurance company doing business in the Philippines shall reinsure
its whole risk on any individual life or joint lives, or substantially all of its insurance
in force, without having first obtained the written permission of the Commissioner.
TITLE 8
Annual Statement
SEC. 229. Every insurance company doing business in the Philippines shall terminate
its fiscal period on the thirty-first day of December every year, and shall annually on
or before the thirtieth day of April of each year render to the Commissioner a statement
signed and sworn to by the chief officer of such company showing, in such form and
details as may be prescribed by the Commissioner, the exact condition of its affairs on
the preceding thirty-first day of December.
The annual statement shall be prepared in accordance with the financial reporting
framework as determined by the Commissioner. In addition, the Commissioner may
require other relevant information. The form and details of such other relevant
information shall be prescribed by the Commissioner and shall form part of the
supplementary schedules to the annual statement.
Any entry in the statement which is found to be false shall constitute a misdemeanor
and the officer signing such statement shall be subject to the penalty provided for under
Section 442.
SEC. 230. Every insurance company authorized under Title 10 of this chapter to issue,
deliver or use variable contracts shall annually file with the Commissioner separate
annual statement of its separate variable accounts. Such statement shall be on a form
prescribed or approved by the Commissioner and shall include details as to all of the
income, disbursements, assets and liability items of and associated with the said
separate variable accounts. Said statement shall be under oath of two (2) officers of
the company and shall be filed simultaneously with the annual statement required by
the preceding section.
SEC. 231. Within thirty (30) days after receipt of the annual statement approved by
the Commissioner, every insurance company doing business in the Philippines shall
publish in a newspaper of general circulation, a full synopsis of its annual financial
statement showing fully the conditions of its business, and setting forth its resources
and liabilities in accordance with such form prescribed by the Commissioner.
The Commissioner shall have the authority to make, amend, and rescind such
accounting rules and regulations as may be necessary to carry out the provisions of
this Code, and define accounting, technical and trade terms used in this
Code: Provided, That such shall be in accordance with internationally accepted
accounting standards. Among other things, the Commissioner may prescribe the form
or forms in which required information shall be set forth, the items or details to be
shown in the balance sheet and income statement, and the methods to be followed in
the preparation of accounts, appraisal or valuation of assets and liabilities,
determination of recurring and nonrecurring income, differentiation of investment and
operating income, and in the preparation, where the Commissioner deems it necessary
or desirable, of consolidated balance sheets or income accounts of any person directly
or indirectly controlling or controlled by the insurance company.
TITLE 9
Policy Forms
35
SEC. 232. No policy, certificate or contract of insurance shall be issued or delivered
within the Philippines unless in the form previously approved by the Commissioner,
and no application form shall be used with, and no rider, clause, warranty or
endorsement shall be attached to, printed or stamped upon such policy, certificate or
contract unless the form of such application, rider, clause, warranty or endorsement
has been approved by the Commissioner.
SEC. 233. In the case of individual life or endowment insurance, the policy shall
contain in substance the following conditions:
(a) A provision that the policyholder is entitled to a grace period either of thirty
(30) days or of one (1) month within which the payment of any premium after
the first may be made, subject at the option of the insurer to an interest charge
not in excess of six percent (6%) per annum for the number of days of grace
elapsing before the payment of the premium, during which period of grace
the policy shall continue in full force, but in case the policy becomes a claim
during the said period of grace before the overdue premium is paid, the
amount of such premium with interest may be deducted from the amount
payable under the policy in settlement;
(b) A provision that the policy shall be incontestable after it shall have been in
force during the lifetime of the insured for a period of two (2) years from its
date of issue as shown in the policy, or date of approval of last reinstatement,
except for nonpayment of premium and except for violation of the conditions
of the policy relating to military or naval service in time of war;
(c) A provision that the policy shall constitute the entire contract between the
parties, but if the company desires to make the application a part of the
contract it may do so provided a copy of such application shall be indorsed
upon or attached to the policy when issued, and in such case the policy shall
contain a provision that the policy and the application therefor shall constitute
the entire contract between the parties;
(d) A provision that if the age of the insured is considered in determining the
premium and the benefits accruing under the policy, and the age of the insured
has been misstated, the amount payable under the policy shall be such as the
premium would have purchased at the correct age;
(e) If the policy is participating, a provision that the company shall periodically
ascertain and apportion any divisible surplus accruing on the policy under
conditions specified therein;
(f) A provision specifying the options to which the policyholder is entitled to in
the event of default in a premium payment after three (3) full annual
premiums shall have been paid. Such option shall consist of:
(1) A cash surrender value payable upon surrender of the policy which shall
not be less than the reserve on the policy, the basis of which shall be
indicated, for the then current policy year and any dividend additions
thereto, reduced by a surrender charge which shall not be more than one-
fifth (1/5) of the entire reserve or two and one-half percent (2½%) of the
amount insured and any dividend additions thereto; and
 (2) One or more paid-up benefits on a plan or plans specified in the policy
of such value as may be purchased by the cash surrender value.
(g) A provision that at any time after a cash surrender value is available under
the policy and while the policy is in force, the company will advance, on
proper assignment or pledge of the policy and on sole security thereof, a sum
equal to, or at the option of the owner of the policy, less than the cash
surrender value on the policy, at a specified rate of interest, not more than the
maximum allowed by law, to be determined by the company from time to
time, but not more often than once a year, subject to the approval of the
Commissioner; and that the company will deduct from such loan value any
existing indebtedness on the policy and any unpaid balance of the premium
for the current policy year, and may collect interest in advance on the loan to
the end of the current policy year, which provision may further provide that
such loan may be deferred for not exceeding six (6) months after the
application therefor is made;
(h) A table showing in figures cash surrender values and paid-up options
available under the policy each year upon default in premium payments,
during at least twenty (20) years of the policy beginning with the year in
which the values and options first become available, together with a provision
that in the event of the failure of the policyholder to elect one of the said
options within the time specified in the policy, one of said options shall
automatically take effect and no policyholder shall ever forfeit his right to
same by reason of his failure to so elect;
(i) In case the proceeds of a policy are payable in installments or as an annuity,
a table showing the minimum amounts of the installments or annuity
payments;
(j) A provision that the policyholder shall be entitled to have the policy
reinstated at any time within three (3) years from the date of default of
premium payment unless the cash surrender value has been duly paid, or the
extension period has expired, upon production of evidence of insurability
satisfactory to the company and upon payment of all overdue premiums and
any indebtedness to the company upon said policy, with interest rate not
exceeding that which would have been applicable to said premiums and
indebtedness in the policy years prior to reinstatement.
Any of the foregoing provisions or portions thereof not applicable to single premium
or term policies shall to that extent not be incorporated therein; and any such policy
may be issued and delivered in the Philippines which in the opinion of the
Commissioner contains provisions on any one or more of the foregoing requirements
more favorable to the policyholder than hereinbefore required.
This section shall not apply to policies of group life or industrial life insurance.
SEC. 234. No policy of group life insurance shall be issued and delivered in the
Philippines unless it contains in substance the following provisions, or provisions
36
which in the opinion of the Commissioner are more favorable to the persons insured,
or at least as favorable to the persons insured and more favorable to the policyholders:
(a) A provision that the policyholder is entitled to a grace period of either thirty
(30) days or of one (1) month for the payment of any premium due after the
first, during which grace period the death benefit coverage shall continue in
force, unless the policyholder shall have given the insurer written notice of
discontinuance in advance of the date of discontinuance and in accordance
with the terms of the policy. The policy may provide that the policyholder
shall be liable for the payment of a pro rata premium for the time the policy
is in force during such grace period;
(b) A provision that the validity of the policy shall not be contested, except for
nonpayment of premiums after it has been in force for two (2) years from its
date of issue; and that no statement made by any insured under the policy
relating to his insurability shall be used in contesting the validity of the
insurance with respect to which such statement was made after such insurance
has been in force prior to the contest for a period of two (2) years during such
person’s lifetime nor unless contained in a written instrument signed by him;
(c) A provision that a copy of the application, if any, of the policyholder shall be
attached to the policy when issued, that all statements made by the
policyholder or by persons insured shall be deemed representations and not
warranties, and that no statement made by any insured shall be used in any
contest unless a copy of the instrument containing the statement is or has been
furnished to such person or to his beneficiary;
(d) A provision setting forth the conditions, if any, under which the insurer
reserves the right to require a person eligible for insurance to furnish evidence
of individual insurability satisfactory to the insurer as a condition to part or all
of his coverage;
(e) A provision specifying an equitable adjustment of premiums or of benefits or
of both to be made in the event that the age of a person insured has been
misstated, such provision to contain a clear statement of the method of
adjustment to be used;
(f) A provision that any sum becoming due by reason of death of the person
insured shall be payable to the beneficiary designated by the insured, subject
to the provisions of the policy in the event that there is no designated
beneficiary, as to all or any part of such sum, living at the death of the insured,
and subject to any right reserved by the insurer in the policy and set forth in
the certificate to pay at its option a part of such sum not exceeding Five
hundred pesos (P500.00) to any person appearing to the insurer to be equitably
entitled thereto by reason of having incurred funeral or other expenses incident
to the last illness or, death of the person insured;
(g) A provision that the insurer will issue to the policyholder for delivery to each
person insured a statement as to the insurance protection to which he is
entitled, to whom the insurance benefits are payable, and the rights set forth in
paragraphs (h), (i) and (j) following;
 (h) A provision that if the insurance, or any portion of it, on a person covered
under the policy ceases because of termination of employment or of
membership in the class or classes eligible for coverage under the policy, such
person shall be entitled to have issued to him by the insurer, without evidence
of insurability, an individual policy of life insurance without disability or other
supplementary benefits, provided application for the individual policy and
payment of the first premium to the insurer shall be made within thirty (30)
days after such termination, and provided further that:
(1) The individual policy shall be on any one of the forms, except term
insurance, then customarily issued by the insurer at the age and for an
amount not in excess of the coverage under the group policy; and
(2) The premium on the individual policy shall be at the insurer’s then
customary rate applicable to the form and amount of the individual policy,
to the class of risk to which such person then belongs, and to his age
attained on the effective date of the individual policy.
(i) A provision that if the group policy terminates or is amended so as to terminate
the insurance of any class of insured persons, every person insured thereunder
at the date of such termination whose insurance terminates and who has been
so insured for five (5) years prior to such termination date shall be entitled to
have issued to him by the insurer an individual policy of life insurance subject
to the same limitations as set forth in paragraph (h), except that the group
policy may provide that the amount of such individual policy shall not exceed
the amount of the person’s life insurance protection ceasing;
(j) A provision that if a person insured under the group policy dies during the
thirty (30)-day period within which he would have been entitled to an
individual policy issued to him in accordance with paragraphs (h) and (i)
above and before such individual policy shall have become effective, the
amount of life insurance which he would have been entitled to have issued to
him as an individual policy shall be payable as a claim under the group policy
whether or not application for the individual policy or the payment of the first
premium has been made;
(k) In the case of a policy issued to a creditor to insure debtors of such creditor, a
provision that the insurer will furnish to the policyholder for delivery to each
debtor insured under the policy a form which will contain a statement that the
life of the debtor is insured under the policy and that any death benefit paid
thereunder by reason of his death shall be applied to reduce or extinguish
indebtedness.
The provisions of paragraphs (f) to (j) shall not apply to policies issued to a creditor to
insure his debtors. If a group life policy is on a plan of insurance other than term, it
shall contain a non-forfeiture provision or provisions which in the opinion of the
Commissioner is or are equitable to the insured or the policyholder: Provided, That
nothing herein contained shall be so construed as to require group life policies to
contain the same non-forfeiture provisions as are required of individual life policies.
37
SEC. 235. The term industrial life insurance as used in this Code shall mean that form
of life insurance under which the premiums are payable either monthly or oftener, if
the face amount of insurance provided in any policy is not more than five hundred
times that of the current statutory minimum daily wage in the City of Manila, and if
the words industrial policy are printed upon the policy as part of the descriptive matter.
An industrial life policy shall not lapse for nonpayment of premium if such
nonpayment was due to the failure of the company to send its representative or agent
to the insured at the residence of the insured or at some other place indicated by him
for the purpose of collecting such premium: Provided, That the provisions of this
paragraph shall not apply when the premium on the policy remains unpaid for a period
of three (3) months or twelve (12) weeks after the grace period has expired.
SEC. 236. In the case of industrial life insurance, the policy shall contain in substance
the following provisions:
(a) A provision that the insured is entitled to a grace period of four (4) weeks
within which the payment of any premium after the first may be made, except
that where premiums are payable monthly, the period of grace shall be either
one (1) month or thirty (30) days; and that during the period of grace, the
policy shall continue in full force, but if during such grace period the policy
becomes a claim, then any overdue and unpaid premiums may be deducted
from any amount payable under the policy in settlement;
(b) A provision that the policy shall be incontestable after it has been in force
during the lifetime of the insured for a specified period, not more than two (2)
years from its date of issue, except for nonpayment of premiums and except
for violation of the conditions of the policy relating to naval or military
service, or services auxiliary thereto, and except as to provisions relating to
benefits in the event of disability as defined in the policy, and those granting
additional insurance specifically against death by accident or by accidental
means, or to additional insurance against loss of, or loss of use of, specific
members of the body;
(c) A provision that the policy shall constitute the entire contract between the
parties, or if a copy of the application is endorsed upon and attached to the
policy when issued, a provision that the policy and the application therefor
shall constitute the entire contract between the parties, and in the latter case, a
provision that all statements made by the insured shall, in the absence of fraud,
be deemed representations and not warranties;
(d) A provision that if the age of the person insured, or the age of any person,
considered in determining the premium, or the benefits accruing under the
policy, has been misstated, any amount payable or benefit accruing under the
policy shall be such as the premium paid would have purchased at the correct
age;
(e) A provision that if the policy is a participating policy, the company shall
periodically ascertain and apportion any divisible surplus accruing on the
policy under the conditions specified therein;
(f) A provision that in the event of default in premium payments after three (3)
full years’ premiums have been paid, the policy shall be converted into a
stipulated form of insurance, and that in the event of default in premium
payments after five (5) full years’ premiums have been paid, a specified cash
surrender value shall be available, in lieu of the stipulated form of insurance,
at the option of the policyholder. The net value of such stipulated form of
insurance and the amount of such cash value shall not be less than the reserve
on the policy and dividend additions thereto, if any, at the end of the last
completed policy year for which premiums shall have been paid (the policy to
specify the mortality table, rate of interest and method of valuation adopted to
compute such reserve), exclusive of any reserve on disability benefits and
accidental death benefits, less an amount not to exceed two and one-half
percent (2½%) of the maximum amount insured by the policy and dividend
additions thereto, if any, when the issue age is under ten (10) years, and less
an amount not to exceed two and one-half percent (2½%) of the current
amount insured by the policy and dividend additions thereto, if any, if the issue
age is ten (10) years or older, and less any existing indebtedness to the
company on or secured by the policy;
(g) A provision that the policy may be surrendered to the company at its home
office within a period of not less than sixty (60) days after the due date of a
premium in default for the specified cash value: Provided, That the insurer
may defer payment for not more than six (6) months after the application
therefor is made;
(h) A table that shows in figures the nonforfeiture benefits available under the
policy every year upon default in payment of premiums during at least the first
twenty (20) years of the policy, such table to begin with the year in which such
values become available, and a provision that the company will furnish upon
request an extension of such table beyond the year shown in the policy;
(i) A provision that specifies which one of the stipulated forms of insurance
provided for under the provision of paragraph (f) of this section shall take
effect in the event of the insured’s failure, within sixty (60) days from the due
date of the premium in default, to notify the insurer in writing as to which one
of such forms he has selected;
(j) A provision that the policy may be reinstated at any time within two (2) years
from the due date of the premium in default unless the cash surrender value
has been paid or the period of extended term insurance expired, upon
production of evidence of insurability satisfactory to the company and
payment of arrears of premiums with interest at a rate not exceeding six
percent (6%) per annum payable annually;
(k) A provision that when a policy shall become a claim by death of the insured,
settlement shall be made upon receipt of due proof of death, or not later than
two (2) months after receipt of such proof;
(l) A title on the face and on the back of the policy correctly describing its form;
(m) A space on the front or the back of the policy for the name of the beneficiary
designated by the insured with a reservation of the insured’s right to designate
38
or change the beneficiary after the issuance of the policy. The policy may also
provide that no designation or change of beneficiary shall be binding on the
insurer until endorsed on the policy by the insurer, and that the insurer may
refuse to endorse the name of any proposed beneficiary who does not appear
to the insurer to have an insurable interest in the life of the insured. Such policy
may also contain a provision that if the beneficiary designated in the policy
does not surrender the policy with due proof of death within the period stated
in the policy, which shall not be less than thirty (30) days after the death of the
insured, or if the beneficiary is the estate of the insured, or is a minor, or dies
before the insured, or is not legally competent to give valid release, then the
insurer may make any payment thereunder to the executor or administrator of
the insured, or to any of the insured’s relatives by blood or legal adoption or
connections by marriage or to any person appearing to the insurer to be
equitably entitled thereto by reason of having incurred expense for the
maintenance, medical attention or burial of the insured; and
(n) A provision that when an industrial life insurance policy is issued providing
for accidental or health benefits, or both, in addition to life insurance, the
foregoing provisions shall apply only to the life insurance portion of the
policy.
Any of the foregoing provisions or portions thereof not applicable to nonparticipating
or term policies shall to that extent not be incorporated therein. The foregoing
provisions shall not apply to policies issued or granted pursuant to the nonforfeiture
provisions prescribed in provisions of paragraphs (f) and (i) of this section, nor shall
provisions of paragraphs (f), (g), (h), and (i) hereof be required in term insurance of
twenty (20) years or less but such term policies shall specify the mortality table, rate
of interest, and method of computing reserves.
SEC. 237. No policy of industrial life insurance shall be issued or delivered in the
Philippines if it contains any of the following provisions:
(a) A provision that gives the insurer the right to declare the policy void because
the insured has had any disease or ailment, whether specified or not, or
because the insured has received institutional, hospital, medical or surgical
treatment or attention, except a provision which gives the insurer the right to
declare the policy void if the insured has, within two (2) years prior to the
issuance of the policy, received institutional, hospital, medical or surgical
treatment or attention and if the insured or the claimant under the policy fails
to show that the condition occasioning such treatment or attention was not of
a serious nature or was not material to the risk;
(b) A provision that gives the insurer the right to declare the policy void because
the insured has been rejected for insurance, unless such right be conditioned
upon a showing by the insurer that knowledge of such rejection would have
led to a refusal by the insurer to make such contract;
(c) A provision that allows the company to pay the proceeds of the policy at the
death of the insured to any person other than the named beneficiary, except
 in accordance with a standard provision as specified under the provisions of
paragraph (m) of the preceding section;
(d) (d) A provision that limits the time within which any action at law or in equity
may be commenced to less than six (6) years after the cause of action shall
accrue; and
(e) (e) A provision that specifies any mode of settlement at maturity of less value
than the amount insured by the policy plus dividend additions, if any, less any
indebtedness to the company on the policy and less any premium that may by
the terms of the policy be deducted, payments to be made in accordance with
the terms of the policy.
Nothing contained in this section nor in the provision of paragraph (b) of the preceding
section, relating to incontestability, shall be construed as prohibiting the life insurance
company from placing in its industrial life policies provisions limiting its liability with
respect to:
(1) Death resulting from aviation other than as a fare-paying passenger on a
regularly scheduled route between definitely established airports; and
(2) Military or naval service: Provided, That if the liability of the company is
limited as herein provided, such liability shall in no event be fixed at an
amount less than the reserve on the policy (excluding the reserve for any
additional benefits in the event of death by accident or accidental means or for
benefits in the event of any type of disability), less any indebtedness on or
secured by such policy; nor shall any provision of this section apply to any
provision in an industrial life insurance policy for additional benefits in the
event of death by accident or accidental means.
TITLE 10
Variable Contracts
SEC. 238. (a) No insurance company authorized to transact business in the Philippines
shall issue, deliver, sell or use any variable contract in the Philippines, unless and until
such company shall have satisfied the Commissioner that its financial and general
condition and its methods of operations, including the issue and sale of variable
contracts, are not and will not be hazardous to the public or to its policy and contract
owners. No foreign insurance company shall be authorized to issue, deliver or sell any
variable contract in the Philippines, unless it is likewise authorized to do so by the laws
of its domicile.
(b) The term variable contract shall mean any policy or contract on either a group or
on an individual basis issued by an insurance company providing for benefits or other
contractual payments or values thereunder to vary so as to reflect investment results
of any segregated portfolio of investments or of a designated separate account in which
amounts received in connection with such contracts shall have been placed and
accounted for separately and apart from other investments and accounts. This contract
may also provide benefits or values incidental thereto payable in fixed or variable
39
amounts, or both. It shall not be deemed to be a security or securities as defined in The
Securities Act, as amended, or in the Investment Company Act, as amended, nor
subject to regulations under said Acts.
(c) In determining the qualifications of a company requesting authority to issue,
deliver, sell or use variable contracts, the Commissioner shall always consider the
following:
(1) The history, financial and general condition of the company: Provided, That
such company, if a foreign company, must have deposited with the
Commissioner for the benefit and security of its variable contract owners in
the Philippines, securities satisfactory to the Commissioner consisting of
bonds of the Government of the Philippines or its instrumentalities with an
actual market value of Two million pesos (P2,000,000.00);
(2) The character, responsibility and fitness of the officers and directors of the
company; and
(3) The law and regulation under which the company is authorized in the state of
domicile to issue such contracts.
(d) If after notice and hearing, the Commissioner shall find that the company is
qualified to issue, deliver, sell or use variable contracts in accordance with this Code
and the regulations and rules issued thereunder, the corresponding order of
authorization shall be issued. Any decision or order denying authority to issue, deliver,
sell or use variable contracts shall clearly and distinctly state the reasons and grounds
on which it is based.
SEC. 239. Any insurance company issuing variable contracts pursuant to this Code
may in its discretion issue contracts providing a combination of fixed amount and
variable amount of benefits and for option lump-sum payment of benefits.
SEC. 240. Every variable contract form delivered or issued for delivery in the
Philippines, and every certified form evidencing variable benefits issued pursuant to
any such contract on a group basis, and the application, rider and endorsement forms
applicable thereto and used in connection therewith, shall be subject to the prior
approval of the Commissioner.
SEC. 241. Illustration of benefits payable under any variable contract shall not include
or involve projections of past investment experience into the future and shall conform
with the rules and regulations promulgated by the Commissioner.
SEC. 242. Variable contracts may be issued on the industrial life basis, provided that
the pertinent provisions of this Code and of the rules and regulations of the
Commissioner governing variable contracts are complied with in connection with such
contracts.
SEC. 243. Every life insurance company authorized under the provisions of this Code
to issue, deliver, sell or use variable contracts shall, in connection with the same,
establish one or more separate accounts to be known as separate variable accounts. All
amounts received by the company in connection with any such contracts which are
required by the terms thereof, to be allocated or applied to one or more designated
separate variable accounts shall be placed in such designated account or accounts. The
assets and liabilities of each such separate variable account shall at all times be clearly
identifiable and distinguishable from the assets and liabilities in all other accounts of
the company. Notwithstanding any provision of law to the contrary, the assets held in
any such separate variable account shall not be chargeable with liabilities arising out
of any other business the company may conduct but shall be held and applied
exclusively for the benefit of the owners or beneficiaries of the variable contracts
applicable thereto. In the event of the insolvency of the company, the assets of each
such separate variable account shall be applied to the contractual claims of the owners
or beneficiaries of the variable contracts applicable thereto. Except as otherwise
specifically provided by the contract, no sale, exchange or other transfer of assets may
be made by a company, between any of its separate accounts or between any other
investment account and one or more of its separate accounts, unless in the case of a
transfer into a separate account, such transfer is made solely to establish the account
or to support the operation of the contracts with respect to the separate account to
which the transfer is made, or in case of a transfer from a separate account, such
transfer would not cause the remaining assets of the account to become less than the
reserves and other contract liabilities with respect to such separate account. Such
transfer, whether into or from a separate account, shall be made by a transfer of cash,
or by a transfer of securities having a valuation which could be readily determined in
the market place: Provided, That such transfer of securities is approved by the
Commissioner. The Commissioner may authorize other transfers among such
accounts, if, in his opinion, such transfers would not be inequitable. All amounts and
assets allocated to any such separate variable account shall be owned by the company
and with respect to the same the company shall not be nor hold itself out to be a trustee.
SEC. 244. Any insurance company which has established one or more separate
variable accounts pursuant to the preceding section may invest and reinvest all or any
part of the assets allocated to any such account in the securities and investments
authorized by Sections 204, 206, 207 and 208 for any of the funds of an insurance
company in such amount or amounts as may be approved by the Commissioner. In
addition thereto, such company may also invest in common stocks or other equities
which are listed on or admitted to trading in a securities exchange located in the
Philippines, or which are publicly held and traded in the over-the-counter market as
defined by the Commissioner and as to which market quotations have been
available: Provided, however, That no such company shall invest in excess of ten
percent (10%) of the assets of any such separate variable accounts in any one
corporation issuing such common stock. The assets and investments of such separate
variable accounts shall not be taken into account in applying the quantitative
investment limitations applicable to other investments of the company. In the purchase
40
of common capital stock or other equities, the insurer shall designate to the broker, or
to the seller if the purchase is not made through a broker, the specific variable account
for which the investment is made.
SEC. 245. Assets allocated to any separate variable account shall be valued at their
market value on the date of any valuation, or if there is no readily available market
value then in accordance with the terms of the variable contract applicable to such
assets, or if there are no such contract terms then in such manner as may be prescribed
by the rules and regulations of the Commissioner.
SEC. 246. The reserve liability for variable contracts shall be established in
accordance with actuarial procedures that recognize the variable nature of the benefits
provided, and shall be approved by the Commissioner.
TITLE 11
Claims Settlement
SEC. 247. (a) No insurance company doing business in the Philippines shall refuse,
without just cause, to pay or settle claims arising under coverages provided by its
policies, nor shall any such company engage in unfair claim settlement practices. Any
of the following acts by an insurance company, if committed without just cause and
performed with such frequency as to indicate a general business practice, shall
constitute unfair claim settlement practices:
(1) Knowingly misrepresenting to claimants pertinent facts or policy provisions
relating to coverage at issue;
(2) Failing to acknowledge with reasonable promptness pertinent
communications with respect to claims arising under its policies;
(3) Failing to adopt and implement reasonable standards for the prompt
investigation of claims arising under its policies;
(4) Not attempting in good faith to effectuate prompt, fair and equitable
settlement of claims submitted in which liability has become reasonably
clear; or
(5) Compelling policyholders to institute suits to recover amounts due under its
policies by offering without justifiable reason substantially less than the
amounts ultimately recovered in suits brought by them.
(b) Evidence as to numbers and types of valid and justifiable complaints to the
Commissioner against an insurance company, and the Commissioner’s complaint
experience with other insurance companies writing similar lines of insurance shall be
admissible in evidence in an administrative or judicial proceeding brought under this
section.
(c) If it is found, after notice and an opportunity to be heard, that an insurance company
has violated this section, each instance of noncompliance with paragraph (a) may be
treated as a separate violation of this section and shall be considered sufficient cause
for the suspension or revocation of the company’s certificate of authority.

SEC. 248. The proceeds of a life insurance policy shall be paid immediately upon
maturity of the policy, unless such proceeds are made payable in installments or as an
annuity, in which case the installments, or annuities shall be paid as they become
due: Provided, however, That in the case of a policy maturing by the death of the
insured, the proceeds thereof shall be paid within sixty (60) days after presentation of
the claim and filing of the proof of death of the insured. Refusal or failure to pay the
claim within the time prescribed herein will entitle the beneficiary to collect interest
on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless such failure or refusal to pay is based on the
ground that the claim is fraudulent.
The proceeds of the policy maturing by the death of the insured payable to the
beneficiary shall include the discounted value of all premiums paid in advance of their
due dates, but are not due and payable at maturity.
SEC. 249. The amount of any loss or damage for which an insurer may be liable, under
any policy other than life insurance policy, shall be paid within thirty (30) days after
proof of loss is received by the insurer and ascertainment of the loss or damage is made
either by agreement between the insured and the insurer or by arbitration; but if such
ascertainment is not had or made within sixty (60) days after such receipt by the insurer
of the proof of loss, then the loss or damage shall be paid within ninety (90) days after
such receipt. Refusal or failure to pay the loss or damage within the time prescribed
herein will entitle the assured to collect interest on the proceeds of the policy for the
duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board,
unless such failure or refusal to pay is based on the ground that the claim is fraudulent.
SEC. 250. In case of any litigation for the enforcement of any policy or contract of
insurance, it shall be the duty of the Commissioner or the Court, as the case may be,
to make a finding as to whether the payment of the claim of the insured has been
unreasonably denied or withheld; and in the affirmative case, the insurance company
shall be adjudged to pay damages which shall consist of attorney’s fees and other
expenses incurred by the insured person by reason of such unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed by the Monetary
Board of the amount of the claim due the insured, from the date following the time
prescribed in Section 248 or in Section 249, as the case may be, until the claim is fully
satisfied: Provided, That failure to pay any such claim within the time prescribed in
said sections shall be considered prima facie evidence of unreasonable delay in
payment.
SEC. 251. It is unlawful to:
(a) Present or cause to be presented any fraudulent claim for the payment of a
loss under a contract of insurance; and
(b) Fraudulently prepare, make or subscribe any writing with intent to present or
use the same, or to allow it to be presented in support of any such claim. Any
person who violates this section shall be punished by a fine not exceeding
41
twice the amount claimed or imprisonment of two (2) years, or both, at the
discretion of the court.
TITLE 12
Examination Of Companies
SEC. 252. The Commissioner shall require every insurance company doing business
in the Philippines to keep its books, records, accounts and vouchers in such manner
that he or his authorized representatives may readily verify its annual statements and
ascertain whether the company is solvent and has complied with the provisions of this
Code or the circulars, instructions, rulings or decisions of the Commissioner.
SEC. 253. The Commissioner shall at least once a year and whenever he considers the
public interest so demands, cause an examination to be made into the affairs, financial
condition and method of business of every insurance company authorized to transact
business in the Philippines and of any other person, firm or corporation managing the
affairs and/or property of such insurance company. Such company, as well as such
managing person, firm or corporation, shall submit to the examiner all such books,
papers and securities as he may require and such examiner shall also have the power
to examine the officers of such company under oath touching its business and financial
condition, and the authority to transact business in the Philippines of any such
company shall be suspended by the Commissioner if such examination is refused and
such company shall not thereafter be allowed to transact further business in the
Philippines until it has fully complied with the provisions of this section.
Government-owned or -controlled corporations or entities engaged in social or private
insurance shall similarly be subject to such examination by the Commissioner unless
their respective charters otherwise provide.
TITLE 13
Suspension Or Revocation Of Authority
SEC. 254. If the Commissioner is of the opinion upon examination of other evidence
that any domestic or foreign insurance company is in an unsound condition, or that it
has failed to comply with the provisions of law or regulations obligatory upon it, or
that its condition or method of business is such as to render its proceedings hazardous
to the public or to its policyholders, or that its net worth requirement, in the case of a
domestic stock company, or its available cash assets, in the case of a domestic mutual
company, or its security deposits, in the case of a foreign company, is impaired or
deficient, or that the margin of solvency required of such company is deficient, the
Commissioner is authorized to suspend or revoke all certificates of authority granted
to such insurance company, its officers and agents, and no new business shall
thereafter be done by such company or for such company by its agent in the Philippines
while such suspension, revocation or disability continues or until its authority to do
business is restored by the Commissioner. Before restoring such authority, the
Commissioner shall require the company concerned to submit to him a business plan
showing the company’s estimated receipts and disbursements, as well as the basis
therefor, for the next succeeding three (3) years.
TITLE 14
Appointment Of Conservator
SEC. 255. If at any time before, or after, the suspension or revocation of the certificate
of authority of an insurance company as provided in the preceding title, the
Commissioner finds that such company is in a state of continuing inability or
unwillingness to maintain a condition of solvency or liquidity deemed adequate to
protect the interest of policyholders and creditors, he may appoint a conservator to take
charge of the assets, liabilities, and the management of such company, collect all
moneys and debts due to said company and exercise all powers necessary to preserve
the assets of said company, reorganize the management thereof, and restore its
viability. The said conservator shall have the power to overrule or revoke the actions
of the previous management and board of directors of the said company, any provision
of law, or of the articles of incorporation or bylaws of the company, to the contrary
notwithstanding, and such other powers as the Commissioner shall deem necessary.
The conservator may be another insurance company doing business in the Philippines,
any officer or officers of such company, or any other competent and qualified person,
firm or corporation. The remuneration of the conservator and other expenses attendant
to the conservation shall be borne by the insurance company concerned.
The conservator shall not be subject to any action, claim or demand by, or liability to,
any person in respect of anything done or omitted to be done in good faith in the
exercise, or in connection with the exercise, of the powers conferred on the
conservator.
The conservator appointed shall report and be responsible to the Commissioner until
such time as the Commissioner is satisfied that the insurance company can continue to
operate on its own and the conservatorship shall likewise be terminated should the
Commissioner, on the basis of the report of the conservator or of his own findings,
determine that the continuance in business of the insurance company would be
hazardous to policyholders and creditors, in which case the provisions of Title 15 shall
apply.
No insurance company, life or non-life, or any professional reinsurer, ordered to be
liquidated by the Commissioner under the provisions hereunder may be rehabilitated
or authorized to transact anew, insurance or reinsurance business, as the case may be.
TITLE 15
Proceedings Upon Insolvency
42
SEC. 256. Whenever, upon examination or other evidence, it shall be disclosed that
the condition of any insurance company doing business in the Philippines is one of
insolvency, or that its continuance in business would be hazardous to its policyholders
and creditors, the Commissioner shall forthwith order the company to cease and desist
from transacting business in the Philippines and shall designate a receiver to
immediately take charge of its assets and liabilities, as expeditiously as possible collect
and gather all the assets and administer the same for the benefit of its policyholders
and creditors, and exercise all the powers necessary for these purposes including, but
not limited to, bringing suits and foreclosing mortgages in the name of the insurance
company.
The Commissioner shall thereupon determine within ninety (90) days whether the
insurance company may be reorganized or otherwise placed in such condition so that
it may be permitted to resume business with safety to its policyholders and creditors
and shall prescribe the conditions under which such resumption of business shall take
place as well as the time for fulfillment of such conditions. In such case, the expenses
and fees in the collection and administration of the insurance company shall be
determined by the Commissioner and shall be paid out of the assets of such company.
If the Commissioner shall determine and confirm within the said period that the
insurance company is insolvent, as defined hereunder, or cannot resume business with
safety to its policyholders and creditors, he shall, if the public interest requires, order
its liquidation, indicate the manner of its liquidation and approve a liquidation plan
and implement it immediately. The Commissioner shall designate a competent and
qualified person as liquidator who shall take over the functions of the receiver
previously designated and, with all convenient speed, reinsure all its outstanding
policies, convert the assets of the insurance company to cash, or sell, assign or
otherwise dispose of the same to the policyholders, creditors and other parties for the
purpose of settling the liabilities or paying the debts of such company and he may, in
the name of the company, institute such actions as may be necessary in the appropriate
court to collect and recover accounts and assets of the insurance company, and to do
such other acts as may be necessary to complete the liquidation as ordered by the
Commissioner.
The provisions of any law to the contrary notwithstanding, the actions of the
Commissioner under this section shall be final and executory, and can be set aside by
the court upon petition by the company and only if there is convincing proof that the
action is plainly arbitrary and made in bad faith. The Commissioner, through the
Solicitor General, shall then file the corresponding answer reciting the proceeding
taken and praying the assistance of the court in the liquidation of the company. No
restraining order or injunction shall be issued by the court enjoining the Commissioner
from implementing his actions under this section, unless there is convincing proof that
the action of the Commissioner is plainly arbitrary and made in bad faith and the
petitioner or plaintiff files with the Clerk or Judge of the Court in which the action is
pending a bond executed in favor of the Commissioner in an amount to be fixed by the
court. The restraining order or injunction shall be refused or, if granted, shall be
dissolved upon filing by the Commissioner, if he so desires, of a bond in an amount
twice the amount of the bond of the petitioner or plaintiff conditioned that it will pay
the damages which the petition or plaintiff may suffer by the refusal or the dissolution
of the injunction. The provisions of Rule 58 of the New Rules of Court insofar as they
are applicable shall govern the issuance and dissolution of the restraining order or
injunction contemplated in this section.
All proceedings under this title shall be given preference in the courts. The
Commissioner shall not be required to pay any fee to any public officer for filing,
recording, or in any manner authenticating any paper or instrument relating to the
proceedings.
As used in this title, the term Insolvency shall mean the inability of an insurance
company to pay its lawful obligations as they fall due in the usual and ordinary course
of business as may be shown by its failure to maintain the solvency requirements under
Section 200 of this Code.
SEC. 257. The receiver or the liquidator, as the case may be, designated under the
provisions of this title, shall not be subject to any action, claim or demand by, or
liability to, any person in respect of anything done or omitted to be done in good faith
in the exercise, or in connection with the exercise, of the powers conferred on such
receiver or liquidator.
TITLE 16
Consolidation And Merger Of
Insurance Companies
SEC. 258. Upon prior notice to the Commissioner, two (2) or more domestic insurance
companies, acting through their respective boards of directors, may negotiate to merge
into a single corporation which shall be one of the constituent corporations, or
consolidate into a single corporation which shall be a new corporation to be formed by
the consolidation. A common agreement of the proposed merger or consolidation shall
be drawn up for submission to the stockholders or members of the constituent
companies for adoption and approval in accordance with the provisions of the
respective bylaws of the constituent companies and all existing laws that may be
pertinent.
SEC. 259. Such agreement shall include, aside from the proposed merger or
consolidation, provisions relative to the manner of transfer of assets to and assumption
of liabilities by the absorbing or acquiring company from the absorbed or dissolved
company or companies; the proposed articles of merger or consolidation and bylaws
of the surviving or acquiring company; the corporate name to be adopted which should
not be that of any other existing company transacting similar business or one so similar
as to be calculated to mislead the public; the rights of the stockholders or members of
43
the absorbed or dissolved companies; date of effectivity of the merger or
consolidation; and such particulars as may be necessary to explain and make manifest
the objects and purposes of the absorbing or acquiring company.
SEC. 260. Upon execution of such agreement to merge or consolidate by and between
or among the boards of directors of the constituent companies, notice thereof shall be
mailed immediately to their policyholders and creditors. The company or companies
to be absorbed or dissolved shall discharge all its accrued liabilities; otherwise, such
liabilities shall, with the consent of its creditors, be transferred to and assumed by the
absorbing or acquiring company, or such liabilities be reinsured by the latter. In the
case of such policies as are subject to cancellation by the company or companies to be
absorbed or dissolved, same may be cancelled pursuant to the terms thereof in lieu of
such transfer, assumption, or reinsurance.
SEC. 261. Upon approval or adoption in the meetings of the stockholders or members
called for the purpose in each of the constituent companies of the agreement to merge
or consolidate, all stockholders or members dissenting or objecting to the merger or
consolidation shall be paid the value of their shares by the company concerned in
accordance with the bylaws thereof.
SEC. 262. Upon approval or adoption of the agreement to merge or consolidate by the
stockholders or members of the constituent companies, the corresponding articles of
merger or of consolidation shall be duly executed by the presidents and attested by the
corporate secretaries and shall bear the corporate seals of the merging or consolidating
companies setting forth:
(a) The plan of merger or the plan of consolidation;
(b) As to each corporation, the number of shares outstanding, or in case of mutual
corporations, the number of members; and
(c) As to each corporation, the number of shares or members voted for and
against such plan, respectively. Thereafter, a certified copy of such articles of
merger or consolidation, together with a certificate of approval or adoption
by the stockholders or members of such articles of merger or consolidation,
verified by affidavits of such officers and under the seal of the constituent
companies, shall be submitted to the Commissioner, together with such other
papers or documents which the Commissioner may require, for his
consideration.
SEC. 263. The articles of merger or of consolidation, signed and verified as
hereinabove required, shall be filed with the Securities and Exchange Commission for
its examination and approval.
SEC. 264. Upon receipt from the Securities and Exchange Commission of the
certificate of merger or of consolidation, the constituent companies shall surrender to
the Commissioner their respective certificates of authority to transact insurance
business. The absorbing or surviving company in case of merger, or the newly formed
company in case of consolidation, shall immediately file with the Commissioner the
corresponding application for issuance of a new certificate of authority to transact
insurance business, together with a certified copy of the certificate of merger or of
consolidation, and of the certificate of increase of stocks, if there is any, issued by the
Securities and Exchange Commission.
SEC. 265. Nothing in this title shall be construed to enlarge the powers of the
absorbing or surviving company in case of merger, or the newly formed company in
case of consolidation, except those conferred by the certificate of merger or of
consolidation and the articles of merger or of consolidation, or the amended articles of
incorporation, as registered with the Securities and Exchange Commission.
SEC. 266. No director, officer, or stockholder of any such constituent companies shall
receive any fee, commission, compensation, or other valuable consideration
whatsoever, directly or indirectly, or in any manner aiding, promoting or assisting in
such merger or consolidation.
SEC. 267. The merger or consolidation of companies under this Code shall be subject
to the provisions of the Corporation Code, and, in those cases specified in Republic
Act No. 5455, as amended, be further subject to the provisions of said law.
TITLE 17
Mutualization Of Stock Life
Insurance Companies
SEC. 268. Any domestic stock life insurance company doing business in the
Philippines may convert itself into an incorporated mutual life insurer. To that end it
may provide and carry out a plan for the acquisition of the outstanding shares of its
capital stock for the benefit of its policyholders, or any class or classes of its
policyholders, by complying with the requirements of this chapter.
SEC 269. Such plan shall include appropriate proceedings for amending the insurer’s
articles of incorporation to give effect to the acquisition, by said insurer, for the benefit
of its policyholders or any class or classes thereof, of the outstanding shares of its
capital stock and the conversion of the insurer from a stock corporation into a nonstock
corporation for the benefit of its members. The members of such nonstock corporation
shall be the policyholders from time to time of the class or classes for whose benefit
the stock of the insurer was acquired, and the policyholders of such other class or
classes as may be specified in such corporation’s articles of incorporation as they may
be amended from time to time. Such plan shall be:
(a) Adopted by a vote of a majority of the directors;
(b) Approved by the vote of the holders of at least a majority of the outstanding
shares at a special meeting of shareholders called for that purpose, or by the
written consent of such shareholders;
(c) Submitted to the Commissioner and approved by him in writing;
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(d) Approved by a majority vote of all the policyholders of the class or classes
for whose benefit the stock is to be acquired voting at an election by the
policyholders called for that purpose, subject to the provisions of Section 271.
The terms policyholder or policyholders as used in this chapter shall be
deemed to mean the person or persons insured under an individual policy of
life insurance, or of health and accident insurance, or of any combination of
life, health and accident insurance. They shall also include the person or
persons to whom any annuity or pure endowment is presently or
prospectively payable by the terms of an individual annuity or pure
endowment contract, except where the policy or contract declares some other
person to be the owner or holder thereof, in which case such other person
shall be deemed policyholder. In any case where a policy or contract names
two or more persons as joint insured, payees, owners or holders thereof, the
persons so named shall be deemed collectively to be one (1) policyholder for
the purpose of this chapter. In any case where a policy or contract shall have
been assigned by assignment absolute on its face to an assignee other than the
insurer, and such assignment shall have been filed at the principal office of
the insurer at least thirty (30) days prior to the date of any election or meeting
referred to in this chapter, then such assignee shall be deemed at such election
or meeting to be the policyholder. For the purpose of this chapter the
terms policyholder and policyholders include the employer to whom, or a
president, secretary or other executive officer of any corporation or
association to which a master group policy has been issued, but exclude the
holders of certificates or policies issued under or in connection with a master
group policy. Beneficiaries under unmatured contracts shall not as such be
deemed to be policyholders; and
(e) Filed with the Commissioner after having been approved as provided in this
section.
SEC. 270. The Commissioner shall examine the plan submitted to him under the
provisions of subparagraph (c) of Section 269. He shall not approve such plan unless
in his opinion the rights and interests of the insurer, its policyholders and shareholders
are protected nor unless he is satisfied that the plan will be fair and equitable in its
operation.
SEC. 271. The election prescribed by subparagraph (d) of Section 269 shall be called
by the board of directors or the president, and every policyholder of the class or classes
for whose benefit the stock is to be acquired, whose insurance shall have been in force
for at least one (1) year prior to such election shall have one vote, regardless of the
number of policies or amount of insurance he holds, and regardless of whether such
policies are policies of life insurance or policies of health and accident insurance or
annuity contracts. Notice of such election shall be given to policyholders entitled to
vote by mail from the principal office of such insurer at least thirty (30) days prior to
the date set for such election, in a sealed envelope, postage prepaid, addressed to each
such policyholder at his last known address.

Voting shall be by one of the following methods:
(a) At a meeting of such policyholders, held pursuant to such notice, by ballot in
person or by proxy.
(b) If not by the method described in the preceding subparagraph, then by mail
pursuant to a procedure and on forms to be prescribed by such plan.
Such election shall be conducted under the direction and supervision of three (3)
impartial and disinterested inspectors appointed by the insurer and approved by the
Commissioner. In case any person appointed as inspector fails to appear at such
meeting or fails or refuses to act at such election, the vacancy, if occurring in advance
of the convening of the meeting or in advance of the opening of the mail vote, may be
filled in the manner prescribed for the appointment of inspectors and, if occurring at
the meeting or during the canvass of the mail vote, may be filled by the person acting
as chairman of said meeting or designated for that purpose in such plan. The decision,
act or certificate of a majority of the inspectors shall be effective in all respects as the
decision, act or certificate of all. The inspectors of election shall determine the number
of policyholders, the voting power of each, the policyholders represented at the
meeting or voting by mail, the existence of a quorum and the authenticity, validity and
effect of proxies. They shall receive votes, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and tabulate
all votes, determine the result, and do such other acts as are proper to conduct the vote
with fairness to all policyholders. The inspectors of election shall, before commencing
performance of their duties, subscribe to and file with the insurer and with the
Commissioner an oath that they, and each of them, will perform their duties
impartially, in good faith, to the best of their ability and as expeditiously as is
practicable. On the request of the insurer, the Commissioner, a policyholder or his
proxy, the inspectors shall make a report in writing of any challenge or question or
matter determined by them and execute a certificate of any fact found by them. They
shall also certify the result of such vote to the insurer and to the Commissioner. Any
report or certificate made by them shall be prima facie evidence of facts stated therein.
All necessary expenses incurred in connection with such election shall be paid by the
insurer. For the purpose of this section, a quorum shall consist of five percent (5%) of
the policyholders of such insurer entitled to vote at such election.
SEC. 272. In carrying out any such plan, the insurer may acquire any shares of its own
stock by gift, bequest or purchase. Any shares so acquired shall, unless as a result of
such acquisition all of the shares of the insurer shall have been acquired, be acquired
in trust for the policyholders of the class or classes for whose benefit the plan provides
that the stock of the insurer shall be acquired as hereinafter provided. Such shares shall
be assigned and transferred on the books of such insurer and approved by the
Commissioner. Such trustees shall hold such stock in trust until all of the outstanding
shares of capital stock of such insurer have been acquired, but for not longer than thirty
(30) years with such extensions of not more than five (5) years each as may be granted
by the Commissioner. Such extensions may be granted by the Commissioner if the
45
plan so provides and if in his opinion the plan of acquisition of all of such stock can
be completed within a reasonable period. Such trustees shall vote such stock at all
corporate meetings at which stockholders have the right to vote. When all the
outstanding shares of capital stock of such insurer have been acquired, all said shares
shall be cancelled, the certificate of amendment of the insurer’s articles of
incorporation giving effect thereto shall be filed in accordance with the provisions of
the Corporation Code, and the insurer shall become a nonstock corporation for the
profit of its members and such trust shall thereupon terminate. Thereafter such
corporation shall be conducted for the mutual benefit, ratably, of its policyholders of
the class or classes for whose benefit the stock was acquired and shall have power to
issue non-assessable policies on a reserve basis subject to all provisions of law
applicable to incorporated life insurers issuing non-assessable policies on a reserve
basis. Policies so issued may be upon the basis of full or partial participation therein
as agreed between the insurer and the insured.
Upon the termination of any such voting trust, either in accordance with its terms or
as hereinabove provided, such plan of mutualization shall terminate, unless theretofore
completed. Upon such termination, unless the plan of mutualization provides for the
disposition of the shares acquired by the insurer under such plan or for the disposition
of the proceeds thereof, the shares held by such trustees shall be disposed of in
accordance with an order of the court of competent jurisdiction in the judicial district
in which is located the principal office of such insurer, made upon a verified petition
of the Commissioner.
SEC. 273. Any such plan of mutualization may provide for the creation of a voting
trust under a trust agreement for the holding and voting by three (3) or more trustees
of any portion or all of the shares of the insurer not required upon the adoption of such
plan. The voting trustees shall be named in accordance with such plan or, if no
provision is made therein for the naming of such trustees, then by the insurer. The
voting trust agreement and voting trustees shall be subject to the approval of the
Commissioner. Any or all of the trustees under such voting trust agreement may be the
same person or persons as any or all of the trustees referred to in Section 272. Such
voting trust agreement shall provide that in the event of acquisition by the insurer of
any of the shares of stock held thereunder in accordance with the provisions of the
plan, such shares so acquired together with the voting rights thereof shall be transferred
by the trustees named under the provisions of this section to the trustees named under
the provisions of Section 272. Any voting trust agreement created pursuant to the
provisions of this section may be made irrevocable for not longer than thirty (30) years
and thereafter until the termination of the trust provided for in Section 272. The trust
created pursuant to the provisions of this section shall terminate in any event upon
termination of the trust provided for in Section 272. Upon the termination of the trust
created pursuant to the provisions of this section, any shares held in such trust shall
revert to the persons entitled thereto by law.
SEC. 274. Every payment for the acquisition of any shares of the capital stock of such
insurer, the purchase price of which is not fixed by such plan, shall be subject to the
prior approval of the Commissioner. Neither such plan, nor any such payment, may be
approved by the Commissioner unless he finds that the rights and interests of the
insurer, its policyholders, and shareholders are protected.
SEC. 275. The trustees referred to in Section 272 shall file with such insurer and with
the Commissioner a verified acceptance of their appointments and verified
declarations that they will faithfully discharge their duties as such trustees. All
dividends and other sums received by said trustees on the shares held by them, after
paying the necessary expenses of executing their trust, shall be immediately repaid to
such insurer for the benefit of all who are, or may become, policyholders of such
insurance of the class or classes for whose benefit the stock of such insurer was
acquired and entitled to participate in the profits thereof and shall be added to and
become part of the assets of such insurer.
SEC. 276. If, at any time within the period provided in the plan for the acquisition of
the outstanding shares of stock of the insurer, ninety percent (90%) thereof has already
been acquired and transferred to the trustees under the plan, the insurer by a vote of a
majority of the directors may determine to make an offer, with the permission of the
Commissioner and subject to such requirement as he may specify, to acquire by
purchase all of the shares not theretofore acquired under the plan, at a specified price
which the insurer considers to be their fair value as of the date of making such offer.
If the offer to acquire is permitted by the Commissioner, the insurer shall make a
written offer by registered mail to each shareholder whose shares have not theretofore
been acquired under the plan or otherwise, offering to acquire all his shares at such
price if accepted in writing within thirty (30) days after the mailing of such offer. Any
shareholder accepting such offer within the time therefor shall, within sixty (60) days
after his acceptance, transfer to the insurer the certificates representing such shares
and, upon doing so, shall be paid by the insurer the amount of such offer for his shares.
Any share so acquired shall be assigned and transferred to the trustees under the plan
and held by them as shares acquired pursuant to the plan.
Each shareholder who does not accept such offer to acquire his shares within the time
stated in such offer for acceptance thereof shall within fifteen (15) days after the
expiration of such offer apply to the Secretary of Finance for a determination of the
fair value of his shares as of the date of making such offer. The Secretary of Finance
may himself, after due notice and hearing, determine upon the evidence received the
fair value of the shares as of the date of making such offer, or appoint three (3)
impartial and disinterested persons to appraise the fair value of such shares with such
direction as he shall deem proper and necessary to expedite the proceedings. Upon
completion of the appraisal proceedings, the appraisers shall file with the Secretary of
Finance their report in writing stating the fair value of such shares as of the date of the
making of such offer and setting forth their findings in support of such statement. The
appraisers shall furnish each party to the proceedings a copy of their appraisal report,
and within ten (10) days after receipt thereof, any such party may signify his objection,
46
if any, to the report or move for the approval thereof. Upon the expiration of the period
of ten (10) days referred to above, the report shall be set for hearing, after which the
Secretary of Finance shall issue an order adopting, modifying or rejecting the report,
in whole or in part, or he may receive further evidence or may recommit it with
instructions. Whenever the Secretary of Finance shall determine in any manner, as
aforesaid, the fair value of such shares, he may also determine the terms of payment
thereof by the insurer. The expenses incidental to the proceedings including charges
of the appraisers, if any, shall be paid equally by the insurer and the shareholder.
The findings of the Secretary of Finance on all questions of fact raised at the hearing
of the application for determination of the fair value of such shares shall be conclusive
upon all parties to the proceedings. The order of the Secretary of Finance determining
the fair value of the shares and the terms of payment thereof shall have the force and
effect of a judgment which shall be appealable on any question of law. Such order
shall become final and executory fifteen (15) days after receipt thereof by the parties
to the proceedings.
Upon any such order becoming final and from which no appeal is pending, or when
the time to appeal therefrom has expired, each shareholder party to the proceedings
shall transfer his shares to the insurer and surrender to the said insurer the certificates
representing such shares and the insurer shall make payment therefor as provided in
such order. Any shares so acquired by the insurer shall be assigned and transferred to
the trustees and held by them as shares acquired pursuant to the plan.
Any shareholder who does not apply to the Secretary of Finance in the manner and
within the time hereinbefore prescribed shall be deemed to have accepted the offer
referred to above, effective, however, upon the expiration of the time hereinabove
prescribed for making such application, and such shareholder’s time for accepting such
offer shall, for that purpose only, be deemed to have been extended accordingly.
Any offer to acquire shares made pursuant to this section shall, except as otherwise
provided herein, be irrevocable until all proceedings upon such offer have been
completed or all shares have otherwise been earlier acquired by the insurer.
Any shareholder who has expressly or impliedly accepted the plan or the offer to
acquire his shares not theretofore acquired under the plan, and any shareholder who
has rejected such plan or such offer and has applied, as aforesaid, to the Secretary of
Finance for a determination of the fair value of his shares subsequent to which an
agreement has been reached or a final order issued fixing such fair value but who fails
to surrender his certificates for cancellation upon payment of the amount to which he
is entitled, may be compelled to do so by an order of the Secretary of Finance for that
purpose and such order may provide that upon failure of such shareholder to surrender
such certificates for cancellation, such order shall stand in lieu of such surrender and
cancellation.
SEC. 277. Such insurer, after mutualization, shall be a continuation of the original
insurer, and such mutualization shall not affect such insurer’s certificate of authority
nor existing suits, rights or contracts except as provided in said plan for the acquisition
of the outstanding shares of the capital stock of such insurer, approved as provided in
this chapter. Such insurer, after mutualization, shall exercise all the rights and powers
and shall perform all the duties conferred or imposed by law upon insurers writing the
classes of insurance written by it, and to protect rights and contracts existing prior to
mutualization, subject to the effect of said plan. The board of directors of such insurer,
prior to mutualization, may adopt amendments to its bylaws to take effect upon
mutualization.
SEC. 278. (a) An annual meeting of members shall be held at ten o’clock in the
morning of the fourth Tuesday of March of each year at the principal office of the
insurer, unless a different time or place is provided in the bylaws.
(b) Special meetings of the members, for any purpose or purposes whatsoever, may be
called at any time by the president, or by the board of directors, or by one or more
members holding not less than one-fifth (1/5) of the voting power of such insurer, or
by such other officers or persons as the bylaws authorize.
(c) Notice of all meetings of members whether annual or special shall be given in
writing to the members entitled to vote by the secretary, or an assistant secretary, or
other person charged with that duty, or if there be no such officer, or in case of his
neglect or refusal, by any director or member. At the option of the insurer such notice
may be imprinted on premium notices or receipts or on both.
A notice may be given by such insurer to any member either personally, or by mail, or
other means of written communication, charges prepaid, addressed to such member at
his address appearing on the books of the insurer, or given by him to the insurer for
the purpose of notice. If a member gives no address, notice shall be deemed to have
been given him if sent by mail or other means of written communication addressed to
the place where the principal office of the insurer is situated, or if published at least
once in some newspaper of general circulation in the place in which said office is
located.
Notice of any meeting of members shall be sent to each member entitled thereto not
less than seven (7) days before such meeting, unless the bylaws provide otherwise.
Notice of any meeting of members shall specify the place, the day and the hour of the
meeting and the general nature of the business to be transacted.
Notice of an annual meeting to be held at the time and place specified in subparagraph
(a) of this section shall be sufficiently given if published at least once in each of four
(4) successive weeks in a newspaper of general circulation in the place in which the
principal office of such insurer is located, and if so published no other notice of such
meeting shall be required.
47
(d) The presence in person or by proxy of five percent (5%) of the members entitled
to vote at any meeting shall constitute a quorum for the transaction of business,
including the amendment of the articles of incorporation and/or the bylaws unless
otherwise provided by the bylaws.
(e) Each such member shall have one (1) vote at any meeting of members regardless
of the number of policies or the amount of insurance that such member holds and
regardless of whether such policies are policies of life insurance, or of health and
accident insurance, or both. Any member entitled to vote shall have the right to do so
either in person or by an agent or agents authorized by a written proxy executed by
such person or his duly authorized agent and filed with the secretary of such insurer.
(f) The directors of the insurer in office at the time the insurer is mutualized as provided
in this chapter shall continue in office until the first annual meeting of members. At
the first annual meeting of members and at each annual meeting thereafter, directors
shall be elected by the members for the term or terms authorized by this chapter.
(g) The articles of incorporation or the bylaws may provide that the directors may be
divided into two (2) or more classes whose terms of office shall expire at different
times, but no terms shall continue longer than six (6) years. In the absence of such
provisions, each director, except members of the board of directors at the time the
insurer is mutualized, shall be elected for a term of one (1) year. All directors shall
hold office for a term for which they are elected and until their successors are elected
and qualified. A director may, but need not be a member or policyholder of the insurer
of which he is acting as director. Vacancies in the board of directors may be filled by
a majority of the remaining directors, though less than a quorum, and each director so
elected shall hold office until the next annual meeting.
(h) All insurers mutualized under the provisions of this chapter shall be subject to all
other applicable provisions of this Code. The provisions of the Corporation Code shall
apply in a suppletory manner.
SEC. 279. The provisions of Commonwealth Act No. 83, otherwise known as the
Securities Act, as amended, shall not apply to any of the following:
(a) Shares of the capital stock of such insurer acquired as provided in Section
272 and assigned and transferred to the trustees as is provided in said section,
and the assignment and transfer of said shares as so provided;
(b) Any certificate or other instrument issued to a policyholder of such
mutualized insurer conferring or evidencing membership in such mutualized
insurer or conferring or evidencing such member’s right to participate in the
profits or share in the assets of such mutualized insurer by virtue of his
membership therein, and the issuance of such certificate or other instrument;
(c) The plan for the acquisition of the outstanding shares of the capital stock of
such insurer authorized by the provisions of this chapter, the submission of
said plan to the Commissioner and to the policyholders of such insurer as
 provided in this chapter, and the approval and carrying out of said plan or any
part thereof in accordance with the provisions of this chapter.
SEC. 280. A domestic mutual life insurance company doing business in the
Philippines may convert itself into an incorporated stock life insurance company by
demutualization. To that end, it may provide and carry out a plan for the conversion
by complying with the requirements of this title.
The conversion of a domestic mutual life insurance company to an incorporated stock
life insurance company shall be carried out pursuant to a conversion plan duly
approved by the Commissioner.
The Commissioner shall promulgate such rules and regulations as he or she may deem
necessary to carry out the provisions of this title, after due consultation with
representatives of the insurance industry.
All converted insurers under the provisions of this title shall be subject to all other
applicable provisions of this Code. The provisions of the Corporation Code shall apply
in a suppletory manner.
TITLE 18
Withdrawal Of Foreign
Insurance Companies
SEC. 281. A foreign insurance company doing business in the Philippines, upon
payment of the fee hereinafter prescribed and surrender to the Commissioner of its
certificate of authority, may apply to withdraw from the Philippines. Such application
shall be duly executed in writing, accompanied by evidence of due authority for such
execution, properly acknowledged.
SEC. 282. The Commissioner shall publish the application for withdrawal once a week
for three (3) consecutive weeks in a newspaper of general circulation in the
Philippines. The expenses of such publication shall be paid by the insurance company
filing such application.
SEC. 283. Every foreign insurance company desiring to withdraw from the Philippines
shall, prior to such withdrawal, discharge its liabilities to policyholders and creditors
in this country. In case of its policies insuring residents of the Philippines, it shall cause
the primary liabilities under such policies to be reinsured and assumed by another
insurance company authorized to transact business in the Philippines. In the case of
such policies as are subject to cancellation by the withdrawing company, it may cancel
such policies pursuant to the terms thereof in lieu of such reinsurance and assumption
of liabilities.
48
SEC. 284. The Commissioner shall cause an examination of the books and records of
the withdrawing company, and if, upon such examination, the Commissioner finds that
the insurer has no outstanding liabilities to policyholders and creditors in the
Philippines, and no policies uncancelled; or its primary liabilities have been reinsured
or assumed by another insurance company authorized to transact business in the
Philippines, as required in the preceding section, it shall cancel the withdrawing
company’s certificate of authority, if unexpired, and shall permit the insurer to
withdraw. The cost and expenses of all such examination shall be paid as prescribed
in Section 440.
SEC. 285. Upon the failure of such withdrawing insurance company or its agents in
the Philippines to pay the expenses of such publication within thirty (30) days after the
presentation of the bill therefor, the Commissioner shall collect such fee from the
deposit furnished in accordance with the provisions of Section 197.
SEC. 286. A foreign life insurance company that withdraws from the Philippines shall
be considered a servicing insurance company if its business transactions are confined
to accepting periodic premium payments from, or granting policy loans and paying
cash surrender values of outstanding policies to, or reviving lapsed policies of,
Philippine policyholders, and such other related services.
SEC. 287. No company shall act as a servicing insurance company until after it shall
have obtained a special certificate of authority to act as such from the Commissioner
upon application therefor and payment by the company of the fees hereinafter
prescribed. Such certificate shall expire on the last day of December of the third year
and shall be renewed, while the company continues to service its policyholders, and to
comply with all the applicable provisions of law and regulations.
TITLE 19
Professional Reinsurers
SEC. 288. Except as otherwise provided in this Code, no partnership, association or
corporation shall transact any business in the Philippines as a professional reinsurer
until it shall have obtained a certificate of authority for that purpose from the
Commissioner upon application therefor and payment by such entity of the fees
hereinafter prescribed. As used in this Code, the term ‘professional reinsurer’ shall
mean any entity that transacts solely and exclusively reinsurance business in the
Philippines.
The Commissioner may refuse to issue a certificate of authority to any such entity
when such refusal will best promote public interest. No such certificate of authority
shall be granted to any such entity unless and until the Commissioner is satisfied by
such examination and such evidence as may be required that such entity is qualified
by the laws of the Philippines to transact business therein as a professional reinsurer.
Before issuing such certificate of authority, the Commissioner must be satisfied that
the name of the applicant is not that of any other known company transacting insurance
or reinsurance business in the Philippines, or a name so similar as to be calculated to
mislead the public.
Such certificate of authority shall expire on the last day of December the third year
following its issuance unless it is renewed.
Every such partnership, association, or corporation receiving such certificate of
authority shall be subject to the provisions of this Code and other related laws, and to
the jurisdiction and supervision of the Commissioner.
SEC. 289. Any partnership, association, or corporation authorized to transact solely
reinsurance business must have a capitalization of at least Three billion pesos
(P3,000,000,000.00) paid in cash of which at least fifty percent (50%) is paid-up and
the remaining portion thereof is contributed surplus, which in no case shall be less than
Four hundred million pesos (P400,000,000.00) or such capitalization as may be
determined by the Secretary of Finance, upon the recommendation of the
Commissioner: Provided, That twenty-five percent (25%) of the paid-up capital must
be invested in securities satisfactory to the Commissioner consisting of bonds or other
instruments of debt of the Government of the Philippines or its political subdivisions
or instrumentalities, or of government-owned or -controlled corporations and entities,
including the Bangko Sentral ng Pilipinas, and deposited with the Commissioner, and
the remaining seventy-five percent (75%) in such other securities as may be allowed
and permitted by the Commissioner, which securities shall at all times be maintained
free from any lien or encumbrance: Provided, further, That the aforesaid capital
requirement is without prejudice to other requirements to be imposed under any risk-
based capital method that may be adopted by the Commissioner: Provided,
finally, That the provisions of this chapter applicable to insurance companies shall as
far as practicable be likewise applicable to professional reinsurers.
TITLE 20
Holding Companies
SEC. 290. As used in this title, the following terms shall have the respective meanings
hereinafter set forth unless the context shall otherwise require:
(a) Person means an individual, partnership, firm, association, corporation, trust,
any similar entity or any combination of the foregoing acting in concert.
(b) Control, including the terms controlling, controlled by and under common
control with, means the possession directly or indirectly of the power to direct
or cause the direction of the management and policies of a person, whether
through the ownership of voting securities by a contract other than a
commercial contract for goods or non-management services or otherwise.
Subject to Section 292, control shall be presumed to exist if any person
directly or indirectly owns, controls or holds with the power to vote forty
percent (40%) or more of the voting securities of any other person: Provided,
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That no person shall be deemed to control another person solely by reason of
his being an officer or director of such other person.
(c) Holding company means any person who directly or indirectly controls any
authorized insurer.
(d) Controlled insurer means an authorized insurer controlled directly or
indirectly by a holding company.
(e) Controlled person means any person, other than a controlled insurer, who is
controlled directly or indirectly by a holding company.
(f) Holding company system means a holding company together with its
controlled insurers and controlled persons.
SEC. 291. Notwithstanding paragraph (b) of Section 290, the Commissioner may
determine after notice and opportunity to be heard, that a person exercises directly or
indirectly either alone or pursuant to an agreement with one or more other persons
such a controlling influence over the management or policies of an authorized insurer
as to make it necessary or appropriate in the public interest or for the protection of
policyholders or stockholders of the insurer that the person be deemed to control the
insurer.
SEC. 292. The Commissioner may determine upon application that any person, either
alone or pursuant to agreement with one or more other persons, does not or will not
upon the taking of some proposed action control another person. The filing of an
application hereunder in good faith by any person shall relieve the applicant from any
obligation or liability imposed by this title with respect to the subject of the application,
except as contained in Section 302, until the Commissioner has acted upon the
application. Within thirty (30) days or such further period as he may prescribe, the
Commissioner may prospectively revoke or modify his determination, after notice and
opportunity to be heard, whenever in his judgment, revocation or modification is
consistent with this title.
SEC. 293. Notwithstanding any other provisions of this title, the following shall not
be deemed holding companies:
(a) Authorized insurers or reinsurers or their subsidiaries; and
(b) The Government of the Philippines, or any political subdivision, agency or
instrumentality thereof, or any corporation which is wholly owned directly or
indirectly by one or more of the foregoing.
The Commissioner may conditionally or unconditionally exempt any specified person
or class of persons from any of the obligations or liabilities imposed under this title, if
and to the extent he finds the exemption necessary or appropriate in the public interest
or not adverse to the interests of policyholders or stockholders and consistent with the
purposes of this title.
SEC. 294. (a) Every person who on the date this Code takes effect is a controlled
insurer and every person who thereafter becomes a controlled insurer, shall, within
sixty (60) days thereafter, or within thirty (30) days after becoming a controlled
insurer, whichever is later, register with the Commissioner. Such registration shall be
amended within thirty (30) days following any change in the identity of its holding
company. The Commissioner may grant one or more reasonable extensions of the time
to register.
(b) Every registrant shall furnish the Commissioner with the following information
concerning its holding company:
(1) A copy of its charter or articles of incorporation and its bylaws;
(2) The identities of its principal shareholders, officers, directors and controlled
persons; and
(3) Information as to its capital structure and financial condition, and a
description of its principal business activities.
SEC. 295. Every controlled insurer shall file with the Commissioner such reports or
material as he may direct for the purpose of disclosing information concerning the
operations of persons within the holding company system which may materially affect
the operations, management or financial condition of the insurer.
SEC. 296. Every holding company and every controlled person within a holding
company system shall be subject to examination by order of the Commissioner if he
has cause to believe that the operations of such persons may materially affect the
operations, management or financial condition of any controlled insurer with the
system and that he is unable to obtain relevant information from such controlled
insurer. The grounds relied upon by the Commissioner for such examination shall be
stated in his order, which order shall be subject to judicial review only at the instance
of the person sought to be examined. Such examination shall be confined to matters
specified in the order. The cost of such examination shall be assessed against the
person examined and no portion thereof shall thereafter be reimbursed to it directly or
indirectly by the controlled insurer.
SEC. 297. The Commissioner shall keep the contents of each report made pursuant to
this title and any information obtained by him in connection therewith confidential and
shall not make the same public without the prior written consent of the controlled
insurer to which it pertains unless the Commissioner after notice and an opportunity
to be heard shall determine that the interests of policyholders, stockholders or the
public will be served by the publication thereof. In any action or proceeding by the
Commissioner against the person examined or any other person within the same
holding company system a report of such examination published by him shall be
admissible as evidence of the facts stated therein.
SEC. 298. Transactions within a holding company system to which a controlled
insurer is a party shall be subject to the following:
(a) The terms shall be fair and equitable;
(b) Charges or fees for services performed shall be reasonable;
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(c) Expenses incurred and payments received shall be allocated to the insurer on
an equitable basis in conformity with customary insurance accounting
practices consistently applied.
The books, accounts and records of each party to all such transactions shall be
maintained as to clearly and accurately disclose the nature and details of the
transactions including such accounting information as is necessary to support the
reasonableness of the charges or fees to the respective parties.
SEC. 299. The prior written approval of the Commissioner shall be required for the
following transactions between a controlled insurer and any person in its holding
company system: sales, purchases, exchanges, loans or extensions of credit, or
investments, involving five percent (5%) or more of the insurer’s admitted assets as of
the thirty-first day of December next preceding.
SEC. 300. The following transactions between a controlled insurer and any person in
its holding company system may not be entered into unless the insurer has notified the
Commissioner in writing of its intention to enter into any such transaction at least thirty
(30) days prior thereto, or such shorter period as he may permit, and he has not
disapproved it within such period:
(a) Sales, purchases, exchanges, loans or extensions of credit, or investments,
involving more than one-half of one percent (½%) but less than five percent
(5%) of the insurer’s admitted assets as of the thirty-first day of December
next preceding;
(b) Reinsurance treaties or agreements;
(c) Rendering of services on a regular or systematic basis; or
(d) Any material transaction, specified by regulation, which the Commissioner
determines may adversely affect the interest of the insurer’s policyholders or
stockholders or of the public.
Nothing herein contained shall be deemed to authorize or permit any transaction
which, in the case of a non-controlled insurer, would be otherwise contrary to law.
SEC. 301. The Commissioner, in reviewing transactions pursuant to Sections 299 and
300, shall consider whether the transactions comply with the standard set forth in
Section 298 and whether they may adversely affect the interests of policyholders. This
section shall not apply to transactions subject to other sections of this Code which
impose notice or approval requirements greater than those prescribed by this title.
SEC. 302. (a) No person, other than an authorized insurer, shall acquire control of any
domestic insurer, whether by purchase of its securities or otherwise, except:
(1) After twenty (20) days written notice to its insurer or such shorter period as
the Commissioner may permit, of its intention to acquire control; and
(2) With the prior written approval of the Commissioner.
(b) The Commissioner shall disapprove the acquisition of control of a domestic insurer
if he determines, after notice and an opportunity to be heard, that such action is
reasonably necessary to protect the interest of the people of this country. The following
shall be the only factors to be considered by him in reaching the foregoing
determination:
(1) The financial condition of the acquiring person and the insurer;
(2) The trustworthiness of the acquiring person or any of its officers or directors;
(3) A plan for the proper and effective conduct of the insurer’s operations;
(4) The source of the funds or assets for the acquisition;
(5) The fairness of any exchange of stock, assets, cash or other consideration for
the stock or assets to be received;
(6) Whether the effect of the acquisition may be substantially to lessen
competition in any line of commerce in insurance or to tend to create a
monopoly therein; and
(7) Whether the acquisition is likely to be hazardous or prejudicial to the insurer’s
policyholders or stockholders.
(c) The following conditions affecting any controlled insurer, regardless of when such
control has been acquired, are violations of this title:
(1) The controlling person or any of its officers or directors have demonstrated
untrustworthiness; and
(2) The effect of retention of control may be substantially to lessen competition
in any line of commerce in insurance in this country or to tend to create a
monopoly therein. If, after notice and an opportunity to be heard, the
Commissioner determines that any of the foregoing violations exists, he shall
reduce his findings to writing and shall issue an order based thereon and cause
the same to be served upon the insurer and upon all persons affected thereby
directing any person found to be in violation thereof to take appropriate action
to cure such violation. Upon the failure of any such person to comply with
such order, Section 306 shall become applicable.
(d) The Commissioner may require the submission of such information as he deems
necessary to determine whether any acquisition or retention of control complies with
this title and may require, as a condition of approval of such acquisition or retention
of control, that all or any portion of such information be disclosed to the insurer’s
stockholders.
(e) Unless subject to registration under Section 294 or unless acquisition of its control
is subject to paragraphs (a) and (b) hereof, every authorized insurer shall notify the
Commissioner in writing of the identity of any person whom the insurer then knows
or has reason to believe controls or has taken any action, other than preliminary
negotiations or discussion, to acquire control of the insurer.
SEC. 303. (a) Notwithstanding the control of an authorized insurer by any person, the
officers and directors of the insurer shall not thereby be relieved of any obligation or
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liability to which they would otherwise be subject by law, and the insurer shall be
managed so as to assure its separate operating identity consistent with this title.
(b) Nothing herein shall preclude an authorized insurer from having or sharing a
common management or cooperative or joint use of personnel, property or services
with one or more other persons under arrangements meeting the standards of Section
298.
SEC. 304. To the extent that any information or material is set forth in forms or other
matter on file with any government agency or in a registration form filed with the
Commissioner by another person within the same holding company system, the
controlled insurer may comply with the registration or reporting requirements of this
title by referring in its registration form or report to such other filed matter and
attaching a copy thereof certified by the insurer as a true and complete copy, to such
registration form or report or, if such other filed matter is on file with the
Commissioner, incorporating such matter by reference.
SEC. 305. No holding company or controlled person shall directly or indirectly or
through another person do or cause to be done for or in behalf of the controlled insurer
any act intended to affect the insurance operations of the insurer which, if done by the
insurer, would violate any provision of this Code.
SEC. 306. In addition to any other penalty provided by law, the Commissioner may,
upon the willful failure of any person within a holding company system to comply
with this title or any regulation or order promulgated hereunder:
(a) Proceed under Title 14 or Title 15, Chapter III of this Code with respect to
insurer within the holding company system; or
(b) Revoke or refuse to renew the authority to do business in this country of an
insurer within the holding company system or refuse to issue such authority to
any other insurer in the system; or
(c) Direct that, in addition to any other penalty provided by law, such person forfeit
to the people of this country a sum not less than Five thousand pesos (P5,000.00)
for a first violation and Twenty-five thousand pesos (P25,000.00) for any
subsequent violation. An additional sum not less than Twenty-five thousand
pesos (P25,000.00) shall be imposed for each month during which any such
violation shall continue.
CHAPTER IV
SALES AGENCIES AND TECHNICAL SERVICES
“TITLE l
Insurance Agents And Insurance Brokers
SEC. 307. No insurance company doing business in the Philippines, nor any agent
thereof, shall pay any commission or other compensation to any person for services in
obtaining insurance, unless such person shall have first procured from the
Commissioner a license to act as an insurance agent of such company or as an
insurance broker as hereinafter provided.
No person shall act as an insurance agent or as an insurance broker in the solicitation
or procurement of applications for insurance, or receive for services in obtaining
insurance, any commission or other compensation from any insurance company doing
business in the Philippines, or any agent thereof, without first procuring a license so
to act from the Commissioner, which must be renewed every three (3) years thereafter.
Such license shall be issued by the Commissioner only upon the written application of
the person desiring it, such application if for a license to act as insurance agent, being
approved or endorsed by the company such person desires to represent, and shall be
upon a form prescribed by the Commissioner giving such information as he may
require, and upon payment of the corresponding fee hereinafter prescribed. The
Commissioner shall satisfy himself as to the competence and trustworthiness of the
applicant and shall have the right to refuse to issue or renew and to suspend or revoke
any such license in his discretion. The license shall expire after the thirty-first day of
December of the third year following the date of issuance unless it is renewed.
Licenses may be renewed in the case of the company represented by such agents, and
in the case of insurance brokers, upon the application of the said brokers, themselves.
SEC. 308. The provisions of Sections 307 and 309 shall apply to an employee who
shall be engaged to sell insurance products by an insurance company.
SEC. 309. Any person who for compensation solicits or obtains insurance on behalf
of any insurance company or transmits for a person other than himself an application
for a policy or contract of insurance to or from such company or offers or assumes to
act in the negotiating of such insurance shall be an insurance agent within the intent of
this section and shall thereby become liable to all the duties, requirements, liabilities
and penalties to which an insurance agent is subject.
An insurance agent is an independent contractor and not an employee of the company
represented. ‘Insurance agent’ includes an agency leader, agency manager, or their
equivalent.
Since the insurance industry is imbued with public interest, the insurance companies
upon approval of the Commissioner may exercise wide latitude in supervising the
activities of their insurance agents to ensure the protection of the insuring public.
SEC. 310. Any person who for any compensation, commission or other thing of value
acts or aids in any manner in soliciting, negotiating or procuring the making of any
insurance contract or in placing risk or taking out insurance, on behalf of an insured
other than himself, shall be an insurance broker within the intent of this Code, and
shall thereby become liable to all the duties, requirements, liabilities and penalties to
which an insurance broker is subject.
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SEC. 311. Every applicant for an insurance broker’s license shall file with the
application and shall thereafter maintain in force while so licensed, a bond in favor of
the people of the Republic of the Philippines executed by a company authorized to
become surety upon official recognizances, stipulations, bonds and undertakings. The
bond shall be in such amount as may be fixed by the Commissioner, but in no case less
than Five hundred thousand pesos (P500,000.00), and shall be conditioned upon full
accounting and due payment to the person entitled thereto of funds coming into the
broker’s possession through insurance transactions under license. The bond shall
remain in force until released by the Commissioner, or until cancelled by the surety.
Without prejudice to any liability previously incurred thereunder, the surety may
cancel the bond on thirty (30) days advance written notice to both the broker and the
Commissioner.
Upon approval of the application, the applicant must also file two (2) errors and
omissions (professional liability or professional indemnity) policies issued separately
by two (2) insurance companies authorized to do business in the Philippines,
satisfactory to the Commissioner to indemnify the applicant against any claim or
claims for breach of duty as insurance broker which may be made against him by
reason of any negligent act, error or omission, whenever or wherever committed or
alleged to have been committed, on the part of the applicant or any person who has
been, is now, or may hereafter during the subsistence of the policies be employed by
the said applicant in his capacity as insurance broker: Provided, That the filing of any
claim or claims under one of such policies shall preclude the filing of the said claim or
claims under the other policy. The said policies shall be in such amounts as may be
prescribed by the Commissioner, depending upon the size or amount of the broking
business of the applicant, but in no case shall the amount of each of such policies be
less than Five hundred thousand pesos (P500,000.00).
SEC. 312. The Commissioner shall, in order to determine the competence of every
applicant to have the kind of license applied for, require such applicant to submit to a
written examination and to pass the same to the satisfaction of the Commissioner. The
Commissioner may delegate or authorize the administration of the examination to an
independent organization, subject to such conditions that the Commissioner may
provide.
SEC. 313. An applicant for the written examination mentioned in the preceding
section must be of good moral character and must not have been convicted of any
crime involving moral turpitude. He must satisfactorily show to the Commissioner that
he has been trained in the kind of insurance contemplated in the license applied for.
Such examination may be waived if it is shown to the satisfaction of the Commissioner
that the applicant has undergone extensive education and/or training in insurance.
SEC. 314. An application for the issuance or renewal of a license to act as an insurance
agent or insurance broker may be refused, or such license, if already issued or renewed,
shall be suspended or revoked if the Commissioner finds that the applicant for, or
holder of, such license:
(a) Has willfully violated any provision of this Code; or
(b) Has intentionally made a material misstatement in the application to qualify
for such license; or
(c) Has obtained or attempted to obtain a license by fraud or misrepresentation;
or
(d) Has been guilty of fraudulent or dishonest practices; or
(e) Has misappropriated or converted to his own use or illegally withheld moneys
required to be held in a fiduciary capacity; or
(f) Has not demonstrated trustworthiness and competence to transact business as
an insurance agent or insurance broker in such manner as to safeguard the
public; or
(g) Has materially misrepresented the terms and conditions of policies or contracts
of insurance which he seeks to sell or has sold; or
(h) Has failed to pass the written examination prescribed, if not otherwise exempt
from taking the same.
In addition to the foregoing causes, no license to act as insurance agent or insurance
broker shall be renewed if the holder thereof has not been actively engaged as such
agent or broker in accordance with such rules as the Commissioner may prescribe.
SEC. 315. The premium, or any portion thereof, which an insurance agent or insurance
broker collects from an insured and which is to be paid to an insurance company
because of the assumption of liability through the issuance of policies or contracts of
insurance, shall be held by the agent or broker in a fiduciary capacity and shall not be
misappropriated or converted to his own use or illegally withheld by the agent or
broker.
Any insurance company which delivers to an insurance agent or insurance broker a
policy or contract of insurance shall be deemed to have authorized such agent or broker
to receive on its behalf payment of any premium which is due on such policy or
contract of insurance at the time of its issuance or delivery or which becomes due
thereon.
In order to ensure faithful performance by the insurance agent or insurance broker of
these fiduciary responsibilities, the Insurance Commissioner shall prescribe the
minimum terms and conditions on such matters in the standard agency or brokers
agreement between the agents and/or the broker with the insurance companies.
SEC. 316. Any provision of existing laws to the contrary notwithstanding, no person
shall, within the Philippines, sell or offer for sale a variable contract or do or perform
any act or thing in the sale, negotiation, making or consummating of any variable
contract other than for himself unless such person shall have a valid and current license
from the Commissioner authorizing such person to act as a variable contract agent. No
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such license shall be issued unless and until the Commissioner is satisfied, after
examination that such person is by training, knowledge, ability and character qualified
to act as such agent. Any such license may be withdrawn and cancelled by the
Commissioner after notice and hearing, if he shall find that the holder thereof does not
then have the qualifications required for the issuance of such license.
SEC. 317. It shall be unlawful for any person, company or corporation in the
Philippines to act as general agent of any insurance company unless he is empowered
by a written power of attorney duly executed by such insurance company, and
registered with the Commissioner to receive notices, summons and legal processes for
and in behalf of the insurance company concerned in connection with actions or other
legal proceedings against said insurance company. It shall be the duty of said general
agent to notify the Commissioner of his post office address in the Philippines, or any
change thereof. Notices, summons, or processes of any kind sent by registered mail to
the last registered address of such general agent of the company concerned or to the
Commissioner shall be sufficient service and deemed as if served on the insurance
company itself.
SEC. 318. Except as otherwise provided by law or treaty, it shall be unlawful for any
person, partnership, association or corporation in the Philippines, for himself or itself,
or for some other person, partnership, association or corporation, either to procure,
receive or forward applications of insurance in, or to issue or to deliver or accept
policies or contracts of insurance of or for, any insurance company or companies not
authorized to transact business in the Philippines, covering risks, life or non-life,
situated in the Philippines; and any such person, partnership, association or corporation
violating the provisions of this section shall be deemed guilty of a penal offense, and
upon conviction thereof, shall for each such offense be punished by a fine of Two
hundred fifty thousand pesos (P250,000.00), or imprisonment of six (6) months, or
both, at the discretion of the court: Provided, That the provisions of this section shall
not apply to reinsurance.
TITLE 2
Reinsurance Brokers
SEC. 319. Except as provided in the next succeeding title, no person shall act as
reinsurance broker in the Philippines unless he is authorized as such by the
Commissioner.
A reinsurance broker is one who, for compensation, not being a duly authorized agent,
employee or officer of an insurer in which any reinsurance is effected, acts or aids in
any manner in negotiating contracts of reinsurance, or placing risks of effecting
reinsurance, for any insurance company authorized to do business in the Philippines.
SEC. 320. Upon application and payment of the corresponding fee hereinafter
prescribed, and the filing of two (2) errors and omissions (professional liability or
professional indemnity) policies hereinafter described, a person may, if found
qualified, be issued a license to act as reinsurance broker by the Commissioner. No
such license shall be valid after December 31 of the third year following its issuance
unless it is renewed.
The errors and omissions (professional liability or professional indemnity) policies
mentioned above shall indemnify the applicant against any claim or claims for breach
of duty as reinsurance broker which may be made against him by reason of any
negligent act, error or omission, whenever or wherever committed or alleged to have
been committed, on the part of the applicant or any person who has been, is now, or
may hereafter during the subsistence of the policies be employed by the said applicant
in his capacity as reinsurance broker: Provided, That the filing of any claim or claims
under one of such policies shall preclude the filing of the said claim or claims under
the other policy. The said policies shall be issued separately by two (2) insurance
companies authorized to do business in the Philippines and shall be in such amounts
as may be prescribed by the Insurance Commissioner, depending upon the size or
amount of the broking business of the applicant, but in no case shall the amount of
each of such policies be less than Five hundred thousand pesos (P500,000.00).
SEC. 321. The Commissioner may recall, suspend or revoke the license granted to a
reinsurance broker for violation of any existing law, rule and regulation, or any
provision of this Code after due notice and hearing.
TITLE 3
Resident Agents
SEC. 322. No person shall act as resident agent, as hereinafter defined, unless he is
registered as such with the Commissioner.
SEC. 323. The term resident agent, as used in this title, is one duly appointed by a
foreign insurer or broker not authorized to do business in the Philippines to receive in
its behalf notices, summons and legal processes in connection with actions or other
legal proceedings against such foreign insurer or broker.
SEC. 324. The application for a certificate of registration as resident agent filed with
the Commissioner must be accompanied with a copy of the power of attorney, duly
notarized and authenticated by the Philippine Consul in the place where such foreign
insurer or broker is domiciled, empowering the applicant to act as resident agent and
to receive notices, summons and legal processes for and in behalf of such foreign
insurer or broker in connection with any action or legal proceeding against such
foreign insurer or broker.
SEC. 325. It shall be the duty of such resident agent to notify immediately the
Commissioner of any change of his office address.
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SEC. 326. A certificate of registration issued to a resident agent shall expire on the
thirty-first day of December of the third year following its issuance unless it is
renewed.
The Commissioner may, after due notice and hearing, recall or cancel the certificate
of registration issued to a resident agent for violation of any existing law, rule or
regulation, or any provision of this Code.
TITLE 4
Non-Life Company Underwriter
SEC. 327. No person shall act, and no company shall employ any person, as non-life
company underwriter, whose duty and responsibility it shall be to select, evaluate and
accept risks for, and to determine the terms and conditions, including those pertaining
to amounts of retentions, under which such risks are to be accepted by the company,
unless such underwriter is registered as such with the Commissioner.
SEC. 328. Every non-life insurance company doing business in the Philippines must
maintain at all times a register of risks accepted and a claims register for each line of
risks engaged in by such non-life insurance company with such entries therein as are
now or as may hereafter be required by the Commissioner, and it shall be the
responsibility of the underwriter on the particular line of risk involved to see to it that
the said registers are well maintained and kept, and that all entries therein are properly
and correctly recorded. Such registers shall be open to inspection and examination of
duly authorized representatives of the Commissioner at all times during business
hours.
SEC. 329. No person shall be registered with the Commissioner, unless such person
shall be at least twenty-one (21) years of age on the date of such registration; a resident
of the Philippines; of good moral character and with no conviction of any crime
involving moral turpitude; has had at the time such registration is made at least two
(2) years of underwriting work in the particular line of risk involved; and has passed
such qualifying written examination that the Commissioner shall conduct at such time
and in such place as he may decide to hold for applicants desiring to act as
underwriters.
Such examination shall not be required of any person who has served as non-life
company underwriter for a period of at least five (5) years, if the Commissioner is
satisfied of the applicant’s competence as shown by the results of his underwriting
work in the non-life insurance company or companies that employed him in that
capacity. The minimum underwriting experience herein required may be reduced or
waived if it is shown to the satisfaction of the Commissioner that the non-life company
underwriter has undergone extensive education and/or training in insurance.
SEC. 330. Any applicant who misrepresents or omits any material fact in his
application for registration as a non-life company underwriter, or commits any
dishonest act in taking or in connection with the qualifying written examination for
underwriters, shall be barred from being registered as such non-life company
underwriter and, if already registered, his registration shall be cancelled and the
certificate of registration issued in his favor shall be recalled immediately by the
Commissioner.
In the event that the certificate of authority of a non-life insurance company to transact
business is suspended or revoked due to business failure arising largely from the
imprudent and injudicious acceptance of risks by the underwriter concerned, the
registration of such underwriter shall likewise be cancelled and his certificate of
registration shall be recalled by the Commissioner, and no similar certificate shall
thereafter be issued in his favor.
SEC. 331. No certificate of registration issued to an underwriter shall be valid after
December 31 of the third year following its issuance unless it is renewed.
The Commissioner may, after due notice and hearing, also suspend or cancel such
certificate for violation of existing laws, rules and regulations or of any provisions of
this Code.
TITLE 5
Adjusters
SEC. 332. No person, partnership, association, or corporation shall act as an adjuster,
as hereinafter defined, unless authorized so to act by virtue of a license issued or
renewed by the Commissioner pursuant to the provisions of this Code: Provided, That
in the case of a natural person, he must be a Filipino citizen and in the case of a
partnership, association or corporation, at least sixty percent (60%) of its capital must
be owned by citizens of the Philippines.
SEC. 333. An adjuster may be an independent adjuster or a public adjuster.
The term independent adjuster means any person, partnership, association or
corporation which, for money, commission or any other thing of value, acts for or on
behalf of an insurer in the adjusting of claims arising under insurance contracts or
policies issued by such insurer.
The term public adjuster means any person, partnership, association or corporation
which, for money, commission or any other thing of value, acts on behalf of an insured
in negotiating for, or effecting, the settlement of a claim or claims of the said insured
arising under insurance contracts or policies, or which advertises for or solicits
employment as an adjuster of such claims.
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SEC. 334. For every line of insurance claim adjustment, adjusters shall be licensed
either as independent adjusters or as public adjusters. No adjuster shall act on behalf
of an insurer unless said adjuster is licensed as an independent adjuster; and no adjuster
shall act on behalf of an insured unless said adjuster is licensed as a public
adjuster: Provided, however, That when a firm or person has been licensed as a public
adjuster, he shall not be granted another license as independent adjuster and vice versa.
No license, however, shall be required of any company adjuster who is a salaried
employee of an insurance company for the adjustment of claims filed under policies
issued by such insurance company.
SEC. 335. Such license or any renewal thereof may be issued by the Commissioner
upon written application filed by the person interested on the form or forms prescribed
by the Commissioner, which shall contain such information as he may require, and
upon payment of the corresponding fee hereinafter prescribed.
SEC. 336. The Commissioner shall conduct, at such times, and in such places as he
may decide to hold, written examinations to determine the competence and ability of
applicants desiring to act as adjuster of insurance claims.
SEC. 337. No adjuster’s license issued hereunder shall be valid after December 31 of
the third year following the issuance of such license unless it is renewed.
SEC. 338. Nothing contained in this title shall apply to any duly licensed attorney-at-
law who acts or aids in adjusting insurance claims as an incident to the practice of his
profession and who does not advertise himself as an adjuster.
SEC. 339. The Commissioner may suspend or revoke any adjuster’s license if, after
giving notice and hearing to the adjuster concerned, the Commissioner finds that the
said adjuster:
(a) Has violated any provision of this Code and of the circulars, rulings and
instructions of the Commissioner or has violated any law in the course of his
dealings as an adjuster; or
(b) Has made a material misstatement in the application for such license; or
(c) Has been guilty of fraudulent or dishonest practices; or
(d) Has demonstrated his incompetence or untrustworthiness to act as adjuster;
or
(e) Has made patently unjust valuation of loss; or
(f) Has failed to make a report of the adjustment he proposed within sixty (60)
days from the date of the filing of the claim by the insured with the insurer,
unless prevented so to do by reasons beyond his control; or
(g) Has refused to allow an examination into his affairs or method of doing
business as hereinafter provided.
SEC. 340. Every adjuster shall submit to the Commissioner a quarterly report of all
losses which are the subject of adjustment effected by him during each month in the
form prescribed by the Commissioner. The report shall be filed within one (1) month
after the end of each quarter.
SEC. 341. Every adjuster shall keep his or its books, records, reports, accounts, and
vouchers in such manner that the Commissioner or his duly authorized representatives
may readily verify the quarterly reports of the said adjuster and ascertain whether the
said adjuster has complied with the provisions of law or regulations obligatory upon
him or whether the method of doing business of the said adjuster has been fair, just
and honest.
SEC. 342. The Commissioner shall, at least once a year and whenever he considers
the public interest so demands, cause an examination to be made into the affairs and
method of doing business of every adjuster.
SEC. 343. Any violation of any provision of this title shall be punished by a fine of
not less than Ten thousand pesos (P10,000.00), or by imprisonment at the discretion
of the court: Provided, That, in case of a partnership, association or corporation, the
said penalty shall be imposed upon the partner, president, manager, managing director,
director or person in charge of its business or responsible for the violation.
TITLE 6
Actuaries
SEC. 344. No life insurance company shall be licensed to do business in the
Philippines nor shall any life insurance company doing business in the Philippines be
allowed to continue doing such business unless they shall engage the services of an
actuary duly accredited with the Commissioner who shall, during his tenure of office,
be directly responsible for the direction and supervision of all actuarial work connected
with or that may be involved in the business of the insurance company. The
Commissioner may also require non-life insurance companies to engage the services
of an accredited actuary, in accordance with the rules and regulations that the
Commissioner will formulate.
SEC. 345. Any person may be officially accredited by the Commissioner to act as an
actuary in any life insurance company or in any mutual benefit association authorized
to do business in the Philippines upon application therefor and the payment of the
corresponding fee hereinafter prescribed: Provided, That:
(a) He is a fellow of good standing of the Actuarial Society of the Philippines at
the time of his appointment and remains in such good standing during the
tenure of his engagement; or
(b) In the case of one who is not a fellow of the Actuarial Society of the
Philippines, he meets all the requirements of the said Society for accreditation
as a fellow of the Society, and has been given permission by the pertinent
government authorities in the Philippines to render services in the
Philippines, in the event that he is not a citizen of the Philippines.
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The registration of the actuary shall be suspended or revoked by the Commissioner on
the following grounds:
(1) Failure to adequately perform required functions and duties under this Code;
(2) Failure to disclose conflict of interest;
(3) Failure to comply with the Code of Conduct of the Actuarial Society of the
Philippines; or
(4) Such other grounds that may be determined by the Commissioner.
No actuary engaged by a life insurance company shall be at the same time a
stockholder or a director of the board, chief executive officer or chief financial officer
of the company or hold any position that the Commissioner may determine to have an
inherent conflict of interest to the position of an actuary.
No certificate of registration issued under this title shall be valid after December 31 of
the third year following its issuance unless it is renewed.
SEC. 346. The following documents, which are from time to time submitted to the
Commissioner by a life insurance company authorized to do business in the
Philippines, shall be duly certified by an accredited actuary employed by such
company:
(a) Policy reserves, claims or loss reserves and net due and deferred premiums.
(b) Statements of bases and net premiums, loading for gross premiums, and on
non-forfeiture values and reserves, when applying for approval of gross
premiums, reserves and non-forfeiture values.
(c) Policies of insurance under any plan submitted to the Commissioner as
required by law.
(d) Annual statements and valuation reports submitted to the Commissioner as
required by law.
(e) Financial projection showing the probable income and outgo and reserve
requirements, enumerating the actuarial assumptions and bases of
projections.
(f) Valuation of annuity funds or retirement plans.
The Commissioner may also require non-life insurance companies to submit, from
time to time, similar documents which shall be duly certified by an accredited actuary
employed by such company.
Any life insurance company authorized to do business in the Philippines may employ
any person who is not officially accredited under either of the qualifications for any
kind of actuarial work: Provided, That he shall not, at any time, have the authority to
certify to the correctness of the foregoing documents.
SEC. 347. No accredited actuary shall serve more than one client or employer at the
same time. However, one already in the employ of an insurance company may be
allowed by the Commissioner to serve a mutual benefit association or any other
insurance company, provided the following conditions are first complied with:
(a) That the request to engage his services by the other employer is in writing;
(b) That his present employer acquiesced to it in writing; and
(c) That he furnishes the Commissioner with copies of said request and
acquiescence.
No external auditor shall be engaged by supervised persons or entities unless it has
been issued an accreditation certificate by the Commissioner. The accreditation
certificate shall be valid until December 31 of the third year from issuance unless it is
revoked or suspended. The Commissioner shall issue rules and regulations to govern
the accreditation of the external auditor and the revocation or suspension of the
accreditation.
TITLE 7
Rating Organization And Rate Making
SEC. 348. Every organization which now exists or which may hereafter be formed for
the purpose of making rates to be used by more than one insurance company authorized
to do business in the Philippines shall be known as a rating organization. The term rate
as used in this title shall generally mean the ratio of the premium to the amount insured
and shall include, as the context may require, either the consideration to be paid or
charged for insurance contracts, including surety bonds, or the elements and factors
forming the basis for the determination or application of the same, or both.
SEC. 349. Every rating organization which now exists or which may hereafter be
formed shall be subject to the provisions of this title.
SEC. 350. No rating organization hereafter formed shall commence rate-making
operations until it shall have obtained a license from the Commissioner. Before
obtaining such license, such rating organization shall file with the Commissioner a
notice of its intention to commence rate-making operations, a copy of its constitution,
articles of agreement or association, or of incorporation, and its bylaws, a list of
insurance companies that have agreed to become members or subscribers, and such
other information concerning such rating organization and its operations as may be
required by the Commissioner. If the Commissioner finds that the organization has
complied with the provisions of law and that it has a sufficient number of members or
subscribers and is otherwise qualified to function as a rating organization, the
Commissioner may issue a license to such rating organization authorizing it to make
rates for the kinds of insurance or subdivisions thereof as may be specified in such
license. No license issued to a rating organization shall be valid after December 31 of
the third year following its issuance unless it is renewed. No rating organization which
now exists and is not licensed pursuant to this section shall continue rate-making
operations until it shall have obtained from the Commissioner a license which he may
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issue if satisfied that such organization is complying with the provisions of this title.
Every rating organization shall notify the Commissioner promptly of every change in:
(a) Its constitution, its articles of agreement or association or its certificate of
incorporation, and its bylaws, rules and regulations governing the conduct of
its business; and
(b) Its list of members and subscribers.
A member means an insurer who participates in or is entitled to participate in the
management of a rating organization.
A subscriber means an insurer which is furnished at its request with rates and rating
manuals by a rating organization of which it is not a member.
SEC. 351. Each rating organization shall furnish its rating service without
discrimination to all of its members and subscribers, and shall, subject to reasonable
rules and regulations, permit any insurance company doing business in the Philippines,
not admitted to membership, to become a subscriber to its rating services for any kind
of insurance or subdivisions thereof. Notice of proposed changes in such rules and
regulations shall be given to subscribers. The reasonableness of any rule or regulation
in its application to subscribers, or the refusal of any rating organization to admit an
insurance company as a subscriber, shall, at the request of any subscriber or any such
insurance company, be reviewed by the Commissioner at a hearing held upon at least
ten (10) days’ written notice to such rating organization and to such subscriber or
insurance company. The Commissioner may, after such hearing, issue an appropriate
order.
SEC. 352. No rating organization or any other association shall refuse to do business
with, or prohibit or prevent the payment of commissions to, any person licensed as an
insurance broker pursuant to the provisions of Title 1 of this chapter.
SEC. 353. Rating organizations shall be subject to examination by the Commissioner,
as often as he may deem such examination expedient, pursuant to the provisions of
this Code applicable to the examination of insurance companies. He shall cause such
an examination of each rating organization to be made at least once in every five (5)
years.
SEC. 354. The Commissioner may suspend or revoke the license of any rating
organization which fails to comply with his order within the time limited by such order,
or any extension thereof which he may grant. The Commissioner may determine when
a suspension of license shall become effective and it shall remain in effect for the
period fixed by him, unless he modifies or rescinds such suspension.
SEC. 355. Any rating organization may subscribe for or purchase actuarial, technical
or other services, and such services shall be available to all members and subscribers
without discrimination.

SEC. 356. Any rating organization may provide for the examination of policies, daily
reports, binders, renewal certificates, endorsements or other instruments of insurance,
or the cancellation thereof, and may make reasonable rules governing their submission.
Such rules shall contain a provision that in the event an insurance company does not
within sixty (60) days furnish satisfactory evidence to the rating organization of the
correction of any error or omission previously called to its attention by the rating
organization, it shall be the duty of the rating organization to notify the Commissioner
thereof. All information so submitted for examination shall be confidential.
SEC. 357. Cooperation among rating organizations or among rating organizations and
insurers in rate making or in other matters within the scope of this title is hereby
authorized, provided the filings resulting from such cooperation are subject to all
provisions of this title which are applicable to filings generally. The Commissioner
may review such cooperative activities and practices and if he finds that any such
activity or practice is unfair or unreasonable or otherwise inconsistent with the
provisions of this title, he may issue a written order specifying in what respects such
activity or practice is unfair or unreasonable or otherwise inconsistent with the
provisions of this title, and requiring the discontinuance of such activity or practice.
SEC. 358. Every rating organization and every insurance company which makes and
files its own rates, shall make rates for all risks rated by such organization or insurance
company in accordance with the following provisions:
(a) Basic classification, manual, minimum, class, or schedule rates or rating
plans, shall be made and adopted for all such risks. Any departure from such
rates shall be in accordance with schedules, rating plans and rules filed with
the Commissioner;
(b) Rates shall be reasonable and adequate for the class of risks to which they
apply;
(c) No rate shall discriminate unfairly between risks involving essentially the
same hazards and expense elements or between risks in the application of like
charges and credits;
(d) Consideration shall be given to the past and prospective loss experience,
including the conflagration and catastrophe hazards, if any, to all factors
reasonably attributable to the class of risks, to a reasonable profit, to
commissions paid during the most recent annual period and to past and
prospective other expenses. In case of fire insurance rates, consideration shall
be given to the experience of the fire insurance business during a period of
not less than five (5) years next preceding the year in which the review is
made;
(e) Risk may be grouped by classifications for the establishment of rates and
minimum premiums. Classification rates may be modified to produce rates
for individual risks in accordance with rating plans which establish standards
for measuring variations in hazards or expense provisions, or both. Such
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standards may measure any difference among risks that can be demonstrated
to have a probable effect upon losses or expenses.
SEC. 359. No rating organization and no insurance company which makes and files
its own rates shall make or promulgate any rate or schedule of rates which is to be
applied to any fire risk on the condition that the whole amount of insurance on any risk
or any specified part thereof shall be placed with the members of or subscribers to such
rating organization or with such insurer.
SEC. 360. Every insurance company doing business in the Philippines shall annually
file with the rating organization of which it is a member or subscriber, or with such
other agency as the Commissioner may designate, a statistical report showing a
classification schedule of its premiums and losses on all kinds or types of insurance
business to which Section 358 is applicable, and such other information as the
Commissioner may deem necessary or expedient for the administration of the
provisions of this title.
SEC. 361. Every non-life rating organization and every non-life insurance company
doing business in the Philippines shall file with the Commissioner, except as to risks
which by general custom of the business are not written according to manual rates or
rating plans, every rate manual, schedule of rates, classification of risks, rating plan,
and every other rating rule and every modification of any of the foregoing which it
proposes to use. An insurance company may satisfy its obligation to make such filings
for any kind or type of insurance by becoming a member of or subscriber to a rating
organization which makes such filings for such kind or type of insurance, and by
authorizing the Commissioner to accept such filings of the rating organization on
behalf of such insurance company.
SEC. 362. Every manual or schedule of rates and every rating plan filed as provided
in the preceding section shall state or clearly indicate the character and extent of the
coverage to which any such rate or any modification thereof will be applied.
SEC. 363. The Commissioner shall review filings as soon as reasonably possible after
they have been made in order to determine whether they meet the requirements of this
title. When a filing is not accompanied by the information upon which the insurance
company supports such filing, and the Commissioner does not have sufficient
information to determine whether such filing meets the requirements of this title, he
shall require such insurance company to furnish the information upon which it
supports such filing. The information furnished in support of a filing may include:
(a) The experience or judgment of the insurance company or rating organization
making the filing;
(b) Its interpretation of any statistical data it relies upon;
(c) The experience of other insurance companies or rating organization; or
(d) Any other relevant factors.
SEC. 364. If the Commissioner finds that any rate filings theretofore filed with him
do not comply with the provisions of this title or that they provide rates or rules which
are inadequate, excessive, unfairly discriminatory or otherwise unreasonable, he may
order the same withdrawn and at the expiration of sixty (60) days thereafter the same
shall be deemed no longer on file. Before making any such finding and order, the
Commissioner shall give notice, not less than ten (10) days in advance, and a hearing,
to the rating organization, or to the insurer, which filed the same. Such order shall not
affect any contract or policy made or issued prior to the expiration of such sixty (60)-
day period.
SEC. 365. No member or subscriber of a rating organization, and no insurance
company doing business in the Philippines, or agent, employee or other representative
of such company, and no insurance broker shall charge or demand a rate or receive a
premium which deviates from the rates, rating plans, classifications, schedules, rules
and standards, made and last filed by a rating organization or by or on behalf of the
insurance company, or shall issue or make any policy or contract involving a violation
of such rate filings.
SEC. 366. Notwithstanding any other provisions of this title, upon the written
application of the insurer, stating his reasons therefor, filed with and approved by the
Commissioner, a rate in excess of that provided by a filing otherwise applicable may
be used on any specific risk.
SEC. 367. Whenever the Commissioner shall determine, after notice and a hearing,
that the rates charged or filed on any class of risks are excessive, discriminatory,
inadequate or unreasonable, he shall order that such rates be appropriately adjusted.
For the purpose of applying the provisions of this section, the Commissioner may from
time to time approve reasonable classifications of risks for any or all such classes,
having due regard to the past and prospective loss experience, including conflagration
or catastrophe hazards, if any, to all other relevant factors and to a reasonable profit.
SEC. 368. Nothing contained in this title shall be construed as requiring any insurer
to become a member of or subscriber to any rating organization.
SEC. 369. Agreements may be made among insurance companies with respect to the
equitable apportionment among them of insurance which may be afforded applicants
who are in good faith entitled to but are unable to procure such insurance through
ordinary methods and such insurance companies may agree among themselves on the
use of reasonable rates and modifications for such insurance, such agreements and rate
modifications to be subject to the approval of the Commissioner: Provided,
however, That the provisions of this section shall not be deemed to apply to workmen’s
compensation insurance.
SEC. 370. No insurance company doing business in the Philippines or any agent
thereof, no insurance broker, and no employee or other representative of any such
59
insurance company, agent, or broker, shall make, procure or negotiate any contract of
insurance or agreement as to policy contract, other than is plainly expressed in the
policy or other written contract issued or to be issued as evidence thereof, or shall
directly or indirectly, by giving or sharing a commission or in any manner whatsoever,
pay or allow or offer to pay or allow to the insured or to any employee of such insured,
either as an inducement to the making of such insurance or after such insurance has
been effected, any rebate from the premium which is specified in the policy, or any
special favor or advantage in the dividends or other benefits to accrue thereon, or shall
give or offer to give any valuable consideration or inducement of any kind, directly or
indirectly, which is not specified in such policy or contract of insurance; nor shall any
such company, or any agent thereof, as to any policy or contract of insurance issued,
make any discrimination against any Filipino in the sense that he is given less
advantageous rates, dividends or other policy conditions or privileges than are
accorded to other nationals because of his race.
SEC. 371. No insurance company doing business in the Philippines, and no officer,
director, or agent thereof, and no insurance broker or any other person, partnership or
corporation shall issue or circulate or cause or permit to be issued or circulated any
literature, illustration, circular or statement of any sort misrepresenting the terms of
any policy issued by any insurance company of the benefits or advantages promised
thereby, or any misleading estimate of the dividends or share of surplus to be received
thereon, or shall use any name or title of any policy or class of policies misrepresenting
the true nature thereof; nor shall any such company or agent thereof, or any other
person, partnership or corporation make any misleading representation or incomplete
comparison of policies to any person insured in such company for the purpose of
inducing or tending to induce such person to lapse, forfeit, or surrender his said
insurance.
SEC. 372. If the Commissioner, after notice and hearing, finds that any insurance
company, rating organization, agent, broker or other person has violated any of the
provisions of this title, it shall order the payment of a fine not to exceed Twenty-five
thousand pesos (P25,000.00) for each such offense, and shall immediately suspend or
revoke the license issued to such insurance company, rating organization, agent, or
broker. The issuance, procurement or negotiation of a single policy or contract of
insurance shall be deemed a separate offense.
TITLE 8
Provision Common To Agents,
Brokers And Adjusters
SEC. 373. A license issued to a partnership, association or corporation to act as an
insurance agent, general agent, insurance broker, reinsurance broker, or adjuster shall
authorize only the individual named in the license who shall qualify therefor as though
an individual licensee. The Commissioner shall charge, and the licensee shall pay, a
full additional license fee as to each respective individual so named in such license in
excess of one.
Licenses and certificates of registration issued under the provisions of this chapter may
be renewed by the filing of notices of intention on forms to be prescribed by the
Commissioner and payment of the fees therefor.
SEC. 374. The Commissioner, in consultation with the duly accredited associations
representing the insurance industry, shall adopt and promulgate a code of conduct to
promote integrity, honesty and ethical business practices among insurance agents,
distributors and other intermediaries.
TITLE 9
Bancassurance
SEC. 375. The term bancassurance shall mean the presentation and sale to bank
customers by an insurance company of its insurance products within the premises of
the head office of such bank duly licensed by the Bangko Sentral ng Pilipinas or any
of its branches under such rules and regulations which the Commissioner and the
Bangko Sentral ng Pilipinas may promulgate. To engage in bancassurance
arrangement, a bank is not required to have equity ownership of the insurance
company. No insurance company shall enter into a bancassurance arrangement unless
it possesses all the requirements as may be prescribed by the Commissioner and the
Bangko Sentral ng Pilipinas.
No insurance product under this section, whether life or non-life, shall be issued or
delivered unless in the form previously approved by the Commissioner.
SEC. 376. Personnel tasked to present and sell insurance products within the bank
premises shall be duly licensed by the Commissioner and shall be subject to the rules
and regulations of this Act.
SEC. 377. The Commissioner and the Bangko Sentral ng Pilipinas shall promulgate
rules and regulations to effectively supervise the business of bancassurance.
CHAPTER V
SECURITY FUND
SEC. 378. There is hereby created a fund to be known as the Security Fund which
shall be used in the payment of allowed claims against an insurance company
authorized to transact business in the Philippines remaining unpaid by reason of the
insolvency of such company. The said Fund may also be used to reinsure the policy of
the insolvent insurer in any solvent insurer authorized to do business in the Philippines
as provided in Section 256. The Fund may likewise be used to pay insured claims
which otherwise would not be compensable under the provisions of the policy. No
payment from the Security Fund shall, however, be made to any person who owns or
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controls ten percent (10%) or more of the voting shares of stock of the insolvent insurer
and no payment on any one claim shall exceed Twenty thousand pesos (P20,000.00).
SEC. 379. Such Fund shall consist of all payments made to the Fund by insurance
companies authorized to do business in the Philippines. Payments made by life
insurance companies shall be treated separately from those made by non-life insurance
companies and the corresponding fund shall be called Life Account and Non-Life
Account, respectively, and shall be held and administered as such by the
Commissioner in accordance with the provisions of this title. The Life Account shall
be utilized exclusively for disbursements that refer to life insurance companies, while
the Non-Life Account shall be utilized exclusively for disbursements that refer to non-
life insurance companies.
SEC. 380. All insurance companies doing business in the Philippines shall contribute
to the Security Fund, Life or Non-Life Account, as the case may be, the aggregate
amount of Five million pesos (P5,000,000.00) for each Account. The contributions of
the life insurance companies and of the non-life insurance companies shall be in direct
proportion to the ratio between a particular life insurance company or a particular non-
life insurance company’s net worth and the aggregate net worth of all life insurance
companies or all non-life insurance companies, as the case may be, as shown in their
latest financial statements approved by the Commissioner. This proportion applied to
the Five million pesos (P5,000,000.00) shall be the contribution of a particular
company to the corresponding Account of the Security Fund.
The amount of Five million pesos (P5,000,000.00) in each Account shall be in the
form of a revolving trust fund. The respective contributions of the companies shall
remain as admitted assets in their books and any disbursement therefrom shall be
deducted proportionately from the contributions of each company which will be
allowed as deductions for income tax purposes. Any earnings of the Fund shall be
turned over to the contributing companies in proportion to their contributions.
In the case of disbursements of funds from the Fund as provided in the foregoing
paragraph, the life and non-life companies, as the case may be, shall replenish the
amount disbursed in direct proportion to the individual company’s net worth and the
aggregate net worth of the life or non-life companies, as the case may be. However, in
no case shall the Fund exceed the aggregate amount of Ten million pesos
(P10,000,000.00), or Five million pesos (P5,000,000.00) for each Account.
Should the Fund, Life or Non-Life Account, as the case may be, be inadequate for a
disbursement as provided for, then the Life or Non-Life companies, as the case may
be, shall contribute to the Fund their respective shares in the proportion previously
mentioned.
SEC. 381. The Commissioner may adopt, amend, and enforce all reasonable rules and
regulations necessary for the proper administration of the Fund and of the Accounts.
In the event any insurer shall fail to make any payment required by this title, or that
any payment made is incorrect, he shall have full authority to examine all the books
and records of the insurer for the purpose of ascertaining the facts and shall determine
the correct amount to be paid and may proceed in any court of competent jurisdiction
to recover for the benefit of the Fund or of the Account concerned any sum shown to
be due upon such examination and determination. Any insurer which fails to make any
payment to the Fund or to the Account concerned when due, shall thereby forfeit to
said Fund or Account concerned a penalty of five percent (5%) of the amount
determined to be due as provided by this title, plus one percent (1%) of such amount
for each month of delay or fraction thereof, after the expiration of the first month of
such delay, but the Commissioner, if satisfied that the delay was excusable, may remit
all or any part of such penalty. The Commissioner, in his discretion, may suspend or
revoke the certificate of authority to do business in the Philippines of any insurance
company which shall fail to comply with this title or to pay any penalty imposed in
accordance therewith.
SEC. 382. The Accounts created by this title shall be separate and apart from each
other and from any other fund. The Treasurer of the Philippines shall be the custodian
of the Life Account and Non-Life Account of the Security Fund; and all disbursements
from any Account shall be made by the Treasurer of the Philippines upon vouchers
signed by the Commissioner or his deputy, as hereinafter provided. The moneys of
said Account may be invested by the Commissioner only in bonds or other instruments
of debt of the Government of the Philippines or its political subdivisions or
instrumentalities. The Commissioner may sell any of the securities in which an
Account is invested, if advisable, for its proper administration or in the best interest of
such Account.
SEC. 383. Payments from either the Life Insurance Account or Non-Life Account, as
the case may be, shall be made by the Treasurer of the Philippines to the
Commissioner, upon the authority of appropriate certificate filed with him by the
Commissioner acting in such capacity.
SEC. 384. The Commissioner may, in his discretion, designate or appoint a duly
authorized representative or representatives to appear and defend before any court or
other body or official having jurisdiction any or all actions or proceedings against
principals or assureds on insurance policies or contracts issued to them where the
insurer has become insolvent or unable to meet its insurance obligations. The
Commissioner shall have, as of the date of insolvency of such insurer or as of the date
of its inability to meet its insurance obligations, only the rights which such insurer
would have had if it had not become insolvent or unable to meet its insurance
obligations. For the purpose of this title, the Commissioner shall have power to employ
such counsel, clerks and assistants as he may deem necessary.
SEC. 385. The expense of administering an Account shall be paid out of the Account
concerned. The Commissioner shall serve as administrator of the Fund and of the
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Accounts without additional compensation, but may be allowed and paid from the
Account concerned expenses incurred in the performance of his duties in connection
with said Account. The compensation of those persons employed by the Commissioner
shall be deemed administration expense payable from the Account concerned. The
Commissioner shall include in his annual report to the Secretary of Finance a statement
of the expenses of administration of the Fund and of the Life Account and Non-Life
Account for the preceding year.
CHAPTER VI
COMPULSORY MOTOR VEHICLE
LIABILITY INSURANCE
SEC. 386. For purposes of this chapter:
(a) Motor Vehicle is any vehicle as defined in Section 3, paragraph (a) of
Republic Act No. 4136, otherwise known as the ‘Land Transportation and
Traffic Code’.
(b) Passenger is any fare paying person being transported and conveyed in and
by a motor vehicle for transportation of passengers for compensation,
including persons expressly authorized by law or by the vehicle’s operator or
his agents to ride without fare.
(c) Third party is any person other than a passenger as defined in this section and
shall also exclude a member of the household, or a member of the family
within the second degree of consanguinity or affinity, of a motor vehicle
owner or land transportation operator, as likewise defined herein, or his
employee in respect of death, bodily injury, or damage to property arising out
of and in the course of employment.
(d) Owner or motor vehicle owner means the actual legal owner of a motor
vehicle, in whose name such vehicle is duly registered with the Land
Transportation Office;
(e) Land transportation operator means the owner or owners of motor vehicles
for transportation of passengers for compensation, including school buses.
(f) Insurance policy or Policy refers to a contract of insurance against passenger
and third-party liability for death or bodily injuries and damage to property
arising from motor vehicle accidents.
SEC. 387. It shall be unlawful for any land transportation operator or owner of a motor
vehicle to operate the same in the public highways unless there is in force in relation
thereto a policy of insurance or guaranty in cash or surety bond issued in accordance
with the provisions of this chapter to indemnify the death, bodily injury, and/or damage
to property of a third-party or passenger, as the case may be, arising from the use
thereof.
SEC. 388. The Commissioner shall furnish the Land Transportation Office with a list
of insurance companies authorized to issue the policy of insurance or surety bond
required by this chapter.
SEC. 389. The Land Transportation Office shall not allow the registration or renewal
of registration of any motor vehicle without first requiring from the land transportation
operator or motor vehicle owner concerned the presentation and filing of a
substantiating documentation in a form approved by the Commissioner evidencing that
the policy of insurance or guaranty in cash or surety bond required by this chapter is
in effect.
SEC. 390. Every land transportation operator and every owner of a motor vehicle
shall, before applying for the registration or renewal of registration of any motor
vehicle, at his option, either secure an insurance policy or surety bond issued by any
insurance company authorized by the Commissioner or make a cash deposit in such
amount as herein required as limit of liability for purposes specified in Section 387.
(a) In the case of a land transportation operator, the insurance guaranty in cash
or surety bond shall cover liability for death or bodily injuries of third-parties
and/or passengers arising out of the use of such vehicle in the amount not less
than Twelve thousand pesos (P12,000.00) per passenger or third-party and an
amount, for each of such categories, in any one accident of not less than that
set forth in the following scale:
(1) Motor vehicles with an authorized capacity of twenty-six (26) or more
passengers: Fifty thousand pesos (P50,000.00);
(2) Motor vehicles with an authorized capacity of from twelve (12) to
twenty-five (25) passengers: Forty thousand pesos (P40,000.00);
(3) Motor vehicles with an authorized capacity of from six (6) to eleven (11)
passengers: Thirty thousand pesos (P30,000.00);
(4) Motor vehicles with an authorized capacity of five (5) or less passengers:
Five thousand pesos (P5,000.00) multiplied by the authorized capacity.
Provided, however, That such cash deposit made to, or surety bond
posted with, the Commissioner shall be resorted to by him in cases of
accidents the indemnities for which to third-parties and/or passengers are
not settled accordingly by the land transportation operator and, in that
event, the said cash deposit shall be replenished or such surety bond shall
be restored within sixty (60) days after impairment or expiry, as the case
may be, by such land transportation operator, otherwise, he shall secure
the insurance policy required by this chapter. The aforesaid cash deposit
may be invested by the Commissioner in readily marketable government
bonds, and/or securities.
(b) In the case of an owner of a motor vehicle, the insurance or guaranty in cash
or surety bond shall cover liability for death or injury to third-parties in an
amount not less than that set forth in the following scale in any one accident:
(1) Private Cars
i. Bantam: Twenty thousand pesos (P20,000.00);
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ii. Light: Twenty thousand pesos (P20,000.00); and
iii. Heavy: Thirty thousand pesos (P30,000.00).
(2) Other Private Vehicles
i. Tricycles, motorcycles and scooters: Twelve thousand pesos
(P12,000.00);
ii. Vehicles with an unladen weight of 2,600 kilos or less: Twenty
thousand pesos (P20,000.00);
iii. Vehicles with an unladen weight of between 2,601 kilos and 3,930
kilos: Thirty thousand pesos (P30,000.00); and
iv. Vehicles with an unladen weight over 3,930 kilos: Fifty thousand
pesos (P50,000.00).
The Commissioner may, if warranted, set forth schedule of indemnities for the
payment of claims for death or bodily injuries with the coverages set forth herein.
SEC. 391. Any claim for death or injury to any passenger or third-party pursuant to
the provisions of this chapter shall be paid without the necessity of proving fault or
negligence of any kind: Provided, That for purposes of this section:
(a) The total indemnity in respect of any person shall not be less than Fifteen
thousand pesos (P15,000.00);
(b) The following proofs of loss, when submitted under oath, shall be sufficient
evidence to substantiate the claim:
(1) Police report of accident; and
(2) Death certificate and evidence sufficient to establish the proper payee; or
(3) Medical report and evidence of medical or hospital disbursement in
respect of which refund is claimed;
(c) Claim may be made against one motor vehicle only. In the case of an occupant
of a vehicle, claim, shall lie against the insurer of the vehicle in which the
occupant is riding, mounting or dismounting from. In any other case, claim
shall lie against the insurer of the directly offending vehicle. In all cases, the
right of the party paying the claim to recover against the owner of the vehicle
responsible for the accident shall be maintained.
SEC. 392. No land transportation operator or owner of motor vehicle shall be
unreasonably denied the policy of insurance or surety bond required by this chapter by
the insurance companies authorized to issue the same, otherwise, the Land
Transportation Office shall require from said land transportation operator or owner of
the vehicle, in lieu of a policy of insurance or surety bond, a certificate that a cash
deposit has been made with the Commissioner in such amount required as limits of
indemnity in Section 390 to answer for the passenger and/or third-party liability of
such land transportation operator or owner of the vehicle.
No insurance company may issue the policy of insurance or surety bond required under
this chapter unless so authorized under existing laws.
The authority to engage in the casualty and/or surety lines of business of an insurance
company that refuses to issue or renew, without just cause, the insurance policy or
surety bond therein required shall be withdrawn immediately.
SEC. 393. No cancellation of the policy shall be valid unless written notice thereof is
given to the land transportation operator or owner of the vehicle and to the Land
Transportation Office at least fifteen (15) days prior to the intended effective date
thereof. Upon receipt of such notice, the Land Transportation Office, unless it receives
evidence of a new valid insurance or guaranty in cash or surety bond as prescribed in
this chapter, or an endorsement of revival of the cancelled one, shall order the
immediate confiscation of the plates of the motor vehicle covered by such cancelled
policy. The same may be reissued only upon presentation of a new insurance policy or
that a guaranty in cash or surety bond has been made or posted with the Commissioner
and which meets the requirements of this chapter, or an endorsement or revival of the
cancelled one.
SEC. 394. If the cancellation of the policy or surety bond is contemplated by the land
transportation operator or owner of the vehicle, he shall, before the policy or surety
bond ceases to be effective, secure a similar policy of insurance or surety bond to
replace the policy or surety bond to be cancelled or make a cash deposit in sufficient
amount with the Commissioner, and without any gap, file the required documentation
with the Land Transportation Office, and notify the insurance company concerned of
the cancellation of its policy or surety bond.
SEC. 395. In case of change of owner ship of a motor vehicle, or change of the engine
of an insured vehicle, there shall be no need of issuing a new policy until the next date
of registration or renewal of registration of such vehicle, and: Provided, That the
insurance company shall agree to continue the policy, such change of ownership or
such change of the engine shall be indicated in a corresponding endorsement by the
insurance company concerned, and a signed duplicate of such endorsement shall,
within a reasonable time, be filed with the Land Transportation Office.
SEC. 396. In the settlement and payment of claims, the indemnity shall not be availed
of by any accident victim or claimant as an instrument of enrichment by reason of an
accident, but as an assistance or restitution insofar as can fairly be ascertained.
SEC. 397. Any person having any claim upon the policy issued pursuant to this chapter
shall, without any unnecessary delay, present to the insurance company concerned a
written notice of claim setting forth the nature, extent and duration of the injuries
sustained as certified by a duly licensed physician. Notice of claim must be filed within
six (6) months from the date of accident, otherwise, the claim shall be deemed waived.
Action or suit for recovery of damage due to loss or injury must be brought, in proper
cases, with the Commissioner or the courts within one (1) year from denial of the
claim, otherwise, the claimant’s right of action shall prescribe.
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SEC. 398. The insurance company concerned shall forthwith ascertain the truth and
extent of the claim and make payment within five (5) working days after reaching an
agreement. If no agreement is reached, the insurance company shall pay only the no-
fault indemnity provided in Section 391 without prejudice to the claimant from
pursuing his claim further, in which case, he shall not be required or compelled by the
insurance company to execute any quit claim or document releasing it from liability
under the policy of insurance or surety bond issued.
In case of any dispute in the enforcement of the provisions of any policy issued
pursuant to this chapter, the adjudication of such dispute shall be within the original
and exclusive jurisdiction of the Commissioner, subject to the limitations provided in
Section 439.
SEC. 399. It shall be unlawful for a land transportation operator or owner of motor
vehicle to require his or its drivers or other employees to contribute in the payment of
premiums.
SEC. 400. No government office or agency having the duty of implementing the
provisions of this chapter nor any official or employee thereof shall act as agent in
procuring the insurance policy or surety bond provided for herein. The commission of
an agent procuring the said policy or bond shall in no case exceed ten percent (10%)
of the amount of the premiums therefor.
SEC. 401. Any land transportation operator or owner of motor vehicle or any other
person violating any of the provisions of the preceding sections shall be punished by
a fine of not less than Five hundred pesos (P500.00) and/or imprisonment for not more
than six (6) months. The violation of Section 390 by a land transportation operator
shall be a sufficient cause for the revocation of the certificate of public convenience
issued by the Land Transportation Franchising and Regulatory Board covering the
vehicle concerned.
SEC. 402. Whenever any violation of the provisions of this chapter is committed by a
corporation or association, or by a government office or entity, the executive officer
or officers of said corporation, association or government office or entity who shall
have knowingly permitted, or failed to prevent, said violation shall be held liable as
principals.
CHAPTER VII
MUTUAL BENEFIT ASSOCIATIONS AND
TRUSTS FOR CHARITABLE USES
TITLE I
Mutual Benefit Associations
SEC. 403. Any society, association or corporation, without capital stock, formed or
organized not for profit but mainly for the purpose of paying sick benefits to members,
or of furnishing financial support to members while out of employment, or of paying
to relatives of deceased members of fixed or any sum of money, irrespective of
whether such aim or purpose is carried out by means of fixed dues or assessments
collected regularly from the members, or of providing, by the issuance of certificates
of insurance, payment of its members of accident or life insurance benefits out of such
fixed and regular dues or assessments, but in no case shall include any society,
association, or corporation with such mutual benefit features and which shall be carried
out purely from voluntary contributions collected not regularly and/or no fixed amount
from whomsoever may contribute, shall be known as a mutual benefit association
within the intent of this Code.
Any society, association, or corporation principally organized as a labor union shall
be governed by the Labor Code notwithstanding any mutual benefit feature provisions
in its charter as incident to its organization.
In no case shall a mutual benefit association be organized and authorized to transact
business as a charitable or benevolent organization, and whenever it has this feature as
incident to its existence, the corresponding charter provision shall be revised to
conform with the provision of this section. Mutual benefit association, already licensed
to transact business as such on the date this Code becomes effective, having charitable
or benevolent feature shall abandon such incidental purpose upon effectivity of this
Code if they desire to continue operating as such mutual benefit associations.
SEC. 404. A mutual benefit association, before it may transact as such, must first
secure a license from the Commissioner. The application for such license shall be filed
with the Commissioner together with certified true copies of the articles of
incorporation or the constitution and bylaws of the association, and all amendments
thereto, and such other documents or testimonies as the Commissioner may require.
No license shall be granted to a mutual benefit association until the Commissioner
shall have been satisfied by such examination as he may make and such evidence as
he may require that the association is qualified under existing laws to operate and
transact business as such. The Commissioner may refuse to issue a license to any
mutual benefit association if, in his judgment, such refusal will best promote the
interest of the members of such association and of the people of this country. Any
license issued shall expire on the last day of December of the third year following its
issuance and, upon proper application, may be renewed if the association is continuing
to comply with existing laws, rules and regulations, orders, instructions, rulings and
decisions of the Commissioner. Every association receiving any such license shall be
subject to the supervision of the Commissioner: Provided, That no such license shall
be granted to any such association if such association has no actuary.
SEC. 405. No mutual benefit association shall be issued a license to operate as such
unless it has constituted and established a Guaranty Fund by depositing with the
Commissioner an initial minimum amount of Five million pesos (P5,000,000.00) in
cash, or in government securities with a total value equal to such amount, to answer
for any valid benefit claim of any of its members.
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All moneys received by the Commissioner for this purpose must be deposited by him
in interest-bearing deposits with any bank or banks authorized to transact business in
the Philippines for the account of the particular association constituting the Guaranty
Fund.
Any accrual to such fund, be it interest earned or dividend additions on moneys or
securities so deposited, may, with the prior approval of the Commissioner, be
withdrawn by the association if there is no pending benefit claim against it, including
interest thereon or dividend additions thereto.
The Commissioner, prior to or after licensing a mutual benefit association, may require
such association to increase its Guaranty Fund from the initial minimum amount
required to an amount equal to the capital investment required of an existing domestic
insurance company under Section 209 of this Code.
SEC. 406. Every mutual benefit association licensed to do business as such shall issue
membership certificates to its members specifying the benefits to which such members
are entitled.
Such certificates, together with the articles of incorporation of the association or its
constitution and bylaws, and all existing laws as may be pertinent shall constitute the
agreement, as of the date of its issuance, between the association and the member. The
membership certificate shall be in a form previously approved by the Commissioner.
SEC. 407. A mutual benefit association may, by reinsurance agreement, cede in whole
or in part any individual risk or risks under certificates of insurance issued by it, only
to a life insurance company authorized to transact business or to a professional
reinsurer authorized to accept life risks in the Philippines: Provided, That a copy of
the draft of such reinsurance agreement shall be submitted to the Commissioner for
his approval. The association may take credit for the reserves on such ceded risks to
the extent reinsured.
SEC. 408. The constitution or bylaws of a mutual benefit association must distinctly
state the purpose for which dues and/or assessments are made and collected and the
portion thereof which may be used for expenses.
Death benefit and other relief funds shall be created and used exclusively for paying
benefits due the members under their respective membership certificates. A general
fund shall likewise be created and used for expenses of administration of the
association.
A mutual benefit association shall only maintain free and unassigned surplus of not
more than twenty percent (20%) of its total liabilities as verified by the Commissioner.
Any amount in excess shall be returned to the members by way of dividends,
enhancing the equity value or providing benefits in kind and other relevant services.
In addition, subject to the approval of the Commissioner, a mutual benefit association
may allocate a portion for capacity building and research and development such as
developing new products and services, upgrading and improving operating systems
and equipment and continuing member education.
SEC. 409. Every outstanding membership certificate must have an equity value
equivalent to at least fifty percent (50%) of the total contributions collected thereon.
The equity value only applies to basic life insurance product and excludes optional
products.
SEC. 410. Every mutual benefit association must accumulate and maintain, out of the
periodic dues collected from its members, sufficient reserves for the payment of claims
or obligations for which it shall hold funds in securities satisfactory to the
Commissioner consisting of bonds of the Government of the Philippines, or any of its
political subdivisions and instrumentalities, or in such other good securities as may be
approved by the Commissioner.
The reserve liability shall be established in accordance with actuarial procedures and
shall be approved by the Commissioner.
The articles of incorporation or the constitution and bylaws of a mutual benefit
association must provide that if its reserve as to all or any class of certificates becomes
impaired, its board of directors or trustees may require that there shall be paid by the
members to the association the amount of the members’ equitable proportion of such
deficiency as ascertained by said board and that if the payment be not made it shall
stand as an indebtedness against the membership certificates of the defaulting
members and draw interest not to exceed five percent (5%) per annum compounded
annually.
SEC. 411. A mutual benefit association may invest such portion of its funds as shall
not be required to meet pending claims and other obligations in any of the classes of
investments or types of securities in which life insurance companies doing business in
the Philippines may invest.
It may also grant loans to members on the security of a pledge or chattel mortgage of
personal properties of the borrowers, or in the absence thereof, on the security of the
membership certificate of the borrowing members, in which event such loan shall
become a first lien on the proceeds thereof.
SEC. 412. The Commissioner or any of his duly designated representatives, shall have
the power of visitation, audit and examination into the affairs, financial condition, and
methods of doing business of all mutual benefit associations, and he shall cause such
examination to be made at least once every two (2) years or whenever it may be
deemed proper and necessary. Free access to the books, records and documents of the
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association shall be accorded to the Commissioner, or to his representatives, in such
manner that the Commissioner or his representatives may readily verify or determine
the true affairs, financial condition, and method of doing business of such association.
In the course of such examination, the Commissioner or his duly designated
representatives shall have authority to administer oaths and take testimony or other
evidence on any matter relating to the affairs of the association.
All minutes of the proceedings of the board of directors or trustees of the association,
and those of the regular or special meetings of the members, shall be taken, and a copy
thereof, in English or in Pilipino, shall be submitted to the Commissioner’s
representatives or examiners in the course of such examination.
A copy of the findings of such examination, together with the recommendations of the
Commissioner, shall be furnished the association for its information and compliance,
and the same shall be taken up immediately in the meetings of the board of directors
or trustees and of the members of the association.
SEC. 413. Every mutual benefit association shall, annually on or before the thirtieth
day of April of each year, render to the Commissioner an annual statement in such
form and detail as may be prescribed by the Commissioner, signed and sworn to by
the president, secretary, treasurer, and actuary of the association, showing the exact
condition of its affairs on the preceding thirty-first day of December.
SEC. 414. No money, aid or benefit to be paid, provided or tendered by any mutual
benefit association, shall be liable to attachment, garnishment, or other process, or be
seized, taken, appropriated, or applied by any legal or equitable process to pay any
debt or liability of a member or beneficiary, or any other person who may have a right
thereunder, either before or after payment.
SEC. 415. Any member of a mutual benefit association shall have the right at all times
to change the beneficiary or beneficiaries or add another beneficiary or other
beneficiaries in accordance with the rules and regulations of the association unless he
has expressly waived this right in the membership certificate. Every association may,
under such rules as it may adopt, limit the scope of beneficiaries and provide that no
beneficiary shall have or obtain any vested interest in the proceeds of any certificate
until the certificate has become due and payable under the terms of the membership
certificate.
SEC. 416. Any chapter affiliate independently licensed as a mutual benefit association
may consolidate or merge with any other similar chapter affiliate or with the mother
association.
SEC. 417. Any mutual benefit association may be converted into and licensed as a
mutual life insurance company by complying with the requirements of the pertinent
provisions of this Code and submitting the specific plan for such conversion to the
Commissioner for his approval. Such plan, as approved, shall then be submitted to the
members either in the regular meeting or in a special meeting called for the purpose
for their adoption. The affirmative vote of at least two-thirds (2/3) of all the members
shall be necessary in order to consider such plan as adopted.
No such conversion shall take effect unless and until approved by the Commissioner.
SEC. 418. No mutual benefit association shall be dissolved without first notifying the
Commissioner and furnishing him with a certified copy of the resolution authorizing
the dissolution, duly adopted by the affirmative vote of two-thirds (2/3) of the
members at a meeting called for that purpose, the financial statements as of the date of
the resolution, and such other papers or documents as may be required by the
Commissioner.
No dissolution shall proceed until and unless approved by the Commissioner and all
proceedings in connection therewith shall be witnessed and attested by his duly
designated representative.
No mutual benefit association shall be officially declared as dissolved until after the
Commissioner so certifies that all outstanding claims against the association have been
duly settled and liquidated.
SEC. 419. The Commissioner shall, after notice and hearing, have the power either to
suspend or revoke the license issued to a mutual benefit association if he finds that the
association has:
(a) Failed to comply with any provision of this Code;
(b) Failed to comply with any other law or regulation obligatory upon it;
(c) Failed to comply with any order, ruling, instruction, requirement or
recommendation of the Commissioner;
(d) Exceeded its power to the prejudice of its members;
(e) Conducted its business fraudulently or hazardously;
(f) Rendered its affairs and condition to one of insolvency; or
(g) Failed to carry out its aims and purposes for which it was organized due to
any cause.
After receipt of the order from the Commissioner suspending or revoking the license,
the association must immediately exert efforts to remove such cause or causes which
brought about the order and, upon proper showing, may apply with the Commissioner
for the lifting of the order and restoration or revival of the license so revoked or
suspended.
SEC. 420. For failure to remove such cause or causes which brought about the
suspension or revocation of the license of a mutual benefit association, the
Commissioner shall apply under this Code for an order from the proper court to
liquidate such association.
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The provisions of Titles 14 and 15, Chapter III, pertaining to the appointment of a
conservator and proceedings upon insolvency of an insurance company shall, insofar
as practicable, apply to mutual benefit associations.
SEC. 421. To secure the enforcement of any provision under this title, the
Commissioner may issue such rules, rulings, instructions, orders and circulars.
SEC. 422. The violation of any provision of this title shall subject the person violating
or the officer of the association responsible therefor to a fine of not less than Ten
thousand pesos (P10,000.00), or imprisonment of not exceeding three (3) years, or
both such fine and imprisonment, at the discretion of the court.
SEC. 423. All provisions of this Code governing life insurance companies and such
other provisions whenever practicable and necessary, shall be applicable to mutual
benefit associations.
TITLE 2
Trusts For Charitable Uses
SEC. 424. The term trust for charitable uses, within the intent of this Code, shall
include, all the real or personal properties or funds, as well as those acquired with the
fruits or income therefrom or in exchange or substitution thereof, given to or received
by any person, corporation, association, foundation, or entity, except the National
Government, its instrumentalities or political subdivisions, for charitable, benevolent,
educational, pious, religious, or other uses for the benefit of the public at large or a
particular portion thereof or for the benefit of an indefinite number of persons.
SEC. 425. The term trustee shall include any individual, corporation, association,
foundation, or entity, except the National Government, its instrumentalities or political
subdivisions, in charge of, or acting for, or concerned with the administration of, the
trust referred to in the section immediately preceding and with the proper application
of trust property.
SEC. 426. The term trust property shall include all real or personal properties or funds
pertaining to the trust as well as those acquired with the fruits or income therefrom or
in exchange or substitution thereof.
SEC. 427. All trustees shall, before entering in the performance of the duties of their
trust, obtain a certificate of registration from the Commissioner. The registration shall
expire on December 31 of the third year following its issuance unless it is renewed.
All provisions of this Code governing mutual benefit associations and such other
provisions herein, whenever practicable and necessary, shall be applicable to trusts for
charitable uses.

SEC. 428. The treasurer of a charitable trust shall file a fidelity bond in the amount
commensurate with the value of the trust property in his custody, as may be determined
by the Commissioner.
CHAPTER VIII
TRUST BUSINESS IN GENERAL
SEC. 429. An insurance company may engage in limited trust business, consisting of
managing funds pertaining only to retirement and pre-need plans, provided it has
secured a license to do so from the Bangko Sentral ng Pilipinas. This trust business
shall be separate and distinct from the general business of the insurance company and
shall be subject to rules and regulations as may be promulgated by the Bangko Sentral
ng Pilipinas in consultation with the Commissioner.
CHAPTER IX
REGISTRATION, RESPONSIBILITIES AND
OVERSIGHT OF SELF-REGULATORY
ORGANIZATIONS
SEC 430. The Commissioner shall have the power to register as a self-regulatory
organization, or otherwise grant licenses, and to regulate, supervise, examine, suspend
or otherwise discontinue, as a condition for the operation of organizations whose
operations are related to or connected with the insurance market such as, but not
limited to, associations of insurance companies, whether life or non-life, reinsurers,
actuaries, agents, brokers, dealers, mutual benefit associations, trusts, rating agencies,
and other persons regulated by the Commissioner, which are engaged in the business
regulated by this Code.
The Commissioner may prescribe rules and regulations which are necessary or
appropriate in the public interest or for the protection of investors to govern self-
regulatory organizations and other organizations licensed or regulated pursuant to the
authority granted hereunder including, but not limited to, the requirement of
cooperation within and among all participants in the insurance market to ensure
transparency and facilitate exchange of information.
SEC. 431. An association cannot be registered as a self-regulatory organization unless
the Commissioner determines that:
(a) The association is so organized and has the capacity to be able to carry out the
purposes of this Code and to comply with, and to enforce compliance by its
members and persons associated with its members, with the provisions of this
Code, the rules and regulations thereunder, and the rules of the association.
(b) The rules of the association, notwithstanding anything in the Corporation Code
to the contrary, provide the following:
(1) Qualifications and the disqualifications on membership of the association;
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(2) A fair representation of its members to serve on the board of directors of
the association and the administration of its affairs, and that any natural
person associated with a juridical entity that is a member shall also be
deemed to be a member for this purpose;
(3) The president of the association and at least two (2) independent directors
as members of the board of directors of the association;
(4) Equitable allocation of reasonable dues, fees, and other charges among
members and other persons using any facility or system which the
association operates or controls;
(5) The prevention of fraudulent and manipulative acts and practices to
protect the insuring public and the promotion of just and equitable
principles of business;
(6) Members and persons associated with its members subject to discipline
for violation of any provision of this Code, the rules or regulations
thereunder, or the rules of the association;
(7) Fair procedure for the disciplining of members and persons associated
with members; and
(8) The prohibition or limitation of access to services offered by the
association or a member thereof.
SEC. 432. A self-regulatory organization may examine and verify the qualifications
of an applicant to become a member in accordance with procedures established by the
rules of the association.
A self-regulatory organization shall deny membership or condition the membership of
an entity, if it does not meet the standards of financial responsibility, operational
capability, training, experience, or competence that are prescribed by the rules of the
association; or has engaged, and there is a reasonable likelihood it will again engage,
in acts or practices inconsistent with just and equitable principles of fair trade.
A self-regulatory organization may deny membership to an entity not engaged in a
type of business in which the rules of the association require members to be engaged.
SEC. 433. Upon the filing of an application for registration as a self-regulatory
organization under this title, the Commissioner shall have ninety (90) days within
which to either grant registration or institute a proceeding to determine whether
registration should be denied. In the event proceedings are instituted, the
Commissioner shall have two hundred seventy (270) days within which to conclude
such proceedings at which time he shall, by order, grant or deny such registration.
SEC. 434. Every self-regulatory organization shall comply with the provisions of this
Code, the rules and regulations thereunder, and its own rules, and enforce compliance
therewith by its members, persons associated with its members or its participants,
notwithstanding any provision of the Corporation Code to the contrary.
SEC. 435. Each self-regulatory organization shall submit to the Commissioner for
prior approval any proposed rule or amendment thereto, together with a concise
statement of the reason and effect of the proposed amendment.
Within sixty (60) days after submission of a proposed amendment, the Commissioner
shall, by order, approve the proposed amendment. Otherwise, the same may be made
effective by the self-regulatory organization.
In the event of an emergency requiring action for the protection of the insuring public,
a self-regulatory organization may put a proposed amendment into effect
summarily: Provided, however, That a copy of the same shall be immediately
submitted to the Commissioner.
The Commissioner is further authorized, if after making appropriate request in writing
to a self-regulatory organization that such organization effect on its own behalf
specified changes in its rules and practices and, after due notice and hearing, it
determines that such changes have not been effected, and that such changes are
necessary, by rule or regulation or by order, may alter, abrogate or supplement the
rules of such self-regulatory organization insofar as necessary or appropriate to effect
such changes in respect of such matters as:
(a) Safeguards in respect of the financial responsibility of members and adequate
provision against the evasion of financial responsibility through the use of
corporate forms or special partnerships;
(b) The supervision of market practices;
(c) The manner, method and place of soliciting business;
(d) The fixing of reasonable rates of fees, interest, listing and other charges, but
not rates of commission; and self-regulatory organization; and
(e) The supervision, auditing and disciplining of members.
In addition to the general powers of the Commissioner over the entities under
supervision, the Commissioner, after due notice and hearing, is authorized, in the
public interest and to protect the insuring public:
(1) To suspend for a period not exceeding twelve (12) months or to revoke the
registration of a self-regulatory organization, or to censure or impose
limitations on the activities, functions and operations of such self-regulatory
organization, if the Commission finds that such a self-regulatory organization
has willfully violated or is unable to comply with any provision of this Code
or of the rules and regulations thereunder, or its own rules, or has failed to
enforce compliance therewith by a member of, person associated with a
member, or a participant in such self-regulatory organization;
(2) To expel from a self-regulatory organization any member thereof or any
participant therein who is found to have willfully violated any provision of
this Code or suspend for a period not exceeding twelve (12) months for
violation of any provision of this Code or any other law administered by the
Commission, or the rules and regulations thereunder, or effected, directly or
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indirectly, any transaction for any person who, such member or participant
had reason to believe, was violating in respect of such transaction any of such
provisions; and
(3) To remove from office or censure any officer or director of a self-regulatory
organization if it finds that such officer or director has violated any provision
of this Code, any other law administered by the Commissioner, the rules or
regulations thereunder and the rules of such self-regulatory organization, or
has abused his authority, or without reasonable justification or excuse has
failed to enforce compliance with any of such provisions.
SEC. 436. (a) A self-regulatory organization is authorized to discipline a member of
or participant in such self-regulatory organization, or any person associated with a
member, including suspending or expelling such member or participant, or suspending
or barring such person from being associated with a member, if engaged in acts or
practices inconsistent with just and equitable principles of fairness or in willful
violation of any provision of this Code, any other law administered by the
Commission, the rules or regulations thereunder, or the rules of the self-regulatory
organization. In any disciplinary proceeding by a self-regulatory organization (other
than a summary proceeding pursuant to paragraph (b) of this section) the self-
regulatory organization shall bring specific charges, provide notice to the person
charged, afford the person charged with an opportunity to defend against the charges,
and keep a record of the proceedings. A determination to impose a disciplinary
sanction shall be supported by a written statement of the offense, a summary of the
evidence presented and a statement of the sanction imposed.
(b) A self-regulatory organization may summarily:
(1) Suspend a member, participant or person associated with a member who has
been or is expelled or suspended from any other self-regulatory organization;
or
(2) Suspend a member who the self-regulatory organization finds to be in such
financial or operating difficulty that the member or participant cannot be
permitted to continue to do business as a member with safety to investors,
creditors, other members, participants or the self-regulatory
organization: Provided, That the self-regulatory organization immediately
notifies the Commission of the action taken. Any person aggrieved by a
summary action pursuant to this paragraph shall be promptly afforded an
opportunity for a hearing by the association in accordance with the preceding
paragraph. The Commissioner, by order, may stay a summary action on his
own or upon application by any person aggrieved thereby, if the
Commissioner determines summarily or after due notice and hearing (which
hearing may consist solely of the submission of affidavits or presentation of
oral arguments), that a stay is consistent with the public interest and the
protection of the insuring public.
(c) A self-regulatory organization shall promptly notify the Commission of any
disciplinary sanction on any member thereof or participant therein, any denial of
membership or participation in such organization, or the imposition of any disciplinary
sanction on a person associated with a member or a bar of such person from becoming
so associated. Within thirty (30) days after such notice, any aggrieved person may
appeal to the Commissioner from, or the Commissioner on its own motion within such
period, may institute review of, the decision of the self-regulatory organization, at the
conclusion of which, after due notice and hearing (which may consist solely of review
of the record before the self-regulatory organization), the Commissioner shall affirm,
modify or set aside the sanction. In such proceeding, the Commissioner shall
determine whether the aggrieved person has engaged or omitted to engage in the acts
and practices as found by the self-regulatory organization, whether such acts and
practices constitute willful violations of this Code, any other law administered by the
Commission, the rules or regulations thereunder, or the rules of the self-regulatory
organization as specified by such organization, whether such provisions were applied
in a manner consistent with the purposes of this Code, and whether, with due regard
for the public interest and the protection of investors, the sanction is excessive or
oppressive.
CHAPTER X
THE INSURANCE COMMISSIONER
TITLE l
Administrative And Adjudicatory Powers
SEC. 437. The Insurance Commissioner shall be appointed by the President of the
Republic of the Philippines for a term of six (6) years without reappointment and who
shall serve as such until the successor shall have been appointed and qualified. If the
Insurance Commissioner is removed before the expiration of his term of office, the
reason for the removal must be published.
The Insurance Commissioner shall have the duty to see that all laws relating to
insurance, insurance companies and other insurance matters, mutual benefit
associations, and trusts for charitable uses are faithfully executed and to perform the
duties imposed upon him by this Code, and shall, notwithstanding any existing laws
to the contrary, have sole and exclusive authority to regulate the issuance and sale of
variable contracts as defined in Section 238 hereof and to provide for the licensing of
persons selling such contracts, and to issue such reasonable rules and regulations
governing the same.
The Commissioner may issue such rulings, instructions, circulars, orders and decisions
as may be deemed necessary to secure the enforcement of the provisions of this Code,
to ensure the efficient regulation of the insurance industry in accordance with global
best practices and to protect the insuring public. Except as otherwise specified,
decisions made by the Commissioner shall be appealable to the Secretary of Finance.
69
In addition to the foregoing, the Commissioner shall have the following powers and
functions:
(a) Formulate policies and recommendations on issues concerning the insurance
industry, advise Congress and other government agencies on all aspects of
the insurance industry and propose legislation and amendments thereto;
(b) Approve, reject, suspend or revoke licenses or certificates of registration
provided for by this Code;
(c) Impose sanctions for the violation of laws and the rules, regulations and
orders issued pursuant thereto;
(d) Prepare, approve, amend or repeal rules, regulations and orders, and issue
opinions and provide guidance on and supervise compliance with such rules,
regulations and orders;
(e) Enlist the aid and support of, and/or deputize any and all enforcement
agencies of the government in the implementation of its powers and functions
under this Code;
(f) Issue cease and desist orders to prevent fraud or injury to the insuring public;
(g) Punish for contempt of the Commissioner, both direct and indirect, in
accordance with the pertinent provisions of and penalties prescribed by the
Rules of Court;
(h) Compel the officers of any registered insurance corporation or association to
call meetings of stockholders or members thereof under its supervision;
(i) Issue subpoena duces tecum and summon witnesses to appear in any
proceeding of the Commission and, in appropriate cases, order the
examination, search and seizure of all documents, papers, files and records,
tax returns, and books of accounts of any entity or person under investigation
as may be necessary for the proper disposition of the cases before it, subject
to the provisions of existing laws;
(j) Suspend or revoke, after proper notice and hearing, the license or certificate
of authority of any entity or person under its regulation, upon any of the
grounds provided by law;
(k) Conduct an examination to determine compliance with laws and regulations
if the circumstances so warrant as determined by appropriate rules and
regulations;
(l) Investigate not oftener than once a year from the last date of examination to
determine whether an institution is conducting its business on a safe and
sound basis: Provided, That, the deficiencies/irregularities found by or
discovered by an audit shall be immediately addressed;
(m) Inquire into the solvency and liquidity of the institutions under its supervision
and enforce prompt corrective action;
(n) To retain and utilize, in addition to its annual budget, all fees, charges and
other income derived from the regulation of insurance companies and other
supervised persons or entities;
(o) To fix and assess fees, charges and penalties as the Commissioner may find
reasonable in the exercise of regulation; and
 (p) Exercise such other powers as may be provided by law as well as those which
may be implied from, or which are necessary or incidental to the express
powers granted the Commission to achieve the objectives and purposes of
this Code.
The Commission shall indemnify the Commissioner, Deputy Commissioner, and other
officials of the Commission, including personnel performing supervision and
examination functions, for all costs and expenses reasonably incurred by such persons
in connection with any civil or criminal actions, suits or proceedings to which they
may be made a party to by the reason of the performance of their duties and functions,
unless they are finally adjudged in such actions, suits or proceedings to be liable for
negligence or misconduct.
In the event of settlement or compromise, indemnification shall be provided only in
connection with such matters covered by the settlement as to which the Commission
is advised by external counsel that the persons to be indemnified did not commit any
negligence or misconduct:
The costs and expenses incurred in defending the aforementioned action, suit or
proceeding may be paid by the Commission in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
Commissioner, Deputy Commissioner, officer or employee to repay the amount
advanced should it ultimately be determined by the Commission that the person is not
entitled to be indemnified.
SEC. 438. In addition to the administrative sanctions provided elsewhere in this Code,
the Insurance Commissioner is hereby authorized, at his discretion, to impose upon
insurance companies, their directors and/or officers and/or agents, for any willful
failure or refusal to comply with, or violation of any provision of this Code, or any
order, instruction, regulation, or ruling of the Insurance Commissioner, or any
commission or irregularities, and/or conducting business in an unsafe or unsound
manner as may be determined by the Insurance Commissioner, the following:
(a) Fines not less than Five thousand pesos (P5,000.00) and not more than Two
hundred thousand pesos (P200,000.00); and
(b) Suspension, or after due hearing, removal of directors and/or officers and/or
agents.
SEC. 439. The Commissioner shall have the power to adjudicate claims and
complaints involving any loss, damage or liability for which an insurer may be
answerable under any kind of policy or contract of insurance, or for which such insurer
may be liable under a contract of suretyship, or for which a reinsurer may be sued
under any contract of reinsurance it may have entered into; or for which a mutual
benefit association may be held liable under the membership certificates it has issued
to its members, where the amount of any such loss, damage or liability, excluding
interest, cost and attorney’s fees, being claimed or sued upon any kind of insurance,
70
bond, reinsurance contract, or membership certificate does not exceed in any single
claim Five million pesos (P5,000,000.00).
The power of the Commissioner does not cover the relationship between the insurance
company and its agents/brokers but is limited to adjudicating claims and complaints
filed by the insured against the insurance company.
The Commissioner may authorize any officer or group of officers under him to conduct
investigation, inquiry and/or hearing and decide claims and he may issue rules
governing the conduct of adjudication and resolution of cases. The Rules of Court shall
have suppletory application.
The party filing an action pursuant to the provisions of this section thereby submits his
person to the jurisdiction of the Commissioner. The Commissioner shall acquire
jurisdiction over the person of the impleaded party or parties in accordance with and
pursuant to the provisions of the Rules of Court.
The authority to adjudicate granted to the Commissioner under this section shall be
concurrent with that of the civil courts, but the filing of a complaint with the
Commissioner shall preclude the civil courts from taking cognizance of a suit
involving the same subject matter.
Any decision, order or ruling rendered by the Commissioner after a hearing shall have
the force and effect of a judgment. Any party may appeal from a final order, ruling or
decision of the Commissioner by filing with the Commissioner within thirty (30) days
from receipt of copy of such order, ruling or decision a notice of appeal to the Court
of Appeals in the manner provided for in the Rules of Court for appeals from the
Regional Trial Court to the Court of Appeals.
For the purpose of any proceeding under this section, the Commissioner, or any officer
thereof designated by him is empowered to administer oaths and affirmation, subpoena
witnesses, compel their attendance, take evidence, and require the production of any
books, papers, documents, or contracts or other records which are relevant or material
to the inquiry.
A full and complete record shall be kept of all proceedings had before the
Commissioner, or the officers thereof designated by him, and all testimony shall be
taken down and transcribed by a stenographer appointed by the Commissioner.
In order to promote party autonomy in the resolution of cases, the Commissioner shall
establish a system for resolving cases through the use of alternative dispute resolution.
Title 2
Fees And Other Sources Of Funds
SEC. 440. (a) For the issuance or renewal of certificates of authority, licenses and
certificates of registration, pursuant to pertinent provisions of this Code, the
Commissioner shall collect and receive fees which shall be not less than the following:
For each certificate of authority issued to an insurance company doing business in the
Philippines, Two hundred pesos (P200.00).
For each special certificate of authority issued to a servicing insurance company, One
hundred pesos (P100.00).
For each license issued to a general agent of an insurance company, Fifty pesos
(P50.00).
For each license issued to an insurance agent, Twenty-five pesos (P25.00).
For each license issued to an agent of variable contract policy, Twenty-five pesos
(P25.00).
For each license issued to an insurance broker, One hundred pesos (P100.00).
For each license issued to a reinsurance broker, One hundred pesos (P100.00).
For each license issued to an insurance adjuster, One hundred pesos (P100.00).
For each certificate of registration issued to an actuary, Fifty pesos (P50.00).
For each certificate of registration issued to a resident agent, Fifty pesos (P50.00).
For each license issued to a rating organization, One hundred pesos (P100.00).
For each certificate of registration issued to a non-life company underwriter, Fifty
pesos (P50.00).
For each license issued to a mutual benefit association, Ten pesos (P10.00).
For each certificate of registration issued to a trust for charitable uses, Ten pesos
(P10.00).
All certificates of authority and all other licenses, as well as all certificates of
registration, issued to any person, partnership, association or corporation under the
pertinent provisions of this Code for which no expiration date has been prescribed,
shall expire on the last day of December of the third year from its issuance and shall
be renewed upon application therefor and payment of the corresponding fee, if the
licensee or holder of such license or certificate is continuing to comply with all the
71
applicable provisions of existing laws, and of rules, instructions, orders and decisions
of the Commissioner.
(b) For the filing of the annual statement referred to in Section 229, the Commissioner
shall collect and receive from the insurance company so filing a fee of not less than
Five hundred pesos (P500.00): Provided, That a fine of not less than One hundred
pesos (P100.00) shall be imposed and collected by the Commissioner for each week
of delay, or any fraction thereof, in the filing of the annual statement.
For the filing of annual statement referred to in Section 413, the Commissioner shall
collect and receive from the mutual benefit association so filing a fee of not less than
Ten pesos (P10.00): Provided, That a fine of not less than Ten pesos (P10.00) shall be
imposed and collected by the Commissioner for each week of delay, or any fraction
thereof, in the filing of the annual statement.
(c) For the examination prescribed in Section 253, the Commissioner shall collect and
receive fees according to the amount of its total assets, in the case of a domestic
company, or of its assets in the Philippines, in the case of a foreign company, not less
than the amount as follows:
(1) Two million pesos or more but less than Four million pesos, Four hundred
pesos (P400.00);
(2) Four million pesos or more but less than Six million pesos, Eight hundred
pesos (P800.00);
(3) Six million pesos or more but less than Eight million pesos, One thousand two
hundred pesos (P1,200.00);
(4) Eight million pesos or more but less than Ten million pesos, One thousand six
hundred pesos (P1,600.00);
(5) Ten million pesos or more, Two thousand pesos (P2,000.00);
Provided, That if the said examination is made in places outside the Metropolitan
Manila area, besides these fees, the Commissioner shall require of the company
examined the payment of the actual and necessary travelling and subsistence expenses
of the examiner or examiners concerned.
For the examination prescribed in Section 412, the Commissioner shall collect and
receive a minimum fee of not less than One hundred pesos (P100.00) from the mutual
benefit association examined: Provided, That if such association has total assets of
more than One hundred thousand pesos (P100,000.00), an additional fee of not less
than Ten pesos (P10.00) for every Fifty thousand pesos (P50,000.00) in excess thereof
shall be imposed:
(d) For the filing of an application to withdraw from the Philippines under Title 18,
the Commissioner shall collect and receive from the foreign company so withdrawing
a fee of not less than One thousand pesos (P1,000.00).
(e) The Commissioner may fix and collect fees or charges for documents, transcripts,
or other materials which may be furnished by him not in excess of reasonable cost.
SEC. 441. The Commissioner, in accordance with the rules and regulations of the
Department of Budget and Management and other relevant regulatory agencies, shall
source the salary, allowances and other expenses from the retained amount of the fees,
charges, penalties and other income from the regulation of insurance companies and
other covered persons and entities, and from the Insurance Fund, which is created out
of the proceeds of taxes on insurance premiums mentioned in Section 255 of the
National Internal Revenue Code, as amended.
SEC. 446. Repealing Clause. – Except as expressly provided by this Code, all laws,
decrees, orders, rules and regulations or parts thereof, inconsistent with any provision
of this Code shall be deemed repealed, amended or modified accordingly.
SEC. 447. Separability Clause. – If any provision of this Code or any part hereof be
declared invalid or unconstitutional, the remainder of the law or other provisions not
otherwise affected shall remain valid and subsisting.
SEC. 448. This Code shall take effect fifteen (15) days following its publication in a
newspaper of general circulation.

MISCELLANEOUS PROVISIONS

SEC. 442. Any person, company or corporation subject to the supervision and control
of the Commissioner who violates any provision of this Code, for which no penalty is
provided, shall be deemed guilty of a penal offense, and upon conviction be punished
by a fine not exceeding Two hundred thousand pesos (P200,000.00) or imprisonment
of six (6) months, or both, at the discretion of the court.

If the offense is committed by a company or corporation, the officers, directors, or

other persons responsible for its operation, management, or administration, unless it
can be proved that they have taken no part in the commission of the offense, shall
likewise be guilty of a penal offense, and upon conviction be punished by a fine not
exceeding Two hundred thousand pesos (P200,000.00) or imprisonment of six (6)
months, or both, at the discretion of the court.
SEC. 443. All criminal actions for the violation of any of the provisions of this Code
shall prescribe after three (3) years from the discovery of such violation: Provided,
That such actions shall in any event prescribe after ten (10) years from the commission
of such violation.

SEC. 444. Any person, partnership, association or corporation heretofore authorized,

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

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

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

72
 AN ACT ESTABLISHING THE PRE-NEED CODE OF THE
PHILlPPlNES
REPUBLIC ACT No. 9829
CHAPTER I
GENERAL PROVISIONS
Section 1. Title. - This Act shall be known as the "Pre-need Code of the Philippines".
Section 2. Declaration of Policy. - It is the policy of the State to regulate the
establishment of pre-need companies and to place their operation on sound, efficient
and stable basis to derive the optimum advantage from them in the mobilization of
savings and to prevent and mitigate, as far as practicable, practices prejudicial to public
interest and the protection of planholders.
The State shall hereby regulate, through an empowered agency, pre-need companies
based on prudential principles to promote soundness, stability and sustainable growth
of the pre-need industry.
Section 3. Construction. - Any doubt in the interpretation and implementation of any
provision in this Code shall be interpreted in favor of the rights and interests of the
planholder.
Section 4. Definition of Terms. - Whenever used in this Code, the following terms
shall have their respective. meanings;
(a) "Commission" "refers to the Insurance Commission.
(b) "Pre-need plans" are contracts, agreements, deeds or plans for the benefit of
the planholders which provide for the performance of future service/s,
payment of monetary considerations or delivery of other benefits at the time
of actual need or agreed maturity date, as specified therein, in exchange for
cash or installment amounts with or without interest or insurance coverage
and includes life, pension, education, interment and other plans, instruments
contracts or deeds as may in the future he determined by the Commission.
(c) "Pre-need company" refers to any corporation registered with the
Commission and authorized/licensed to sell or offer to sell pre-need plans.
The term "pre-need company" also refers to schools, memorial chapels,
banks, nonbank financial institutions and other entities which have also been
authorized/licensed to sell or offer to sell pre-need plans insofar as their pre-
need activities or business are concerned.
(d) "Planholder" refers to any natural or juridical person who purchases pre-need
plans from a pre-need company for whom or for whose beneficiaries' benefits
are to be delivered, as stipulated and guaranteed by the pre-need company.
The term includes the assignee, transferee and any successor - in - interest of
the planholder.
(e) "Beneficiary" refers to the person designated by the planholder as the
recipient of the benefits in the pre-need plan.
73
(f) "Contract price" refers to the stipulated price in the pre-need plan.
(g) "Benefits" refers to the payment of monetary considerations and/or
performance of future services which the pre-need company undertakes to
deliver either to the planholder or his beneficiary at the time of actual need or
agreed maturity date, as specified in the_ pre-need plan.
(h) "Sales counselors" refers to natural persons who are engaged in the sale of,
or offer to sell, or counsel of prospective planholders for the purpose of
selling, whether or not on commission basis, pre-need plans upon the
authority of the pre-need company.
(i) "Affiliate of, or affiliated with, a specified person" refers to a person that
directly or indirectly, through one (1) or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified.
Exercising control over a legal entity shall mean any one of the following;
(1) owning either solely or together with affiliated persons more than twenty
- five percent (25%) of the outstanding capital stock of a legal entity; and (2)
being an officer or director of such legal entity.
(j) "Trust fund" refers to a fund set up from the planholders' payments to pay for
the cost of benefits and services, termination values payable to planholders
and other costs necessary to ensure the delivery of benefits or services to
planholders as provided for in the contracts.
(k) "Pre-need reserve liabilities" refers to the measure of the liabilities of the pre-
need company for its in - force plans or lapsed plans as of valuation date.
(l) "Liquidity reserve" refers to a portion of the trust fund set aside by the trustee
to cover benefits due to planholders for the ensuing year.
(m) "Fixed value plans" refers to pre-need plans whose 'benefits and costs are
fixed and predetermined at the inception or purchase of the plan.
(n) "In - force plan" refers to a plan for which the pre-need company has an
outstanding obligation for the delivery of benefits or services or payment of
termination value.
(o) "Lapsed plan" refers to a plan that is delinquent in payment of installments
provided for in the contract, the delinquency, of which extends beyond the
grace period provided for in the plan or contract.
(p) "Cancelled plan" refers to a plan that can no longer be reinstated by reason of
delinquency in the payment of installments for more than two (2) years or a
longer period as provided in the contract, counted from the expiry of the grace
period provided for in the plan or contract.1avvphi1
(q) "Scheduled benefit plans" refers to plans the date of availment of the benefits
of which is set at the inception or purchase of the plan.
(r) "Contingent benefit plans" refers to plans the timing of the provision of the
benefits of which is conditional on the occurrence of the contingency.
(s) "Risk - based capital" refers to a method to measure the minimum amount of
capital that a pre-need company needs to support its overall business
operation. It is used to set capital requirements, considering the size and
degree of risk taken by the pre-need company.
(t) "BSP" refers to "Bangko Sentral ng Pllipinas".

The terms not otherwise defined under this Code shall be construed in their usual and
commonly understood trade, business, commercial or investment meaning.
CHAPTER II
AUTHORITY OF THE COMMISSION
Section 5. Supervision. - All pre-need companies, as defined under this Act, shall be
under the primary and exclusive supervision and regulation of the Insurance
Commission. The Commission is hereby authorized to provide for its reorganization,
to streamline its structure and operations, upgrade its human resource component to
enable it to effectively and efficiently perform its functions and exercise its powers
under this Code.
All - positions of the - Commission shall be governed by 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 (BSP) 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).
The salary and allowances or personal services expense of the employees of the
Insurance Commission shall be sourced from the retained amount of the fees, charges
and other income derived from the regulation of pre-need companies and from the
Insurance Fund under Section 418 of the Insurance Code of the Philippines
(Presidential Decree No. 612, as amended) and Section 286 of the National Internal
Revenue Code. If the personal services expense cannot be covered by the retained
amount and the Insurance Fund, it shall be appropriated in the General Appropriations
Fund.
Section 6. Powers and Functions of the Commission. - The Commission shall, at all
times, act with transparency and dispatch and shall have, among others, the following
powers and functions;
(a) Approve, amend, renew or deny any license, registration or certificate issued
under this Code;
(b) Fix and assess fees and/or charges as it may find reasonable in the exercise
of regulation;
74
(c) Regulate, supervise and monitor the operations and management of pre-need
companies to ensure compliance with the provisions of this Code, existing
laws, rules and regulations including, but not limited to:
(1) Revoking or nullifying investments made and/or entered into by a - pre-
need company or a trustee which are contrary to existing laws, rules and
regulations;
(2) Demanding for the conversion of the investments made by the trustee to
cash or other liquid assets to protect the interest of the planholders; and
(3) Regulating, investigating or supervising activities of pre-need
companies, their officers, employees, sales counselors, consultants or
agents;
(d) Issue cease and desist orders to prevent fraud and injury to the investing
public;
(e) Issue subpoena duces tecum and ad testificandum, order the examination,
search and seizure of documents, papers, files, tax returns, books of accounts
and other records, in whatever form, of any entity or person under
investigation;
(f) 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;
(g) Impose sanctions, institute cases and/or prosecute offenders for violation of
this Code, related laws, rules, regulations and orders issued pursuant thereto;
(h) Suspend or revoke licenses
(i) Enlist the aid and support of and/or deputize any and all enforcement agencies
of the government in the implementation of its powers and in the exercise of
its functions under this Code;
(j) Take over pre-need companies which fail to comply with this Code, related
laws, rules, regulations and orders issued pursuant thereto, either through the
appointment of a conservator, receiver or liquidator;
(k) 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;
(l) Formulate policies and recommendations on issues concerning the pre-need
industry, including proposed legislations;
(m) Retain and utilize, in addition to its annual budget, an amount up to One
hundred million pesos (Pl00, 000,000.00) of the fees, charges and other
income derived from the regulation of the pre-need companies; 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 carry out the
express powers granted the Commission to achieve the objectives and
purposes of the law.
CHAPTER III
ORGANIZATION, LICENSING AND MANAGEMENT OF PRE-NEED
COMPANIES

Section 7. Prerequisites to Incorporation. - Except upon favorable recommendation
of the Commission, the Securities and Exchange Commission (SEC) shall not accept
or approve the articles of incorporation and bylaws of any pre-need company.
A foreign corporation may be allowed to engage in a pre-need business in the
Philippines: Provided, That it shall comply with the pertinent laws, rules and
regulations.
Section 8. Amendment of the Articles of Incorporation and Bylaws. - Amendments to
the articles of incorporation and bylaws of a pre-need company, including merger,
consolidation and dissolution, shall not be approved by the SEC without the favorable
recommendation from the Commission.
Section 9. Paid-up Capital. - A pre-need company incorporated after the effectivity of
this Code shall have a minimum paid - up capital of One hundred million pesos (P100,
000,000.00). Existing pre-need companies shall comply with the following minimum
unimpaired paid - up capital:
(a) One Hundred million pesos (P100, 000,000.00) for companies selling at least
three(3) types of plan;
(b) Seventy - five million pesos (P75, 000,000.00) for companies selling two (2)
types of plan; and
(c) Fifty million pesos (P50, 000,000.00) for companies selling a single type of
plan.
(d)
Existing pre-need companies with traditional education plans shall have a minimum
unimpaired paid-up capital of One hundred million pesos (P100, 000,000.00)
The Commission may adopt risk - based principles on capital adequacy based on
internationally accepted standards. In the exercise of its authority under this paragraph,
the Commission may prescribe a higher minimum unimpaired paid - up capital for pre-
need companies.
Section 10. Licensing of Pre-need Companies. – No person shall operate as a pre-need
company or engage in the business of a pre-need company unless licensed by the
Commission in accordance with this Code.
The license under this section shall expire one (1) year from the time of the registration.
It may be renewed upon compliance with the prescribed requirements of the
Commission. Such renewal shall be deemed approved if not acted upon within thirty
(30) days from the time of filing of the application for renewal.
Section 11. Qualification and Disqualification of Directors and Officers. - To
maintain the quality of management of pre-need companies and afford better
protection to planholders and beneficiaries, the Commission shall prescribe, pass upon
and review the qualifications and disqualifications of individuals elected or appointed
75
directors or officers of pre-need companies, including its actuaries, and disqualify
those found unfit. The Commission may disqualify, suspend or remove any director or
officer who commits or omits an act which renders him unfit for the position.
In determining whether an individual is fit and proper to hold the position of a director
or officer of a pre-need company, regard shall be given to his integrity, experience,
education, training and competence. The following persons, and those determined by
the Commission to be unfit, shall in no case be allowed to serve or act in the capacity
of an officer, employee, director, consultant or sales counselor of any pre-need
company:
(a) Any person convicted of any crime involving any pre-need plan, security or
financial product;
(b) Any person convicted of an offense involving moral turpitude or involving
fraud or embezzlement, theft, estafa or other fraudulent acts or transactions;
(c) Any person who, by reason of any misconduct, is enjoined by order, judgment
or decree by any court, quasi - judicial body or administrative agency of
competent jurisdiction from acting as a director, officer, employee,
consultant, agent or occupying any fiduciary position;
(d) Any person found by the Commission to have willfully violated or willfully
aided, abetted, counseled, commanded, induced or procured the violation of
this Code, the Insurance Code, the Securities Regulation Code or any related
laws and any rules or orders thereunder;
(e) Any person judicially declared to be insolvent or incapacitated to contract;
and
(f) Any person found guilty by a foreign court, regulatory authority or
government agency of the acts or violations similar to any of the acts or
misconduct enumerated in the foregoing paragraphs: Provided, That
conviction in the first instance shall be considered as sufficient ground for
disqualification.
Section 12. Independent Directors. – Pre-need companies shall have at least two (2)
independent directors or twenty percent (20%) of the members of the board, whichever
is higher. For this purpose an "independent director" shall refer to a person other than
an officer, employee or any person having a fiduciary relation to the pre-need
company, its parent or subsidiaries, or any other individual having a relationship
therewith, which may interfere with the exercise of independent judgment in carrying
out the responsibilities of a director.
Section 13. Investment Restrictions of Directors and Officers. – No director or officer
of any pre-need company shall, after his election or appointment as such, directly or
indirectly, for himself or as the representatives or agent of others, have an investment
in excess of Five million pesos (P5, 000,000.00) in any corporation or business
undertaking in which the pre-need company’s trust fund has an investment in or has a
financial interest with. No relatives of directors or officers of the pre-need company
within the fourth degree of consanguinity or affinity shall, directly or indirectly, have
an investment of more than Five million pesos (P5, 000,000.00) in any corporation or
business undertaking in which the pre-need company’s trust fund has an investment in
or has a financial interest with during the incumbency or term of the director or officer
involved.
CHAPTER IV
REGISTRATION OF PRE-NEED PLANS
Section 14. Registration of Pre-need Contracts/Plans. – Within a period of forty - five
(45) days after the grant of a license to do business as a pre-need company, and for
every pre-need plan which the pre-need company intends to offer for sale to the public,
the pre-need company shall file with the Commission a registration statement for the
sale of pre-need plans pursuant to this Code. The Commission shall promulgate rules
governing the registration of pre-need plans and the required documents which
include, among others, the viability study with certification, under oath, of a pre-need
brochure, a copy of the pre-need plan, and information and documents necessary to
ensure the protection of planholders and the general public. Said rules shall further set
forth the conditions under which such registration may be denied revoked, suspended
or withdrawn, and the remedies of pre-need companies in such instances.
Section 15. Registration Requirements. – The Commission shall set forth the
requirements for registration of pre-need plans and shall require the following
documents, among others;
(a) Duly accomplished Registration Statements;
(b) Board resolution authorizing the registration of applicant’s pre-need plans;
(c) Opinion of independent counsel on the legality of the issue;
(d) Audited financial statements;
(e) Viability study with certification, under oath, of pre-need actuary accredited
by the Commission;
(f) Copy of the proposed pre-need plan; and
(g) Sample of sales materials.
Such registration statements and sales materials required under this section shall
contain the appropriate risk factors as may be determined by the Commission.
Section 16. Accreditation of Actuary. - The Commission shall have the power to set
standards for the accreditation of actuaries directly responsible for the preparation and
certification of the viability study of the pre-need plan submitted by the pre-need
company for registration or amendment with the Commission. It shall further have the
power to define the obligations and liabilities of actuaries accredited by it. No actuary
engaged by a pre-need company shall at the same time be a stockholder or serve as a
director of the board, chief executive officer or chief financial officer of the company
or any such position that the Commission may determine to have an inherent conflict
of interest to the position of an actuary.
Section 17. Approval of Contract Forms. All forms, including amendments thereto,
relating to the pre-need plans shall be approved by the Commission. No pre-need
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contracts or certificates shall be issued or delivered within the Philippines unless in the
form previously approved by the Commission.
Section 18. Pre-need Advertising Rules. - Pre-need plans shall be advertised and sold
in an appropriate non - misleading manner in accordance with the rules to be prescribed
by the Commission.
It shall be unlawful for any pre-need company to advertise itself or its pre-need plans
unless the Commission has approved such advertising material. The Commission shall
have a period of ten (10) working days to approve or deny the advertising material and
failure to act within the said period shall cause the advertising material to be approved.
For purposes hereof, the Commission shall have the power to define the scope of its
advertising rules to appropriately cover advertising or other communications to the
public.
Any person who sells or offers to sell any pre-need plan or contract by any means or
instruments of communication in violation of this section shall be liable to the person
purchasing such pre-need contract who may sue to recover the consideration paid for
such pre-need contract with interest thereon. In addition hereto, the Commission shall
have the power to pursue the erring pre-need company in an administrative or criminal
proceeding.
A fine of One hundred thousand pesos (P100, 000,000.00) shall be imposed on any
pre-need company found to have violated this section: Provided, That a second
violation of this section shall, in addition to the fine imposed, result in the suspension
of the license of the pre-need company.
Section 19. Disclosures to Prospective Planholders. - No registered pre-need plan
shall be sold to prospective planholders unless an information brochure, which has
been filed with the Commission, has been provided to the purchaser. The information
brochure shall contain an explanation of the principal features of the pre-need plan, a
statement that the planholder may avail of a default or reinstatement period within
which to reinstate his lapsed plan, and the conditions of the same and the rates of return
for scheduled benefit plans and illustrative yields for contingent benefit plans; and
such other information that the Commission shall require by rule.
CHAPTER V
LICENSING OF SALES COUNSELORS AND GENERAL AGENTS
Section 20. Licensing of Sales Counselors. - No sales counselor shall be allowed to
solicit, sell or offer to sell pre-need plans under this Code without being licensed as
such by the Commission. No license shall be issued unless the following qualifications
have been complied with:
(a) The applicant must be of good moral character and must not have been
convicted of any crime involving moral turpitude;
 (b) The applicant has undergone a training program approved by the Commission
and such fact has been certified under oath by a duly authorized representative
of a pre-need company; and
(c) The applicant has passed a written examination administered by the.
Commission: Provided, That the administration of the examination may be
delegated to an independent organization under the supervision of the
Commission.
(a) Such license shall automatically expire every thirtieth (30th) day of June or
such date of every year as may be fixed by the Commission and may be
accordingly renewed.
(b) Section 21. Denial, Suspension, Revocation of License. - An application for
the issuance or renewal of a license to act as sales counselor may be denied,
or such license, if already issued, shall be suspended or revoked based on the
following grounds:
(a) Materially misrepresented statements in the application requirements;
(b) Obtained or attempted to obtain a license by fraud or misrepresentation;
(c) Materially misrepresented the terms and conditions of pre-need plan which
he sold or offered to sell;
(d) Solicited, sold or attempted to solicit or sell a pre-need plan by means of false
or misleading representation and other fraudulent means;
(e) Terminated for cause from another pre-need company;
(f) Similar grounds found in Section II of this Code;
(g) Willfully allowing the use of one's license by a non - licensed or barred
individual; and
(h) Analogous circumstances.
Section 22. Licensing of General Agents. - If the issuer should contract the services of
a general agent to undertake the sales of its plans, such general agent shall be required
to be licensed as such with the Commission, in accordance with the requirements
imposed by the Commission.
CHAPTER VI
DEFAULT AND TERMINATION BY PLANHOLDERS
Section 23. Default; Reinstatement Period. - The pre-need company must provide in
all contracts issued to planholders a grace period of at least sixty (60) days within
which to pay accrued installments, counted from the due date of the first unpaid
installment. Nonpayment of a plan within the grace period shall render the plan a
lapsed plan. Any payment by the planholder after the grace period shall be reimbursed
forthwith, unless the planholder duly reinstates the plan. The planholder shall be
allowed a period of not less than two (2) years from the lapse of the grace period or a
longer period as provided in the contract within which to reinstate his plan. No
cancellation of plans shall be made by the issuer during such period when
reinstatement may be effected.
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Within thirty (30) days from the expiration of the grace period and within thirty (30)
days from the expiration of the reinstatement period, which is two (2) years from the
lapse of the grace period, the pre-need company shall give written notice to the
planholder that his plan will be cancelled if not reinstated within two (2) years. Failure
to give either of the required notices shall preclude the pre-need company from treating
the plans as cancelled.
Section 24. Termination of Pre-need Plans. - A planholder may terminate his pre-need
plan at any time by giving written notice to the issuer.
A pre-need plan shall contain a schedule of termination values to which the planholder
is entitled to upon termination. Such schedule of termination value shall be required
for all in - force pre-need plans and shall be fair, equitable and in compliance with the
Commission issuances. The termination value of the pre-need plan shall be
predetermined by the actuary of the pre-need company upon application for
registration of the pre-need plans with the Commission and shall be disclosed in the
contract.
CHAPTER VII
CLAIMS SETTLEMENT
Section 25. Unfair Claims Settlement Practices. - (a) No pre-need company shall
refuse, without just cause, to pay or settle claims arising under coverages provided by
its plans nor shall any such company engage in unfair claim settlement practices. Any
of the following acts by a pre-need company, if committed without just cause, shall
constitute unfair claims settlement practices:
(1) Knowingly misrepresenting to claimants pertinent facts or plan provisions
relating to coverages at issue;
(2) Failing to acknowledge with reasonable promptness pertinent
communications with respect to claims arising under its plan;
(3) Failing to adopt and implement reasonable standards for the prompt
investigation of claims arising under its plan;
(4) Failing to provide prompt, fair and equitable settlement of claims submitted
in which liability has become reasonably clear; or
(5) Compelling planholders to institute suits or recover amounts due under its
plan by offering, without justifiable reason, substantially less than the
amounts ultimately recovered in suits brought by them.
(b) Evidence as to the number and types of valid and justifiable complaints to the
Commission against a pre-need company shall be deemed admissible in an
administrative or judicial proceeding brought under this section.
(c) Any violation of this section shall be considered sufficient cause for the suspension
or revocation of the company's certificate of authority.
Section 26. Payment of Plan Proceeds. - In the case of scheduled benefit plans, the
proceeds of the plan shall be paid immediately upon maturity of the contract, unless
such proceeds are made payable in installments or as an annuity, in which case the
installments or annuities shall be paid as they become due. Refusal or failure to pay
the claim within fifteen (15) days from maturity or due date will entitle the beneficiary
to collect interest on the proceeds of the plan for the duration of the delay at the rate
twice the legal interest unless such failure or refusal to pay is based on the ground that
the claim is fraudulent: Provided, That the planholder has duly complied with the
documentary requirements of the pre-need company.
In the case of contingent benefit plans, the benefits shall be paid by the pre-need
company thirty (30) days upon submission of all necessary documents.
Section 27. Recovery of Investment. – The planholder may institute the necessary legal
action in court to recover his/her investment in the pre-need company thirty (30) days
upon submission of all necessary documents.
However, in case the insolvency or bankruptcy is a mere cover - up for fraud or
illegality, the planholder may institute the legal action directly against the officers
and/or controlling owners of the said pre-need company.
Section 28. Consequences of Delay or Default. – In case of any litigation for the
enforcement of any pre-need plan, it shall be the duty of the Commission to determine
whether the payment of the claim of the planholder has been unreasonably denied or
withheld. If found to have unreasonably denied or withheld the claim, the pre-need
company shall be liable to pay damages, consisting of actual damages, attorney’s fees
and legal interest, to be computed from the date the claim is made until it is fully
satisfied: Provided, That the failure to pay any such claim within the time prescribed
in Section 26 hereof shall be considered prima facie evidence of unreasonable delay
in payment.
Section 29. Distribution of Profits. – A pre-need company may declare
divided: Provided, That the following shall remain unimpaired, as certified under oath
by the president and the treasurer with respect to items (a) and (b); and in the case of
item (c), by the trust officer:
(a) One hundred percent (100%) of the capital stock;
(b) An amount sufficient to pay all net losses reported, or in the course of
settlement, and all liabilities for expenses and taxes; and
(c) Trust fund.
(d) Any dividend declared under the preceding paragraph shall be reported to the
Commission within thirty (30) days after such declaration.
CHAPTER VIII
TRUST FUND
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Section 30. Trust Fund. - To ensure the delivery of the guaranteed benefits and
services provided under a pre-need plan contract, a trust fund per pre-need plan
category shall be established. A portion of the installment payment collected shall be
deposited by the pre-need company in the trust fund, the amount of which will be as
determined by the actuary based on the viability study of the pre-need plan approved
by the Commission. Assets in the trust fund shall at all times remain for the sole benefit
of the planholders. At no time shall any part of the trust fund be used for or diverted
to any purpose other than for the exclusive benefit of the planholders. In no case shall
the trust fund assets be used to satisfy claims of other creditors of the pre-need
company. The provision of any law to the contrary notwithstanding, in case of
insolvency of the pre-need company, the general creditors shall not be entitled to the
trust fund.
Except for the payment of the cost of benefits or services, the termination values
payable to the planholders, the insurance premium payments for insurance - funded
benefits of memorial life plans and other costs necessary to ensure the delivery of
benefits or services to planholders, no withdrawal shall be made from the trust fund
unless approved by the Commission. The benefits received by the planholders shall be
exempt from all taxes and the trust fund shall not be held liable for attachment,
garnishment, levy or seizure by or under any legal or equitable processes except to pay
for the debt of the planholder to the benefit plan or that arising from criminal liability
imposed in a criminal action.
The trust fund shall at all times be sufficient to cover the required pre-need reserve.
Section 31. Deposits to the Trust Fund. (a) The pre-need company shall make monthly
deposits to the trust fund in an amount determined by the accredited actuary, sufficient
to pay the benefits promised under the contract. For plans paid for in full, the pre-need
company shall deposit into the trust fund at least forty - five percent (45%) for life
plans and fifty - one percent (51%) for education and pension plans of said full
payment or such higher amount as determine by the actuary.
In case of installment payments, the minimum limits of the deposit contributions to
the trust fund, unless the viability study done by the actuary requires otherwise, shall
be in accordance with the following schedule:
Life Plans Other Plans
Collection of the 1st 20% of Contract Price 5% 5%
Collection of the 2nd 20% of Contract Price 10% 10%
Collection of the 3rd 20% of Contract Price 70% 80%
Collection of the 4th 20% of Contract Price 70% 80%

Collection of the 5th 20% of Contract Price 70% 80%
Contributions to the trust fund shall not form part of the income or gross receipts of
the pre-need company and, therefore, shall not be available for dividend declaration or
payment to creditors.
(b) The deposits to the trust fund shall be made within twenty (20) days from the end
of each reference month for payments received from plans whether paid for in full or
in installments. Failure to make the trust fund deposit shall subject the pre-need
company to administrative liability as provided for under this Code.
(c) Should the Commission discover a deficiency in the trust fund, it shall give notice
of the same to the pre-need company and require the said company to make additional
deposits. The pre-need company shall have thirty (30) days from receipt of notice to
make the said deposits and correct the deficiency. Failure to pay the deficiency inspite
of notice by the Commission shall subject the pre-need company to the payment of a
penalty, in addition to other sanctions imposable under this Code.
(d) For plans sold prior to the effectivity of this law, the minimum contributions to the
trust fund shall be governed by rules and regulations in force at the time of sale.
Section 32. Terms and Conditions of a Trust Fund. - A trust fund must be established
separately for each type of pre-need plan with the trust department of a trust company,
bank or investment house doing business in the Philippines. No trust fund shall be
established by a pre-need company with an affiliate trust entity subject to Section 38
hereof.
The trust agreement shall be submitted to the Commission for approval before
execution and shall contain the following salient provisions, among others:
(a) The manner in which the trust fund is to be operated;
(b) Investment powers of the trustee with respect to trust deposits, including the
character and kind of investment;
(c) Auditing and settlement of accounts of the trustee with respect to the trust
fund;
(d) Basis upon which the trust fund may be terminated;
(e) Provisions for withdrawals from the trust fund;
(f) That the trustee shall submit to the power of the Commission to examine and
verify the trust fund;
(g) An undertaking by the trustee that it shall abide by the rules and regulations
of the Commission with respect to the trust fund; and
(h) An undertaking by the trustee that it shall submit such other data or
information as may be prescribed by the Commission.
Section 33. Responsibilities of the Trustee. - The trustee shall:
79
(a) Administer and manage the trust fund with utmost good faith, care and
prudence required by a fiduciary relationship;
(b) The trustee shall have the exclusive management and control over the funds
and the right at any time to sell, convert, invest, change, transfer or otherwise
change or dispose of the assets comprising the funds within the parameters
prescribed, by the pre-need company and provided these parameters are
compliant with the Commission's regulations; and
(c) Not use the trust fund to invest in or extend any loan or credit accommodation
to the pre-need company, its directors, officers, stockholders, and related
interests as well as to persons or enterprises controlling, owned or controlled
by, or under common control with said company, its directors, officers,
stockholders and related interests except for entities which are direct
providers of pre-need companies.
Section 34. Investment of the Trust Fund. - To ensure the liquidity of the trust fund to
guarantee the delivery of the benefits provided for under the plan contract and likewise
obtain sufficient capital growth to meet the growing actuarial reserve liabilities, all
investments of the trust fund/s of a pre-need company shall be limited to the following
and subject to limitations, to wit:
(a) Fixed income instruments. - These may be classified into short - term and
long - term instruments. The instrument is short - term if the maturity period
is three hundred sixty - five (365) days or less. This category includes:
(1) Government securities which shall not be less than ten percent (10%) of
the trust fund amount;
(2) Savings/time deposits and unit investment trust funds maintained with
and managed by a duly authorized bank with satisfactory examination
rating as of the last examination by the BSP;
(3) Commercial papers duly registered with the SEC with a credit rating of
"1" for short - term and "A.AA" for long - term based on the rating scale
of an accredited Philippine Rating Agency or its equivalent at the time
of investment.
The maximum exposure to long - term commercial papers shall not
exceed fifteen percent (15%) of the total trust fund amount while the
exposure to each commercial paper issuer shall not exceed ten percent
(10%) of the allocated amount; and
(4) Direct loans to corporations which are financially stable, profitable for
the last three (3) years and have a good track record of paying their
previous loans.
These loans shall be fully secured by a real estate mortgage up to the extent
of sixty percent (60%) of the zonal valuation of the property at the time the
loan was granted.
The property shall be covered by a transfer certificate of title registered in the
name of the mortgagor and free from liens and encumbrances.

The maximum amount to be allocated for direct loans shall not exceed five
percent (5%) of the total trust fund amount while the amount to be granted to
each corporate borrower shall not exceed ten percent (10%) of the amount
allocated.
The maximum term of the loan should be no longer than four (4) years.
Direct loans to planholders are exempt from the limitations set forth under
this section: Provided, That such loans to planholders shall not exceed ten
percent (10%) of the total trust fund amount.
(b) Equities. - Investments in equities shall be limited to stocks listed on the main
board of a local stock exchange.
Investments in duly registered collective investment instruments such as
mutual funds are allowed hereunder: Provided, That such funds are invested
only in fixed income instruments and blue chips securities, subject to the
limitations prescribed by laws, rules and regulations.
These investments shall include stocks issued by companies that are
financially stable, actively traded, possess good track record of growth and
have declared dividends for the past three (3) years. Notwithstanding the
prohibition against transactions with directors, officers, stockholders and
related interests, the trustee may invest in equities of companies related to the
trustee provided these companies comply with the foregoing criteria provided
in this paragraph for equity investments.
The amount to be allocated for this purpose shall not exceed thirty percent
(30%) of the total trust fund while the investment in any particular issue shall
not exceed ten percent (10%) of the allocated amount. The investment shall
be recorded at the aggregate of the lower of cost or market.
Existing investments which are not in accordance herewith shall be disposed
of within three (3) years from the effectivity of this Act.
(c) Real Estate. - These shall include real estate properties located in strategic
areas of cities and first class municipalities. The transfer certificate of title
(TCT) shall be in the name of the seller, free from liens and encumbrances
and shall be transferred in the name of the trustee in trust for the planholders
unless the seller/transferor is the pre-need company wherein an annotation to
the TCT relative to the sale/transfer may be allowed. It shall be recorded at
acquisition cost.
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However, the real estate shall be appraised every three (3) years by a licensed
real estate appraiser, accredited by the Philippine Association of Real Estate
Appraisers, to reflect the increase or decrease in the value of the property. In
case the appraisal would result in an increase in the value, only sixty percent
(60%) of the appraisal increase is allowed to be recorded in the books of the
trust fund but in case of decline in value, the entire decline shall be recorded.
Appraisal increment should not be used to cover up the required monthly
contribution to the trust fund.
The total recorded value of the real estate investment shall not exceed ten
percent (10%) of the total trust fund amount of the pre-need company. In the
event that the existing real estate investment exceeds the aforesaid limit, the
same shall be leveled off to the prescribed limit within three (3) years from
the effectivity of this Code.
Investment of the trust fund, which is not in accordance with the preceding
paragraphs, shall not be allowed unless the prior written approval of the
Commission had been secured: Provided, further, That no deposit or
investment in any single entity shall exceed fifteen percent (15%) of the total
value of the trust fund: Provided, finally, That the Commission is authorized
to adjust the percentage allocation per category set forth herein not in excess
of two percentage (2%) points upward or downward and no oftener than once
every five (5) years. The first adjustment hereunder may be made no earlier
than five (5) years from the effectivity of this Act. The pre-need company
shall not use the trust fund to extend any loan to or to invest in its directors,
stockholders, officers or its affiliates.
Section 35. Valuation of Reserve Liabilities of the Pre-need Company. - To determine
the sufficiency and adequacy of the fund, an annual pre-need reserve valuation report
establishing the reserve requirement and contractual liabilities of the pre-need
company shall be made and submitted to the Commission, within one hundred twenty
(120) days from end of the calendar year. The valuation report shall contain the
assumptions, methodology, formulas used, a summary of the pre-need plans that were
subject of valuation and the results of such valuation.
The report shall be duly certified to by a professional as may be determined by the
Commission. Upon approval by the Commission of the reserve computation, any
deficiency in the fund shall be covered by the pre-need company, in the manner as
may be prescribed by the Commission. In case of an excess of the fund over the reserve
liability, the excess shall be credited for future deposit requirements.
Section 36. Trust Fund Deficiencies. - Upon approval by the Commission of the pre-
need reserve computation submitted in the preceding section, any deficiency in the
trust fund, when compared to the reserve liabilities as reported in the pre-need reserve
valuation report, shall be funded by the pre-need company within sixty (60) days from
such approval. Failure to cover the deficiency in an appropriate manner within the time
required shall subject the pre-need company to the payment of a penalty, in addition
to other remedies exercisable by the Commission, as provided for in this Code. Any
excess of the trust fund over the actuarial reserve liabilities may be credited to future
deposit requirements.
Section 37. Liquidity Reserve. - The trustee shall at all times maintain a liquidity
reserve which shall be sufficient to cover at least fifteen percent (15%) of the trust
fund but in no case less than one hundred twenty - five percent (125%) of the amount
of the availing plans for the succeeding year. For this purpose, the pre-need company
shall timely submit to the trustee a summary of benefits payable for the succeeding
year.
The following shall qualify as investments for the liquidity reserve:
(a) Loans secured by a hold - out on assignment or pledge deposits maintained
either with the trustee or other banks, or of deposit substitute of the trustee
itself or mortgage and chattel mortgage bonds issued by the trustee;
(b) Treasury notes or bills, other government securities or bonds, and such other
evidences or indebtedness or obligations the servicing and repayment of
which are fully guaranteed by the Republic of the Philippines;
(c) Repurchase agreements with any of those mentioned in Item "b" above, as
underlying instruments thereof; and
(d) Savings or time deposits with government - owned banks or commercial
banks.
Section 38. Trustees. - Upon approval of the Commission or when the Commission
requires for the protection of planholders, the pre-need company shall entrust the
management and administration of the trust fund to any reputable bank's trust
department, trust company or any entity - authorized to perform trust functions in the
Philippines: Provided, That no director and/or officer of the affiliate or related trust
entity: Provided, further, That no trust fund shall be established by a pre-need
company with a subsidiary, affiliate or related trust entity. However, such may be
allowed: Provided, That the following conditions are complied with:
(a) A written approval of the Commission has been previously obtained; and
(b) Public disclosure of the affiliation with the trust entity be included in all
materials in whatever form.
The Commission shall have the authority to prescribe appropriate rules that shall
ensure that the yield of the trust fund is maximized, consistent with the requirements
of safety and liquidity.
CHAPTER IX
ACTUARIES FOR PRE-NEED COMPANIES
Section 39. Required Actuarial Reports. - The following documents which are from
time to time submitted to the Commission by a pre-need company shall be duly
certified by an Insurance Commission accredited actuary:
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(a) Actuarial valuation of all Iiabilities pertaining to pre-need contracts;
(b) Asset share studies when applying for approval of new products or
enhancement or repricing of existing products;
(c) Accounts in the financial statement of the pre-need company pertaining to
actuarial reserve liabilities and other actuarial reserve items;
(d) Financial projections showing the probable income and reserve requirements,
enumerating the actuarial assumptions and bases of projections; and
(e) Such other reports as may be required by the Commission.
(a) It shall be the duty of an actuary to immediately report to the Commission
any matter contained in arising out of or in relation to the above reports
requiring intervention of the Commission to protect the interests of
planholders: Provided, That the actuary shall not be liable to the pre-need
company for any acts done under this paragraph, unless there is a clear
showing of bad faith, malice or gross negligence.
Section 40. Disaccreditation of an Actuary. - An actuary shall be disaccredited by the
Commission on the following grounds:
(a) Failure to adequately perform his required functions and duties under this
Code;
(b) Failure to meet the requirements of Section 11 of this Code;
(c) Failure to disclose conflict of interest;
(d) Failure to comply with the Code of Conduct of the Actuarial Society of the
Philippines; or
(e) Such other grounds that may be determined by the Commission.
CHAPTER X
REPORTS AND EXAMINATION
Section 41. Annual Pre-need Reserve Valuation Report. Every pre-need company
shall annually determine its reserve requirement and contractual liabilities, and submit
to the Commission an annual pre-need reserve valuation report within one hundred
twenty (120) days from the end of the fiscal year of the pre-need company. The
valuation report shall contain the assumptions, methodology, formulas used, a
summary of the pre-need plans that were the subject of the valuation and the results of
such valuation. The report should be duly certified by an actuary accredited by the
Commission in the case of contingent plans such as memorial/life plans and by the
pre-need company's external auditors or by a qualified actuary in the case of scheduled
- benefit plans such as pre-need pension and education plans, the liabilities of which
are not actuarial in nature. The reserving formula, bases and limits of the assumptions
to be used in the valuation of reserves shall be prescribed by the Commission.
The Commission may require any pre-need company to submit an interim pre-need
reserve valuation report if any of the following events occurred:
 (a) When there is sufficient evidence that a subsequent event or transaction
occurred after the end of the fiscal year and such event would materially
affect the computation of the pre-need reserve valuation report submitted; and
(b) When the company ceased operation six (6) months after the end of the fiscal
year.
Section 42. Annual Audited Financial Statements. - Every pre-need company shall
terminate its fiscal period on the thirty - first (31") day of December every year. Within
one hundred twenty (120) days after the calendar or fiscal year, the pre-need company
shall render to the Commission annual financial statements signed and sworn to by its
chief executive officer, chief finance officer and external auditors in accordance with
a uniform accounting system that shall be prescribed by the Commission, showing in
such form and details the exact condition of its affairs.
The audited financial statements should be accompanied by the Statement of
Management's Responsibility signed under oath by the company’s chairman of the
board, chief executive officer and chief financial officer, containing the following
declaration:
“The management of (name of the pre-need company) is responsible for all
information and representations contained in the financial statements for the year(s)
ended (date). The financial statements have been prepared in conformity with rules
and regulations of the Commission on accounting and reflect amounts that are based
on the best estimates and informed judgment of management with an appropriate
consideration to materiality."
"In this regard, management maintains a system of accounting and reporting which
provides for the necessary internal controls to ensure that transactions are properly
authorized and recorded, assets are safeguarded against unauthorized use or
disposition and liabilities are recognized. The management likewise discloses to the
company's audit committee and to its external auditor: (i) all significant deficiencies
in the design or operation of internal controls that could adversely affect its ability to
record, process, and report financial data; (ii) material weaknesses in the internal
controls; and (iii) any fraud that involves management or other employees who
exercise significant roles in internal controls."
"The board of directors reviews the financial statements before such statements are
approved and submitted to the stockholders of the company.
"The (name of the auditing firm), the independent auditors appointed by the
stockholders, has examined the financial statements of the company in accordance
with generally accepted auditing standards in the Philippines and has expressed its
opinion on the fairness of the presentation upon completion of such examination, in
its report to the board of directors and stockholders."
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Any material omission of disclosures, misstatement or misleading information found
in the financial statements, whether interim or annual, shall constitute a violation of
this Code and the officer signing such statement shall be subject to the penalty
provided for under this Code and such other sanctions as may be imposed by the
Commission.
Section 43. Annual Statement of Trust Fund. - Every pre-need company shall file with
the Commission an annual statement of its trust fund for each type of plan. Such
statement shall be in a form prescribed by .the Commission and shall include details
as to all of the income, disbursements, assets and liability items of and associated with
the said trust fund accounts. Said statement shall be made under oath by two (2)
officers of the company and shall be filed simultaneously with the annual statement
required by the preceding section.
Where the trust fund is managed and administered by a trustee as provided under
Section 80 - of this Code, an annual statement of trust fund for each type of plan shall
instead be filed with the Commission. It shall include details such as the income,
disbursements, assets and liability items, and shall be certified under oath by at least
two (2) of the highest ranking officers of the trustee.
Section 44. Publication of Annual Statement. - Within thirty (30) days after receipt of
the annual statement approved by the Commission, every pre-need company shall
publish in two (2) newspapers of general circulation a full synopsis of its annual
financial statements, including the trust fund annual statement showing fully the
conditions of its business, and setting forth its resources and liabilities in a
standardized format to be designed by the Commission.
The Commission may require pre-need companies to create and maintain a website
wherein its planholders may readily access updated information pertaining to the status
of financial condition and results of information of the company. The sufficiency and
truthfulness of the contents of such website shall be the responsibility of the company.
Section 45. Keeping of Records. - The Commission shall require every pre-need
company to keep its books, records, accounts and vouchers in such manner that the
Commission's authorized representatives may readily verify the company's annual
statements and ascertain whether the company is solvent and has complied with the
provisions of this Code or the circulars, instructions, rulings or decisions of the
Commission.
Section 46. Examination. The Commission shall, at least once a year and whenever it
considers that the public interest so demands, cause an examination to be made into
the affairs, financial condition and method of business of every pre-need company,
and of any other person, firm or corporation managing the fund or affairs and/or
property of such pre-need company. Such examination shall be carried in a manner
prescribed by the Commission by rule.

CHAPTER XI
FINANCIAL ACCOUNTING STANDARDS
Section 47. Accounting Rules and Regulations for Pre-need Plans. - The Commission
shall have the authority to make, amend and rescind such accounting rules and
regulations applicable for pre-need companies. The Commission may prescribe,
among other things, the form or forms in which required information shall be set forth,
the items or details to be shown in the components of the financial statements, and the
recognition and measurement basis to be adopted for each account, after considering
the nature of the operation of the pre-need industry. Pre-need companies shall strictly
comply with such accounting rules and regulations as prescribed by the Commission.
CHAPTER XII
SUSPENSION OR REVOCATION OF AUTHORITY
Section 48. Suspension; Grounds. - If the Commission is of the opinion, upon
examination or other evidence, that any pre-need company is in an unsound condition,
or that it has failed to comply with the provisions of law or regulations, or that its
condition or method of business is such as to render its proceedings hazardous to the
public or to its planholders, or that its paid - up capital stock is impaired or deficient,
the Commission is authorized to suspend or revoke all certificates of authority granted
to such pre-need company, its officers and agents, after due notice or hearing. No new
business shall thereafter be done by such company or for such company by its agent
in the Philippines.
The Commission may not lift the order of suspension or revocation of the said
authority until the concerned pre-need company shall have submitted a viable business
plan showing the company’s estimated receipts and disbursements, as well as the basis
therefor for the next succeeding three (3) years.
CHAPTER XIII
CONSERVATORSHIP AND PROCEEDINGS UPON INSOLVENCY
Section 49. Appointment of Conservator. – If at any time before or after the suspension
or revocation of the license of a pre-need company as provided in Section 27 hereof,
the Commission finds that such company is in a state of continuing inability or
unwillingness to comply with the requirements of the Code and/or orders of the
Commission, a conservator may be appointed to take charge of the assets, liabilities,
and the management of such company, collect all moneys and debts due the company
and exercise all powers necessary to preserve the assets of the company, reorganize its
management, and restore its viability. The conservator shall have the power to overrule
or revoke the actions of the previous management and board of directors of the said
company, any provision of law, or of the articles of incorporation or bylaws of the
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company, to the contrary notwithstanding, and such other powers as the Commission
shall deem necessary. The conservator may be another pre-need company, by officer
or officers of such company, or any other competent and qualified person, firm or
corporation. The remuneration of the conservator and other expenses attendant to the
conservation shall be borne by the pre-need company. The conservator shall not be
subject to any action, claim or demand by, or liability to, any person in respect of
anything done or omitted to be done in good faith in the exercise, or in connection with
the exercise, of the powers conferred on the conservator.
The conservator appointed shall report and be responsible to the Commission until
such time as the Commission is satisfied that the pre-need company can continue to
operate .on its own and the conservatorship shall likewise be terminated should the
Commission, on the basis of the report of the conservator or of his own findings,
determine that the continuance in business of the pre-need company would be
hazardous to planholders and creditors, in which case the provisions of Chapter XVI
shall apply.
Section 50. Proceedings upon Insolvency. - Whenever, upon examination or other
evidence, it shall be disclosed that the condition of any pre-need company is one of
insolvency, or that its continuance in business would be hazardous to its planholders
and creditors, the Commission shall forthwith order the company to cease and desist
from transacting business and shall designate a receiver to immediately take charge of
its trust fund, assets and liabilities, as expeditiously as possible collect and gather all
the assets and administer the same for the benefit of its planholders and creditors, and
exercise all the powers necessary for these purposes including, but not limited to,
bringing suits and foreclosing mortgages in the name of the pre-need company.
The Commission shall thereupon determine within thirty (30) days whether the pre-
need company may be reorganized or otherwise placed in such condition so that it may
be permitted to resume business with safety to its planholders and creditors and shall
prescribe the conditions under which such resumption of business shall take place as
well as the time for fulfillment of such conditions. In such case, the expenses and fees
in the collection and administration of the pre-need company shall be determined by
the Commission and shall be paid out of the assets of such company. If the
Commission shall determine and confirm within the said period that the pre-need
company is insolvent, as defined hereunder, it shall, if the public interest so requires,
order its liquidation, indicate the manner of its liquidation and approve a liquidation
plan and implement it immediately. The Commission shall designate a competent and
qualified person as liquidator who shall take over the functions of the receiver
previously designated and, with all convenient speed, distribute the trust fund
exclusively to the planholders in proportion to termination values of their respective
pre-need plans, convert the assets of the pre-need company to cash, or sell, assign or
otherwise dispose of the same to the planholders, creditors and other parties for the
purpose of settling the liabilities or paying the debts of such company and he may, in
the name of the company. institute such actions as may be necessary in the appropriate
court to collect and recover accounts and assets of the pre-need company, and to do
such other acts as may be necessary to complete the liquidation as ordered by the
Commission.
The provisions of any law to the contrary notwithstanding the actions of the
Commission under this section shall be final and executory, and can be set aside by
the court upon petition by the company and only if there is convincing proof that the
action is plainly arbitrary and made in bad faith. The Commission shall then file the
corresponding answer reciting the proceeding taken and praying for the assistance of
the court in the liquidation of the company. No restraining order or injunction shall be
issued by the court enjoining the Commission from implementing his actions under
this section, unless there is convincing proof that the action of the Commission is
plainly arbitrary and made in bad faith and the petitioner files a bond in favor of the
Commission with the court in an amount fixed by it. The restraining order or injunction
shall be refused or, if granted, shall be dissolved upon filing by the Commission, if he
so desires, of a bond in an amount twice the amount of the bond of the petitioner
conditioned that it will pay the damages which the petition may suffer by the refusal
or the dissolution of the injunction.
The court shall give preference to all proceedings under this chapter. The Commission
shall not be required to pay any fee to any public officer for filing, recording or in any
manner authenticating any paper or instrument relating to the proceedings.
As used in this title, the term "insolvency" shall refer to the financial condition of a
pre-need company that is generally unable to pay its liabilities as they fall due in the
ordinary course of business or that has liabilities that are greater than its assets.
In case of liquidation of a pre-need company, after payment of the cost of the
proceedings, including reasonable expenses and fees incurred in the liquidation to be
allowed by the court, the Commission shall pay all allowed claims against such
company, under order of the court, in accordance with their legal priority.
The receiver or the liquidator, as the case may be, designated under the provisions of
this title shall not be subject to any action, claim or demand by, or liability to, any
person in respect of anything done or omitted to be done in good faith in the exercise,
or in connection with the exercise, of the powers conferred on such receiver or
liquidator.
Section 51. Commission's Power to Assume Trustee Functions. - In cases where the
Commission has ordered the liquidation of the pre-need company, the Commission
may immediately take custody of the trust fund established by the pre-need company,
and the pre-need company shall forthwith deliver custody and an accounting of the
same. Henceforth, the Commission shall have the full power and control over the fund
to satisfy the pre-need company's obligations to planholders.
Section 52. Liquidation. - (a) In cases where the Commission determines that the pre-
need company shall be liquidated, it shall have the power to commence insolvency
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proceedings in the appropriate court which shall have jurisdiction over the assets of
the pre-need company, excluding trust fund assets that have been established
exclusively for the benefit of planholders.
(b) Proceedings in court shall proceed independently of proceedings in the
Commission for the liquidation of claims, and creditors of the pre-need company shall
have no personality whatsoever in the Commission proceedings to litigate their claims
against the trust funds.
(c) In liquidating claims of planholders, the Commission shall ensure that all
planholders receive an equitable distribution of their claims, considering the amounts
each has paid into their plans, the termination values due each planholder, the present
value of their claims and other equitable considerations. The only other claims which
may be satisfied by the Commission out of the trust funds are the claims for trustees’
fees which are reasonable and can be shown to have been incurred in the administration
of the trust fund, and taxes incurred under trust.
CHAPTER XIV
ADMINISTRATIVE SANCTIONS AND CRIMINAL PENALTIES
Section 53. Administrative Sanctions. (a) The Commission, after proper notice and
hearing, may impose any or all of the sanctions provided in subparagraph (b) of this
section for the following offenses: (1) the making of any untrue statement of a material
fact in a registration statement, information brochure and its supporting papers and
other reports required to be filed with the Commission; (2) the failure to disclose any
material fact required to be stated therein; (3) the refusal to permit any lawful
examination into its affairs; and (4) any violation of this Code or its implementing
rules and regulations.
(b) The imposition of the foregoing administrative sanctions shall be without prejudice
to the filing of criminal charges against the individual responsible for the violation:
(1) Cease and Desist Order. - The Commission may, motu proprio or upon
verified complaint by any party, issue a cease and desist order (CDO) against
any pre-need company upon proof, after due notice and hearing, of violation
of any provision of this Code: Provided, That such CDO may be issued ex
parte if the violation is clearly apparent, injurious to a number of planholders
and requires immediate intervention by the Commission. The CDO shall
specifically enjoin the pre-need company from performing certain activities
and shall impose fines and state the required remedial actions. All proceedings
before the issuance of the CDO shall be confidential;
(2) Suspension of License. - The Commission shall issue a suspension order
against the pre-need company if it fails to comply with the CDO within thirty
(30) days from issuance thereof;
(3) Revocation of License. - The Commission may issue a revocation order of the
license of the pre-need company under suspension for a period of ninety (90)
days;
 (4) A fine of not 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;
(5) Disqualification from being an officer, a member of the board of directors or
principal stockholders of a pre-need company; or
(6) Other penalties within the power of the Commission under existing laws.
(c) The unauthorized sale of pre-need plans shall subject the issuer to a fine as follows:
(1) First violation - thirty percent (30%) of the aggregate gross pre-need price of
the plans sold;
(2) Second violation - forty percent (40%) of the aggregate gross pre-need price
of the plans sold; and
(3) Third violation - suspension or revocation of license.
Failure to pay fines within three (3) months from receipt of notice to pay will cause
the Commission to issue a suspension order.
Section 54. Criminal Penalties. - The following acts are criminal in nature:
(a) Selling or offering to sell a pre-need plan by unregistered persons shall be
penalized by imprisonment of one (1) year and a fine equivalent to triple the
contract price;
(b) Selling or offering to sell an unregistered pre-need plan or any product that
has pre-need plan features shall be penalized by imprisonment of one (1) year
and a fine equivalent to triple the indicated price;
(c) Soliciting, selling or offering to sell a pre-need plan by means of false or
misleading representation and other fraudulent means shall be penalized by
imprisonment of six (6) years and one (1) day to twelve (12) years and a fine
in the amount of Fifty thousand pesos (P50,000.00) to Five hundred thousand
pesos (P500, 000.00);
(d) Any negligent act or omission that is prejudicial or injurious to the planholder
shall be penalized by imprisonment of one (1) year and one (1) day to six (6)
years and a fine in the amount of Fifty thousand pesos (P50, 000.00) to Five
hundred thousand pesos (P500,000.00);
(e) Any fraudulent act or omission that is prejudicial or injurious to the
planholder shall be penalized by imprisonment of six (6) years and one (1)
day to twelve (12) years and a fine in the amount of One hundred thousand
pesos (P100, 000.00) to One million pesos (P1, 000,000.00); and
(f) Willful violation of the provisions of this Code or orders of the
Commission: Provided, That repeated violations shall constitute prima
facie evidence against the offender and shall be penalized by imprisonment
of six (6) years and one (1) day to twelve (12) years and a fine in the amount
of One hundred thousand pesos (P100, 000.00) to One million pesos (P1,
000,000.00).
(g) Any person who violates any other provisions of this Code or rules and
regulations promulgated by the Commission under authority thereof shall,
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upon conviction, be punished by 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 one (1) year nor more than fourteen (14) years,
or both, at the discretion of the court. Should the offense be committed by a
juridical person, the penalty may, in the discretion .of the court, be imposed
on such juridical entity and upon the officer or officers of the juridical entity
responsible for the violation. If such officer is an alien, he shall, in addition
to the penalties prescribed, be deported without further proceedings after
service of sentence.
CHAPTER XV
MISCELLANEOUS PROVISIONS
Section 55. Claims. - The Commission shall have the primary and exclusive power to
adjudicate any and all claims involving pre-need plans. If the amount of benefits does
not exceed One hundred thousand pesos (P100, 000.00), the decision of the
Commission shall be final and executory.
Section 56. Review of Commission Orders or Decisions. - Any person aggrieved by
an order or decision of the Commission, whether in relation to its settlement of a claim
of a planholder or in the exercise of its regulatory authority, may appeal the order or
decision to the Court of Appeals by petition for review in accordance with the pertinent
provisions of the Rules of Court.
Section 57. Transitory Provisions. - Any pre-need company who, at the time of the
effectivity of this Code has been registered and licensed to sell pre-need plans and
similar contracts, shall be considered registered and licensed under the provision of
this Code and its implementing rules and regulations and shall be subject to and
governed by the provisions hereof: Provided, however, That compliance for all
sections with the exception of Section 21, may be deferred for such reasonable time as
the Commission may determine but not to exceed one (1) year unless otherwise
specifically provided in this Code. With respect to Chapter IV, compliance will cover
all new plans sold one hundred twenty (120) days after the effectivity of this law.
Violations committed prior to the effectivity of this Code shall be punished in
accordance with the provisions of the laws then in force.
The Commission shall constitute forthwith a special team of experts to handle all
matters related to the pre-need industry and shall secure and transfer all the files and
records of the SEC to the Insurance Commission within ninety (90) days after the
effectivity of this Code.
Notwithstanding any provision to the contrary, all pending claims, complaints and
cases filed with the SEC shall be continued in its full and final conclusion. It shall also
assist the Department of Justice in criminal cases involving matters related to the pre-
need industry.
Section 58. Implementing Rules and Regulations. - The Commission shall adopt such
rules and regulations for the proper and effective implementation of this Code within
sixty (60) days from approval hereof. The Commission shall publish once a week for
two (2) consecutive weeks in two (2) newspapers of general circulation the, rules and
regulations promulgated pursuant to the preceding section.

Section 59. Effect on Existing Law. Any person, natural or juridical, or pre-need plan,
authorized, licensed or registered by the SEC under the Securities Regulation Code
shall be deemed to have been licensed or registered under the provisions of this Code.
Such person or plan shall, unless otherwise herein provided, be given a period of one
(1) year from the effectivity of this Code within which to comply with the same. The
rights and remedies provided by this Code shall be in addition to any and all other
rights and remedies that exist under existing laws.

Section 60. Separability Clause. - Should any provision of this Act or the application
thereof to any person or circumstance be held invalid, the other provisions or sections
of this Act shall not be affected thereby.
Section 61. Repealing Clause. - All acts, laws, executive orders and/or rules and
regulations or any part thereof that are inconsistent with the provisions of this Code
are hereby repealed or modified accordingly.
Section 62. Effectivity. - This Act shall take effect upon its approval.

86
 THE SALVAGE LAW
ACT NO. 2616
SECTION 1. When in case of shipwreck, the vessel or its cargo shall be beyond the
control of the crew, or shall have been abandoned by them, and picked up and
conveyed to a safe place by other persons, the latter shall be entitled to a reward for
the salvage.
Those who, not being included in the above paragraph, assist in saving a vessel or its
cargo from shipwreck, shall be entitled to a like reward.
SEC. 2. If the captain of the vessel, or the person acting in his stead, is present, no one
shall take from the sea, or from the shores or coast merchandise or effects proceeding
from a shipwreck or proceed to the salvage of the vessel, without the consent of such
captain or person acting in his stead.
SEC. 3. He who shall save or pick up a vessel or merchandise at sea, in the absence of
the captain of the vessel, owner, or a representative of either of them, they being
unknown, shall convey and deliver such vessel or merchandise, as soon as possible, to
the Collector of Customs, if the port has a collector, and otherwise to the provincial
treasurer or municipal mayor.
SEC. 4. After the salvage is accomplished, the owner or his representative shall have
a right to the delivery of the vessel or things saved, provided that he pays, or gives a
bond to secure, the expenses and the proper reward.
The amount and sufficiency of the bond, in the absence of agreement, shall be
determined by the Collector of Customs or by the Judge of the Court of First Instance
of the province in which the things saved may be found.
SEC. 5. The Collector of Customs, provincial treasurer, or municipal mayor, to whom
a salvage is reported, shall order:
a. That the things saved be safeguard and inventoried.
b. The sale at public auction of the things saved which may be in danger of
immediate loss or of those whose conservation is evidently prejudicial to the
interests of the owner, when no objection is made to such sale
c. The advertisement within the thirty days subsequent to the salvage, in one of
the local newspapers or in the nearest newspaper published, of all the details
of the disaster, with a statement of the mark and number of the effects
requesting all interested persons to make their claims.
SEC. 6. If, while the vessel or things saved are at the disposition of the authorities, the
owner or his representative shall claim them, such authorities shall order their delivery
to such owner or his representative, provided that there is no controversy over their
value, and a bond is given by the owner or his representative to secure the payment of
87
the expenses and the proper reward. Otherwise, the delivery shall nor be made until
the matter is decided by the Court of First Instance of the province.
SEC. 7. No claim being presented in the three months subsequent to the publication
of the advertisement prescribed in sub-section (c) of Section five, the things save shall
be sold at public auction, and their proceeds, after deducting the expenses and the
proper reward shall be deposited in the insular treasury. If three years shall pass
without anyone claiming it, one-half of the deposit shall be adjudged to him who saved
the things, and the other half to the insular government.
SEC. 8. The following shall have no right to a reward for salvage or assistance:
a. The crew of the vessel shipwrecked or which was is danger of shipwreck;
b. He who shall have commenced the salvage in spite of opposition of the captain
or his representative; and
c. He who shall have failed to comply with the provisions of Section three.
SEC. 9. If, during the danger, an agreement is entered into concerning the amount of
the reward for salvage or assistance, its validity may be impugned because it is
excessive, and it may be required to be reduced to an amount proportionate to the
circumstances.
SEC. 10. In a case coming under the last preceding section, as well as in the absence
of an agreement, the reward for salvage or assistance shall be fixed by the Court of
First Instance of the province where the things salvaged are found, taking into account
principally the expenditures made to recover or save the vessel or the cargo or both,
the zeal demonstrated, the time employed, the services rendered, the excessive express
occasioned the number of persons who aided, the danger to which they and their
vessels were exposed as well as that which menaced the things recovered or salvaged,
and the value of such things after deducting the expenses.
SEC. 11. From the proceeds of the sale of the things saved shall be deducted, first, the
expenses of their custody, conservation, advertisement, and auction, as well as
whatever taxes or duties they should pay for their entrance; then there shall be deducted
the expenses of salvage; and from the net amount remaining shall be taken the reward
for the salvage or assistance which shall not exceed fifty per cent of such amount
remaining.
SEC. 12. If in the salvage or in the rendering of assistance different persons shall have
intervened the reward shall be divided between them in proportion to the services
which each one may have rendered, and, in case of doubt, in equal parts.
Those who, in order to save persons, shall have been exposed to the same dangers shall
also have a right to participation in the reward.
SEC. 13. If a vessel or its cargo shall have been assisted or saved, entirely or partially,
by another vessel, the reward for salvage or for assistance shall be divided between the
owner, the captain, and the remainder of the crew of the latter vessel, so as to give the
owner a half, the captain a fourth, and all the remainder of the crew the other fourth of
the reward, in proportion to their respective salaries, in the absence of an agreement to
the contrary. The express of salvage, as well as the reward for salvage or assistance,
shall be a charge on the things salvaged on their value.

SEC. 14. This Act shall take effect on its passage.

88
 CARRIAGE OF GOODS BY SEA ACT
PUBLIC ACT No. 521
SECTION 1. That the provisions of Public Act No. 521 of the 7th Congress of the
United States, approved on April 16, 1936, be accepted, as it is hereby accepted to be
made applicable to all contracts for the carriage of goods by sea to and from Philippine
ports in foreign trade: Provided, that nothing in this Act shall be construed as repealing
any existing provision of the Code of Commerce which is now in force, or as limiting
its application.
SEC. 2. This Act shall take effect upon its approval. (Approved October 22, 1936).
TITLE I
SEC. 1. When used in this Act — chanrobles virtual law library
(a) The term "carrier" includes the owner or the charterer who enters into a
contract of carriage with a shipper.
(b) The term "contract of carriage" applies only to contracts of carriage by
covered by a bill of lading or any similar document of title, insofar as such
document relates to the carriage of goods by sea, including any bill of lading
or any similar document as aforesaid issued under or pursuant to a character
party from the moment at which such bill of lading or similar document of
title regulates the relations between a carrier and a holder of the
same. chanrobles virtual law library
(c) The term "goods" includes goods, wares, merchandise, and articles of every
kind whatsoever, except live animals and cargo which by the contract of
carriage is stated as being carried on deck and is so carried. chanrobles virtual
law library
(d) The term "ship" means any vessel used for the carriage of goods by
sea. chanrobles virtual law library
(e) The term "carriage of goods" covers the period from the time when the goods
are loaded to the time when they are discharged from the ship.
RISKS
SEC. 2. Subject to the provisions of Section 6, under every contract of carriage of
goods by sea, the carrier in relation to the loading, handling, stowage, carriage,
custody, care, and discharge of such goods shall be subject to the responsibilities and
liabilities and entitled to the rights and immunities hereinafter set forth.
RESPONSIBILITIES AND LIABILITIES
SEC. 3. (1) The carrier shall be bound before and at the beginning of the voyage to
exercise due diligence to —
89
(a) Make the ship seaworthy;
(b) Properly man,equip, and supply the ship;
(c) Make the holds, refrigerating and cooling chambers, and all other parts of the
ship in which goods are carried, fit and safe for their reception, carriage, and
preservation.
(2) The carrier shall properly and carefully load, handle, stow, carry, keep, care
for,and discharge the goods carried.
(3) After receiving the goods into his carrier, or the master or agent of the carrier,
shall, on demand of the shipper, issue to the shipper a bill of lading showing among
other things
(a) The loading marks necessary for identification of the goods as the same are
furnished in writing by the shipper before the loading of such goods starts,
provided such marksare stamped or otherwise shown clearly upon the goods
if uncovered,in such a manner as should ordinarily remain legible until the
end of the voyage.
(b) Either the number of packages or pieces, or the quantity or weight, as the
casemay be, as furnished in writing by the shipper.
(c) The apparent order and conditions of the goods: Provided, that no carrier,
master, or agent of the carrier, shall be bound to state or show in the bill of
lading any marks, number, quantity, or weight which he has reasonable
ground for suspecting not accurately to represent the good actually received
or which he has had no reasonable means of checking.
(4) Such a bill of lading shall be prima facie evidence of the receipt by the carrier of
the goods as therein described in accordance with paragraphs (3) (a), (b), and (c), of
this section: (The rest of the provision is not applicable to the Philippines).
(5) The shipper shall be deemed to have guaranteed to the carrier the accuracy at the
time of shipment of the marks, number, quantity, and weight, as furnished by him; and
the shipper shall indemnify the carrier against all loss, damages, and expenses arising
or resulting from inaccuracies in such particulars. The right of the carrier to such
indemnity shall in no way limit his responsibility and liability under the contract of
carriage to any person other than the shipper.
(6) Unless notice or loss or damage and the general nature of such loss or damage by
given in writing to the carrier or his agent at the port of discharge or at the time of the
removal of the goods into the custody of the person entitled to delivery thereof under
the contract of carriage, such removal shall be prima facie evidence of the delivery by
the carrier of the goods as described in the bill of lading. If the loss or damage is not
apparent, the notice must be given within three days of the delivery.
Said notice of loss or damage may be endorsed upon the receipt for the goods given
by the person taking delivery thereof.

The notice in writing need not be given if the state of the goods has at the time of their
receipt been the subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in respect of
loss or damage unless suit is brought within one year after delivery of the goods or the
date when the goods should have been delivered: Provided, that, if a notice of loss or
damage, either apparent or concealed, is not given as provided for in this section, that
fact shall not affect or prejudice the right of the shipper to bring suit within one year
after the delivery of the goods or the date when the goods should have been delivered.
In the case of any actual or apprehended loss or damage, the carrier and the receiver
shall give all reasonable facilities to each other for inspecting and tallying the goods
(7) After the goods are loaded the bill of lading to be issued by the carrier, master, or
agent of the carrier to the shipper shall if the shipper so demands, be a "shipped" bill
of lading: Provided, that if the shipper shall have previously taken up any document
of title to such goods, he shall surrender the same as against the issue of the "shipped"
bill of lading, but at the option of the carrier such document of title may be noted at
the port of shipment by the carrier, master, or agent with the name or names of the ship
or ships upon which the goods have been shipped and the date or dates of shipment,
and when so noted the same shall for the purpose of this section be deemed to
constitute a "shipped" bill of lading.
(8) Any clause, covenant, or agreement in a contract of carriage relieving the carrier
of the ship from liability for loss or damage to or in connection with the goods, arising
from negligence, fault, or failure in the duties and obligations provide in this section
or lessening such liability otherwise than as provided in this Act, shall be null and void
and of no effect. A benefit of insurance in favor of the carrier, or similar clause, shall
be deemed to be a clause relieving the carrier from liability.
RIGHTS AND IMMUNITIES
SEC. 4. (1) Neither the carrier nor the ship shall be liable for loss or damage arising
or resulting from unseaworthiness unless caused by want of due diligence on the part
of the carrier to make the ship seaworthy and to secure that the ship is properly
manned, equipped, and supplied, and to make the holds, refrigerating and cooling
chambers, and all other parts of the ship in which goods are carried fit and safe for
their reception, carriage, and preservation, in accordance with the provisions of
paragraph (1) of Section (3). Whenever loss or damage has resulted from
unseaworthiness, the burden of proving the exercise of due diligence shall be on the
carrier or other person claiming exemption under this section. chanrobles virtual law
library
90
(2) Neither the carrier nor the ship shall be responsible for loss or damage arising or
resulting from —
(a) Act, neglect, or default of the master, mariner, pilot, or the servants of the
carrier in the navigation or in the management of the ship;
(b) Fire, unless caused by the actual fault or privity of the carrier;
(c) Perils, dangers, and accidents of the sea or other navigable water;
(d) Act of God
(e) Act of war;
(f) Act of public enemies;
(g) Arrest or restraint of princes, rulers, or people, or seizure under legal process;
(h) Quarantine restrictions
(i) Act or omission of the shipper or owner of the goods, his agent or
representative;
(j) Strikes or lockouts or stoppage or restraint of labor from whatever cause,
whether partial or general: Provided, that nothing herein contained shall be
construed to relieve a carrier from responsibility for the carrier's own acts;
(k) Riots and civil commotions;
(l) Saving or attempting to save life or property at sea;
(m) Wastage in bulk or weight or any other loss or damage arising from inherent
defect, quality, or vice of the goods;
(n) Insufficiency or packing;
(o) Insufficiency or inadequacy of marks;
(p) Latent defects not discoverable by due diligence;
(q) Any other cause arising without the actual fault and privity of the carrier and
without the fault or neglect of the agents or servants of the carrier, but the
burden of proof shall be on the person claiming the benefit of this exception
to show that neither the actual fault or privity of the carrier nor the fault or
neglect of the agents or servants of the carrier contributed to the loss or
damage.
(3) The shipper shall not be responsible for loss or damage sustained by the carrier or
the ship arising or resulting from any cause without the act, or neglect of the shipper,
his agents, or his servants
(4) Any deviation in saving or attempting to save life or property at sea, or any
reasonable deviation shall not be deemed to be an infringement or breach or this Act
or of the contract of carriage, and carrier shall not be liable for any loss or damage
resulting therefrom: Provided, however, that if the deviation is for the purpose of
loading or unloading cargo or passengers it shall, prima facie, be regarded as
unreasonable.
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss
or damage to or in connection with the transportation of goods in an amount exceeding
$500 per package of lawful money of the United States, or in case of goods not shipped
in packages, per customary freight unit, or the equivalent of that sum in other currency,
unless the nature and value of such goods have been declared by the shipper before
shipment and inserted in the bill of lading. This declaration, if embodied in the bill of
lading, shall be prima facie evidence, but shall not be conclusive on the carrier.
By agreement between the carrier, master or agent of the carrier, and the shipper
another maximum amount than that mentioned in this paragraph may be fixed:
Provided, that such maximum shall not be less than the figure above named. In no
event shall the carrier be liable for more than the amount of damage actually sustained.
Neither the carrier nor the ship shall be responsible in any event for loss damage to or
in connection with the transportation of the goods if the nature or value thereof has
been knowingly and fraudulently misstated by the shipper in the bill of lading.
(6) Goods of an inflammable, explosive, or dangerous nature to the shipment whereof,
the carrier, master or agent of the carrier, has not consented with knowledge of their
nature and character, may at any time before discharge be landed at any place or
destroyed or rendered innocuous by the carrier without compensation, and the shipper
of such goods shall be liable for all damages and expenses directly or indirectly arising
out of or resulting from such shipment. If any such goods shipped with such knowledge
and consent shall become a danger to the ship or cargo, they may in like manner be
landed at any place, or destroyed or rendered innocuous by the carrier without liability
on the part of the carrier except to general average if any.
SURRENDER OF RIGHTS AND IMMUNITIES AND INCREASE OF
RESPONSIBILITIES AND LIABILITIES
SEC. 5. A carrier shall be at liberty to surrender in whole or in part all or any of his
rights and immunities or to increase any of his responsibilities and liabilities under this
Act, provided such surrender or increase shall be embodied in the bill of lading issued
to the shipper.
The provisions of this Act shall not be applicable to charter parties; but if bills of lading
are issued in the case of a ship under a charter party, they shall comply with the terms
of this Act. Nothing in this Act shall be held to prevent the insertion in a bill of lading
of any lawful provisions regarding general average.
SPECIAL CONDITIONS
SEC. 6. Notwithstanding the provisions of the preceding section, a carrier, master or
agent of the carrier, and a shipper shall, in regard to any particular goods be at liberty
to enter into any agreement in any terms as to the responsibility and liability of the
carrier for such goods, and as to the rights and immunities of the carrier in respect to
such goods, or his obligation to seaworthiness, (so far as the stipulation regarding
seaworthiness is contrary to public policy), or the care or diligence of his servants or
agents in regard to the loading, handling, stowage, carriage, custody, care and
91
discharge of the goods carried by sea; provided, that in this case no bill of lading has
been or shall be issued and that the terms agreed shall be a non-negotiable document
and shall be marked as such.
Any agreement so entered into shall have full legal effect: Provided, that this section
shall not apply to ordinary commercial shipments made in the ordinary course of trade
but only to other shipments where the character or condition of the property to be
carried or the circumstances, terms and conditions under which the carriage is to be
performed are such as reasonably to justify a special agreement.
SEC. 7. Nothing contained in this Act shall prevent a carrier or a shipper from
entering into any agreement, stipulation, condition, reservation, or exemption as to the
responsibility and liability of the carrier or the ship for the loss or damage to or in
connection with the custody and care and handling of goods prior to the loading on
and subsequent to the discharge from the ship on which the goods are carried by sea.
SEC. 8. The provisions of this Act shall not affect the rights and obligations of the
carrier under the provisions of the Shipping Act, 1916, or under the provisions of
Sections 4281 to 4292, inclusive, of the Revised Statutes of the United States, or of
any amendments thereto, or under the provisions of any other enactment for the time
being in force relating to the limitation of the liability of the owners of seagoing
vessels.
TITLE II
SEC. 9. Nothing contained in this Act shall be construed as permitting a common
carrier by water to discriminate between competing shippers similarly placed in time
and circumstances, either (a) with respect to their right to demand and receive bills of
lading subject to the provisions of this Act; or (b) when issuing such bills of lading
either in the surrender of any of the carrier's rights and immunities or in the increase
of any of the carrier's responsibilities and liabilities pursuant to Section 5, Title I, of
this Act; (c) in any other way prohibited by the Shipping Act, 1916, as amended.
SEC. 10. (Not applicable to the Philippines.)
SEC. 11. When under the custom of any trade the weight of any bulk cargo inserted
in the bill of lading is a weight ascertained or accepted by a third party other than the
carrier or the shipper and the fact that the weight as ascertained or accepted is stated
in the bill of lading, then notwithstanding anything in this Act, the bill of lading shall
not be deemed to be prima facie evidence against the carrier of the receipt of goods of
the weight so inserted in the bills of lading, and the accuracy thereof at the time of
shipment shall not be deemed to have been guaranteed by the shipper.
SEC. 12. (Not applicable to the Philippines.)
SEC. 13. This Act shall apply to all contracts for carriage of goods by seas to or from
ports of the United States in foreign trade. As used in this Act the term "United States"
includes its districts, territories, and possessions: Provided, however, that the
Philippine Legislature may by law exclude its application to transportation to or from
ports of the Philippine Islands. The term "foreign trade" means the transportation of
goods between the ports of the United States and ports of foreign countries. Nothing
in this Act shall be held to apply to contracts for carriage of goods by sea between any
port of the United States or its possessions and any other port of the United States or
its possessions: Provided, however, that any bill of lading or similar document of the
title which is evidence of a contract for the carriage of goods by sea between such
ports, containing an express statement that it shall be subject to the provisions of this
Act; shall be subjected hereto as fully as if subject hereto by the express provisions of
this Act: Provided, further, that every bill of lading or similar document of title which
is evidence of a contract for the carriage of goods by sea from ports of the United
States in foreign trade, shall contain a statement that it shall have effect subject to the
provisions of this Act.

SEC. 14. Upon the certification of the Secretary of Commerce that the foreign
commerce of the United States in its competition with that of foreign nations is
prejudiced by the provisions, or any of them, of the Title I of this Act, or by the laws
of any foreign country or countries relating to the carriage of goods by sea, the
President of the United States may, from time to time by proclamation, suspend any
or all provisions of Title I of this Act for such periods of time or indefinitely as may
be designated in the proclamation. The President may at any time rescind such
suspension of Title I hereof, and any provisions thereof which may have been
suspended shall thereby be reinstated and again apply to contracts thereafter made for
carriage of goods by sea. Any proclamation of suspension or rescission of any such
suspension shall take effect on the date named therein, which date shall be not less
than ten days from the issue of the proclamation.

Any contract for the carriage of goods by sea, subject to the provisions of this Act,
effective during any period when Title I hereof, or any part thereof, is suspended, shall
be subject to all provisions of law now or hereafter applicable to that part of Title I
which may have thus been suspended.

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

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

92
 PUBLIC SERVICE LAW
COMMONWEALTH ACT No. 146
CHAPTER I
ORGANIZATION
SECTION 1. This Act shall be known as the "Public Service Act."
SECTION 2. There is created under the Department of Justice a commission which
shall be designated and known as the Public Service Commission, composed of one
Public Service Commissioner and five Associate Commissioners, and which shall be
vested with the powers and duties hereafter specified. Whenever the word
"Commission" is used in this Act, it shall be held to mean the Public Service
Commission, and whenever the word "Commissioner" is used in this Act it shall be
held to mean the Public Service Commissioner or anyone of the Associate
Commissioners. The Public Service Commissioner and the Associate Public Service
Commissioners shall be natural born citizens and residents of the Philippines, not
under thirty years of age; members of the Bar of the Philippines, with at least five years
of law practice or five years of employment in the government service requiring a
lawyer's diploma; and shall be appointed by the President of the Philippines, with the
consent of the Commission on Appointments of the Congress of the Philippines:
Provided, however, That the present Commissioner and the personnel of the
Commission shall continue in office without the necessity of re-appointment. The
Commissioners shall have the rank and privilege of retirement of Judges of the Courts
of First Instance. (As amended by Republic Act Nos. 178 and 2677)
SECTION 3. The Commissioner and Associate Commissioners shall hold office until
they reach the age of seventy years, or until removed in accordance with the procedures
prescribed in section one hundred and seventy-three of Act Numbered Twenty-seven
hundred and eleven, known as the Revised Administrative Code: Provided, however,
That upon retirement any Commissioner of Associate Commissioner shall be entitled
to all retirement benefits and privileges for Judges of the Courts of First Instance or
under the retirement law to which he may be entitled on the date of his retirement. In
case of the absence, for any reason, of the Public Service Commissioner, the Associate
Commissioner with seniority of appointment shall act as Commissioner. If on account
of absence, illness, or incapacity of any of three Commissioners, or whenever by
reason of temporary disability of any Commissioner or of a vacancy occurring therein,
the requisite number of Commissioners necessary to render a decision or issue an order
in any case is not present, or in the event of a tie vote among the Commissioners, the
Secretary of Justice may designate such number of Judges of the Courts of First
Instance, or such number of attorneys of the legal division of the Commission, as may
be necessary to sit temporarily as Commissioners in the Public Service Commission.
The Public Service Commission shall sit individually or as a body en banc or in two
divisions of three Commissioners each. The Public Service Commissioner shall
preside when the Commission sits en banc and in one division. In the other division,
93
the Associate Commissioner with seniority of appointment in that division shall
preside. Five Commissioners shall constitute a quorum for sessions en banc and two
Commissioners shall constitute a quorum for the sessions of a division. In the absence
of a quorum, the session shall be adjourned until the requisite number is present.
All the powers herein vested upon the Commission shall be considered vested upon
any of the Commissioners, acting either individually or jointly as hereinafter provided.
The Commissioners shall equitably divide among themselves all pending cases and
those that may hereafter be submitted to the Commissioner, in such manner and form
as they may determine, and shall proceed to hear and determine the case assigned to
each or to their respective divisions, or to the Commission en banc as follows:
uncontested cases, except those pertaining to the fixing of rates, shall be decided by
one Commissioner; contested cases and all cases involving the fixing of rates shall be
decided by the Commission in division and the concurrence of at least two
Commissioners in the division shall be necessary for the promulgation of a decision
or non-interlocutory order in these cases: Provided, however, That any motion for
reconsideration of a decision or non-interlocutory order of any Commissioner or
division shall be heard directly by the Commission en banc and the concurrence of at
least four Commissioners shall be necessary for the promulgation of a final decision
or order resolving such motion for reconsideration. (As amended by Republic Act Nos.
723 and 2677)
SECTION 4. The Public Service Commissioner shall receive an annual compensation
of thirteen thousand pesos; and each of the Associate Commissioners an annual
compensation of twelve thousand pesos. The Commissioners shall be assisted by one
chief attorney, one finance and rate regulation officer, one chief utilities regulation
engineer, one chief accountant, one transportation regulation chief, one secretary of
the Public Service Commission, and three public utilities advisers who shall receive
an annual compensation of not less than ten thousand eight hundred pesos each; five
assistant chiefs of division who shall receive an annual compensation of not less than
nine thousand six hundred pesos each; twelve attorneys who shall receive an annual
compensation of not less than nine thousand pesos each; and a technical and
confidential staff to be composed of two certified public accounts, two electrical
engineers, two mechanical or communication engineers, and two special assistants
who shall receive an annual compensation of not less than seven thousand two hundred
pesos each. (As amended by Republic Act Nos. 723, 2677 and 3792)
SECTION 5. The Public Service Commissioner, the Associate Public Service
Commissioners, and all other officers and employees of the Public Service
Commission shall enjoy the same privileges and rights as the officer and employees
of the classified civil service of the Government of the Philippines. They shall also be
entitled to receive from the Government of the Philippines their necessary travelling
expenses while travelling on the business of the Commission, which shall be paid on
proper voucher therefor, approved by the Secretary of Justice, out of funds
appropriated for the contingent expenses of the Commission.

When the exigency of the service so requires and with the approval of the Secretary of
Justice, and subject to the provisions of Commonwealth Act Numbered Two hundred
forty-six, as amended, funds may be set aside from the appropriations provided for the
Commission and/or from the fees collected under Section forty of this Act to defray
the expenses to be incurred by the Public Service Commissioner or any of the
Associate Commissioners, officers or employees of the Commission to be designated
by the Commissioner, with the approval of the Secretary of Justice, in the study of
modern trends in supervision and regulation of public services. (As amended by
Republic Act No. 3792)
SECTION 6. The Secretary of Justice, upon recommendation of the Public Service
Commissioner, shall appoint all subordinate officers and employees of the
Commission as may be provided in the Appropriation Act. The Public Service
Commissioner shall have general executive control, direction, and supervision over
the work of the Commission and of its members, body and personnel, and over all
administrative business. (As amended by Republic Act Nos. 178 and 3792)
SECTION 7. The Secretary of the Commission, under the direction of the
Commissioner, shall have charge of the administrative business of the Commission
and shall perform such other duties as may be required of him. He shall be the recorder
and official reporter of the proceedings of the Commission and shall have authority to
administer oaths in all matters coming under the jurisdiction of the Commission. He
shall be the custodian of the records, maps, profiles, tariffs, itineraries, reports, and
any other documents and papers filed with the Commission or entrusted to his care
and shall be responsible therefor to the Commission. He shall have authority to
designate from time to time any of his delegates to perform the duties of Deputy
Secretary with any of the Commissioners.
SECTION 8. The Commission shall furnish the Secretary such of its findings and
decisions as in its judgment may be of general public interest; the Secretary shall
compile the same for the purpose of publication in a series of volumes to be designated
"Reports of the Public Service Commission of the Philippines," which shall be
published in such form and manner as may be best adapted for public information and
use, and such authorized publications shall be competent evidence of the reports and
decisions of the Commission therein contained without any further proof or
authentication thereof.
SECTION 9. No member or employee of the Commission shall have any official or
professional relation with any public service as herein defined, or hold any office of
profit or trust with the Government of the Philippines.
SECTION 10. The Commission shall have its office in the City of Manila or at such
other place as may be designated, and may hold hearings on any proceedings at such
times and places, within the Philippines, as it may provide by order in writing:
94
Provided, That during the months of April and May of each year, at least three
Commissioners shall be on vacation in such manner that once every two years at least
three of them shall be on duty during April and May: Provided, however, That in the
interest of public service, the Secretary of Justice may require any or all the
Commissioners not on duty to render services and perform their duties during the
vacation months. (As amended by Republic Act Nos. 176 and 3792)
SECTION 11. The Commission shall have the power to make needful rules for its
Government and other proceedings not inconsistent with this Act and shall adopt a
common seal, and judicial notice shall be taken for such seal. True copies of said rules
and other amendments shall be promptly furnished to the Bureau of Printing and shall
be forthwith published in the Official Gazette.
CHAPTER II
JURISDICTION, POWERS AND DUTIES OF THE COMMISSION
SECTION 13. (a) The Commission shall have jurisdiction, supervision, and control
over all public services and their franchises, equipment, and other properties, and in
the exercise of its authority, it shall have the necessary powers and the aid of the public
force: Provided, That public services owned or operated by government entities or
government-owned or controlled corporations shall be regulated by the Commission
in the same way as privately-owned public services, but certificates of public
convenience or certificates of public convenience and necessity shall not be required
of such entities or corporations: And provided, further, That it shall have no authority
to require steamboats, motor ships and steamship lines, whether privately-owned, or
owned or operated by any Government controlled corporation or instrumentality to
obtain certificate of public convenience or to prescribe their definite routes or lines of
service.
(b) The term "public service" includes every person that now or hereafter may own,
operate, manage, or control in the Philippines, for hire or compensation, with general
or limited clientele, whether permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street railway, traction railway, sub-
way motor vehicle, either for freight or passenger, or both with or without fixed route
and whether may be its classification, freight or carrier service of any class, express
service, steamboat or steamship line, pontines, ferries, and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine railways, marine
repair shop, [warehouse] wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power water supply and power,
petroleum, sewerage system, wire or wireless communications system, wire or
wireless broadcasting stations and other similar public services: Provided, however,
That a person engaged in agriculture, not otherwise a public service, who owns a motor
vehicle and uses it personally and/or enters into a special contract whereby said motor
vehicle is offered for hire or compensation to a third party or third parties engaged in
agriculture, not itself or themselves a public service, for operation by the latter for a
limited time and for a specific purpose directly connected with the cultivation of his
or their farm, the transportation, processing, and marketing of agricultural products of
such third party or third parties shall not be considered as operating a public service
for the purposes of this Act.
(c) The word "person" includes every individual, co-partnership, joint-stock company
or corporation, whether domestic or foreign, their lessees, trustees, or receivers, as well
as any municipality, province, city, government-owned or controlled corporation, or
agency of the Government of the Philippines, and whatever other persons or entities
that may own or possess or operate public services. (As amended by Com. Act 454
and RA No. 2677)
SECTION 14. The following are exempted from the provisions of the preceding
section:
(a) Warehouses;
(b) Vehicles drawn by animals and bancas moved by oar or sail, and tugboats
and lighters;
(c) Airships within the Philippines except as regards the fixing of their maximum
rates on freight and passengers;
(d) Radio companies except with respect to the fixing of rates;
(e) Public services owned or operated by any instrumentality of the National
Government or by any government-owned or controlled corporation, except
with respect to the fixing of rates. (As amended by Com. Act 454, RA No.
2031, and RA No. 2677 )
SECTION 15. With the exception of those enumerated in the preceding section, no
public service shall operate in the Philippines without possessing a valid and subsisting
certificate from the Public Service Commission known as "certificate of public
convenience," or "certificate of public convenience and necessity," as the case may be,
to the effect that the operation of said service and the authorization to do business will
promote the public interests in a proper and suitable manner.
The Commission may prescribe as a condition for the issuance of the certificate
provided in the preceding paragraph that the service can be acquired by the Republic
of the Philippines or any instrumentality thereof upon payment of the cost price of its
useful equipment, less reasonable depreciation; and likewise, that the certificate shall
be valid only for a definite period of time; and that the violation of any of these
conditions shall produce the immediate cancellation of the certificate without the
necessity of any express action on the part of the Commission.
In estimating the depreciation, the effect of the use of the equipment, its actual
condition, the age of the model, or other circumstances affecting its value in the market
shall be taken into consideration.
95
The foregoing is likewise applicable to any extension or amendment of certificates
actually in force and to those which may hereafter be issued, to permit to modify
itineraries and time schedules of public services, and to authorizations to renew and
increase equipment and properties.
SECTION 16. Proceedings of the Commission, upon notice and hearing. - The
Commission shall have power, upon proper notice and hearing in accordance with the
rules and provisions of this Act, subject to the limitations and exceptions mentioned
and saving provisions to the contrary :
(a) To issue certificates which shall be known as certificates of public
convenience, authorizing the operation of public service within the
Philippines whenever the Commission finds that the operation of the public
service proposed and the authorization to do business will promote the public
interest in a proper and suitable manner. Provided, That thereafter, certificates
of public convenience and certificates of public convenience and necessity
will be granted only to citizens of the Philippines or of the United States or
to corporations, co-partnerships, associations or joint-stock companies
constituted and organized under the laws of the Philippines; Provided, That
sixty per centum of the stock or paid-up capital of any such corporations, co-
partnership, association or joint-stock company must belong entirely to
citizens of the Philippines or of the United States: Provided, further, That no
such certificates shall be issued for a period of more than fifty years.
(b) To approve, subject to constitutional limitations any franchise or privilege
granted under the provisions of Act No. Six Hundred and Sixty-seven, as
amended by Act No. One Thousand and twenty-two, by any political
subdivision of the Philippines when, in the judgment of the Commission, such
franchise or privilege will properly conserve the public interests, and the
Commission shall in so approving impose such conditions as to construction,
equipment, maintenance, service, or operation as the public interests and
convenience may reasonably require, and to issue certificates of public
convenience and necessity when such is required or provided by any law or
franchise.
(c) To fix and determine individual or joint rates, tolls, charges, classifications,
or schedules thereof, as well as commutation, mileage, kilometrage, and other
special rates which shall be imposed observed and followed thereafter by any
public service: Provided, That the Commission may, in its discretion, approve
rates proposed by public services provisionally and without necessity of any
hearing; but it shall call a hearing thereon within thirty days, thereafter, upon
publication and notice to the concerns operating in the territory affected:
Provided, further, That in case the public service equipment of an operator is
used principally or secondarily for the promotion of a private business, the
net profits of said private business shall be considered in relation with the
public service of such operator for the purpose of fixing the rates.
(d) To fix just and reasonable standards, classifications, regulations, practices,
measurement, or service to be furnished, imposed, observed, and followed
thereafter by any public service.
(e) To ascertain and fix adequate and serviceable standards for the measurement
of quantity, quality, pressure, initial voltage, or other condition pertaining to
the supply of the product or service rendered by any public service, and to
prescribe reasonable regulations for the examination and test of such product
or service and for the measurement thereof.
(f) To establish reasonable rules, regulations, instructions, specifications, and
standards, to secure the accuracy of all meters and appliances for
measurements.
(g) To compel any public service to furnish safe, adequate, and proper service as
regards the manner of furnishing the same as well as the maintenance of the
necessary material and equipment.
(h) To require any public service to establish, construct, maintain, and operate
any reasonable extension of its existing facilities, where in the judgment of
said Commission, such extension is reasonable and practicable and will
furnish sufficient business to justify the construction and maintenance of the
same and when the financial condition of the said public service reasonably
warrants the original expenditure required in making and operating such
extension.
(i) To direct any railroad, street railway or traction company to establish and
maintain at any junction or point of connection or intersection with any other
line of said road or track, or with any other line of any other railroad, street
railway or traction to promote, such just and reasonable connection as shall
be necessary to promote the convenience of shippers of property, or of
passengers, and in like manner direct any railroad, street railway, or traction
company engaged in carrying merchandise, to construct, maintain and
operate, upon reasonable terms, a switch connection with any private
sidetrack which may be constructed by any shipper to connect with the
railroad, street railway or traction company line where, in the judgment of the
Commission, such connection is reasonable and practicable and can be out in
with safety and will furnish sufficient business to justify the construction and
maintenance of the same.
(j) To authorize, in its discretion, any railroad, street railway or traction company
to lay its tracks across the tracks of any other railroad, street railway or
traction company or across any public highway.
(k) To direct any railroad or street railway company to install such safety devices
or about such other reasonable measures as may in the judgment of the
Commission be necessary for the protection of the public are passing grade
crossing of (1) public highways and railroads, (2) public highways and streets
railway, or (3) railways and street railways.
(l) To fix and determine proper and adequate rates of depreciation of the property
of any public service which will be observed in a proper and adequate
depreciation account to be carried for the protection of stockholders,
bondholders or creditors in accordance with such rules, regulations, and form
of account as the Commission may prescribe. Said rates shall be sufficient to
provide the amounts required over and above the expense of maintenance to
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keep such property in a state of efficiency corresponding to the progress of
the industry. Each public service shall conform its depreciation accounts to
the rates so determined and fixed, and shall set aside the moneys so provided
for out of its earnings and carry the same in a depreciation fund. The income
from investments of money in such fund shall likewise be carried in such
fund. This fund shall not be expended otherwise than for depreciation,
improvements, new construction, extensions or conditions to the properly of
such public service.
(m) To amend, modify or revoke at any time certificate issued under the
provisions of this Act, whenever the facts and circumstances on the strength
of which said certificate was issued have been misrepresented or materially
changed.
(n) To suspend or revoke any certificate issued under the provisions of this Act
whenever the holder thereof has violated or willfully and contumaciously
refused to comply with any order rule or regulation of the Commission or any
provision of this Act: Provided, That the Commission, for good cause, may
prior to the hearing suspend for a period not to exceed thirty days any
certificate or the exercise of any right or authority issued or granted under
this Act by order of the Commission, whenever such step shall in the
judgment of the Commission be necessary to avoid serious and irreparable
damage or inconvenience to the public or to private interests.
(o) To fix, determine, and regulate, as the convenience of the state may require,
a special type for auto-busses, trucks, and motor trucks to be hereafter
constructed, purchased, and operated by operators after the approval of this
Act; to fix and determine a special registration fee for auto-buses, trucks, and
motor trucks so constructed, purchased and operated: Provided, That said fees
shall be smaller than more those charged for auto-busses, trucks, and motor
trucks of types not made regulation under the subsection.
SECTION 17. Proceedings of Commission without previous hearing. - The
Commission shall have power without previous hearing, subject to established
limitations and exception and saving provisions to the contrary:
(a) To investigate, upon its own initiative, or upon complaint in writing, any
matter concerning any public service as regards matters under its jurisdiction;
to require any public service to furnish safe, adequate, and proper service as
the public interest may require and warrant; to enforce compliance with any
standard, rule, regulation, order or other requirement of this Act or of the
Commission, and to prohibit or prevent any public service as herein defined
from operating without having first secured a certificate of public
convenience or public necessity and convenience, as the case may be and
require existing public services to pay the fees provided for in this Act for the
issuance of the proper certificate of public convenience or certificate of public
necessity and convenience, as the case may be, under the penalty, in the
discretion by the Commission, of the revocation and cancellation of any
acquired rights.
(b) To require any public service to pay the actual expenses incurred by the
Commission in any investigation if it shall be found in the same that any rate,
tool, charge, schedule, regulation, practice, act or service thereof is in
violation of any provision of this Act or any certificate, order, rule, regulation
or requirement issued or established by the Commission. The Commission
may also assess against any public service costs not to exceed twenty-five
pesos with reference to such investigation.
(c) From time to time appraise and value the property of any public service,
whenever in the judgment of the Commission it shall be necessary so to do,
for the purpose of carrying out any of the provisions of this Act, and in
making such valuation the Commission may have access to and use any
books, documents, or records in the possession of any department, bureau,
office, or board of the government of the Philippines or any political
subdivision thereof.
(d) To provide, on motion by or at the request of any consumer or user of a public
service, for the examination and test of any appliance used for the measuring
of any product or service of a public service, and for that purpose, by its
agents, experts, or examiners to enter upon any premises where said
appliances may be, and other premises of the public service, for the purpose
of setting up and using on said premises any apparatus necessary therefor.
and to fix the fees to be paid by any consumer or user who may apply to the
Commission for such examination or test to be made, and if the appliance be
found defective or incorrect to the disadvantage of the consumer or user to
require the fees paid to be refunded to the consumer or user by the public
service concerned.
(e) To permit any street railway or traction company to change its existing gauge
to standard steam railroad gauge, upon such terms and conditions as the
Commission shall prescribe.
(f) To grant to any public service special permits to make extra or special trips
within the territory covered by its certificates of public convenience, and to
make special excursion trips outside of its own territory if the public interest
or special circumstances required it: Provided, however, that in case a public
service cannot render such extra service on its own line or in its own territory,
a special permit for such extra service may be granted to any other public
service.
(g) To require any public service to keep its books, records, and accounts so as
to afford an intelligent understanding of the conduct of its business and to that
end to require every such public service of the same class to adopt a uniform
system of accounting. Such system conform to any system approved and
confirmed by the Auditor General.
(h) To require any public service to furnish annual reports of finances and
operations. Such reports shall set forth in detail the capital stock issued, the
amounts of said capital stock paid up and the form of payment thereof; the
dividends paid, the surplus, if any and the number of stockholders, the
consolidated and pending obligations and the interest paid thereon; the cost
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and value of the property of the operator; concessions or franchises and
equipment; the number of employees and salaries paid to each class; the
accidents to passengers, employees, and other person, and the causes thereof;
the annual expenditures on improvements; the manner of their investment and
nature of such improvements; the receipts and profits in each of the branches
of the business and of whatever source; the operating and other expenses; the
balance of profits and losses; and a complete statement of the annual financial
operations of the operator, including an annual balance sheet. Such reports
shall also contain any information which the Commission may require
concerning freight and passenger rates, or agreements, compromises or
contracts affecting the same. Said reports shall cover a period of twelve
months, ending on December thirty-first of each year, and shall be sworn to
by the officer or functionary of the public service authorized therefor. The
Commission shall also have power to require from time to time special
reports containing such information as above provided for or on other matters
as the Commission may deem necessary or advisable.
(i) To require every public service to file with the Commission a statement in
writing, verified by the oaths of the owner or the president and the secretary
thereof, if a corporation, setting forth the name, title of office or portion, and
post-office address, and the authority, power and duties of every officer,
member of the board of directors, trustees executive committee,
superintendent, chief or head of construction and operation thereof, in such
form as to disclose the source and origin of each administrative act, rule,
decision, order or other action of the operator of such public service; and,
within ten days after any change is made in the title of, or authority, powers
or duties appertaining to any such office or position, or the person holding
the same, filed with the Commission a like statement, verified in like manner,
setting forth such change.
(j) To require any public service to comply with the laws of the Philippines and
with any provincial resolution or municipal ordinance relating thereto and to
conform to the duties imposed upon it thereby or by the provisions of its own
character, whether obtained under any general or special law of the
Philippines.
(k) To investigate any or all accidents that may occur on the property of any
public service or directly or indirectly arising from or connected with its
maintenance or operation in the Philippines; to require any public service to
give the Commission immediate and effective notice of all any such
accidents, and to make such order or recommendation with respect thereto as
the public interest may warrant or require.
(l) To require every public service s herein defined to file within complete
schedules of every classification employed and of every individual or joint
rate, toll fare or charge made, charged or exacted by it for any product
supplied or service rendered within the Philippines and, in the case of public
carriers, to file with it a statement showing the itineraries or routes served as
specified in such requirement.

CHAPTER III
OPERATORS OF PUBLIC SERVICES REGULATIONS AND
PROHIBITIONS
SECTION 18. It shall be unlawful for any individual, co-partnership, association,
corporation or joint-stock company, their lessees, trustees or receivers appointed by
any court whatsoever, or any municipality, province, or other department of the
Government of the Philippines to engage in any public service business without having
first secured from the Commission a certificate of public convenience or certificate of
public convenience and necessity as provided for in this Act, except grantees of
legislative franchises expressly exempting such grantees from the requirement of
securing a certificate from this Commission as well as concerns at present existing
expressly exempted from the jurisdiction of the Commission, either totally or in part,
by the provisions of section thirteen of this Act.
SECTION 19. Unlawful Acts. - It shall be unlawful for any public service:
(a) To provide or maintain any service that is unsafe, improper, or inadequate or
withhold or refuse any service which can reasonably be demanded and
furnished, as found and determined by the Commission in a final order which
shall be conclusive and shall take effect in accordance with this Act, upon
appeal of otherwise.
(b) To make or give, directly or indirectly, by itself or through its agents,
attorneys or brokers, or any of them, discounts or rebates on authorized rates,
or grant credit for the payment of freight charges, or any undue or
unreasonable preference or advantage to any person of corporation or to any
locality or to any particular description of traffic or service, or subject any
particular person or corporation or locality or any particular description of
traffic to any prejudice or disadvantage in any respect whatsoever; to adopt,
maintain, or enforce any regulation, practice or measurement which shall be
found or determined by the Commission to be unjust, unreasonable, unduly
preferential or unjustly discriminatory in a final order which shall be
conclusive and shall take effect in accordance with the provisions of this Act,
upon repeal or otherwise.
(c) To refuse or neglect, when requested by the Director of Posts or his
authorized representative, to carry public mail on the regular trips of any
public land transportation service maintained or operated by any such public
service; upon such terms and conditions and for a consideration in such
amount as may be agreed upon between the Director of Posts and the public
service carrier of fixed by the Commission in the absence of an agreement
between the Director of Posts and the carrier. In case the Director of Posts
and public service carrier are unable to agree on the amount of the
compensation to be paid for the carriage of the mail, the Director of Posts
shall forthwith request the Commission to fix a just and reasonable
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compensation for such carriage and the same shall be promptly fixed by the
Commission in accordance with Section sixteen of this Act.
SECTION 20. Acts requiring the approval of the Commission. - Subject to established
limitations and exceptions and saving provisions to the contrary, it shall be unlawful
for any public service or for the owner, lessee or operator thereof, without the approval
and authorization of the Commission previously had -
(a) To adopt, establish, fix, impose, maintain, collect or carry into effect any
individual or joint rates, commutation, mileage or other special rate, toll, fare,
charge, classification or itinerary. The Commission shall approve only those
that are just and reasonable and not any that are unjustly discriminatory or
unduly preferential, only upon reasonable notice to the public services and
other parties concerned, giving them a reasonable opportunity to be heard and
the burden of the proof to show that the proposed rates or regulations are just
and reasonable shall be upon the public service proposing the same.
(b) To establish, construct, maintain, or operate new units or extend existing
facilities or make any other addition to or general extension of the service.
(c) To abandon any railroad station or stop the sale of passenger tickets, or cease
to maintain an agent to receive and discharge freight at any station now or
hereafter established at which passenger tickets are now or may hereafter be
regularly sold, or at which such agent is now or may hereafter be maintained,
or make any permanent change in its time tables or itineraries on any railroad
or in its service.
(d) To lay any railroad or street railway track across any highway, so as to make
a new crossing at grade, or cross the tracks of any other railroad or street
railway, provided, that this subsection shall not apply to replacements of
lawfully existing tracks.
(e) Hereafter to issue any stock or stock certificates representing an increase of
capital; or issue any share of stock without par value; or issue any bonds or
other evidence of indebtedness payable in more than one year from the
issuance thereof, provided that it shall be the duty of the Commission, after
hearing, to approve any such issue maturing in more than one year from the
date thereof, when satisfied that the same is to be made in accordance with
law, and the purpose of such issue be approved by the Commission. (f) To
capitalize any franchise in excess of the amount, inclusive of any tax or
annual charge, actually paid to the Government of the Philippines or any
political subdivision thereof as the consideration of said franchise; capitalize
any contract for consolidation, merger or lease, or issue any bonds or other
evidence of indebtedness against or as a lien upon any contract for
consolidation, merger, or lease: Provided, however, that the provisions of this
section shall not prevent the issuance of stock, bonds, or other evidence of
indebtedness subject to the approval of the Commission by any lawfully
merged or consolidated public services not in contravention of the provisions
of this section.
(f) To sell, alienate, mortgage, encumber or lease its property, franchises,
certificates, privileges, or rights or any part thereof; or merge or consolidate
its property, franchises privileges or rights, or any part thereof, with those of
any other public service. The approval herein required shall be given, after
notice to the public and hearing the persons interested at a public hearing, if
it be shown that there are just and reasonable grounds for making the
mortgaged or encumbrance, for liabilities of more than one year maturity, or
the sale, alienation, lease, merger, or consolidation to be approved, and that
the same are not detrimental to the public interest, and in case of a sale, the
date on which the same is to be consummated shall be fixed in the order of
approval: Provided, however, that nothing herein contained shall be
construed to prevent the transaction from being negotiated or completed
before its approval or to prevent the sale, alienation, or lease by any public
service of any of its property in the ordinary course of its business.
(g) To sell or register in its books the transfer or sale of shares of its capital stock,
if the result of that sale in itself or in connection with another previous sale,
shall be to vest in the transferee more than forty per centum of the subscribed
capital of said public service. Any transfer made in violation of this provision
shall be void and of no effect and shall not be registered in the books of the
public service corporation. Nothing herein contained shall be construed to
prevent the holding of shares lawfully acquired. (As amended by Com. Act
No. 454.)
(h) To sell, alienate or in any manner transfer shares of its capital stock to any
alien if the result of that sale, alienation, or transfer in itself or in connection
with another previous sale shall be the reduction to less than sixty per centum
of the capital stock belonging to Philippine citizens. Such sale, alienation or
transfer shall be void and of no effect and shall be sufficient cause for
ordering the cancellation of the certificate.
(i) To issue, give or tender, directly or indirectly, any free ticket free pass or free
or reduced rate of transportation for passengers, except to the following
persons: (1) officers, agents, employees, attorneys, physicians and surgeons
of said public service, and members of their families; (2) inmates of hospitals
or charity institutions, and persons engaged in charitable work; (3) indigent,
destitute, and homeless persons when transported by charitable societies or
hospitals, and the necessary agents employed in such transportation; (4) the
necessary caretakers, going and returning, of livestock, poultry, fruit, and
other freight under uniform and non-discriminatory regulation; (5) employees
of sleeping car corporations, express corporations and telegraph and
telephone corporations, railway and marine mail service employees, when
traveling in the course of their official duly; (6) post-office inspectors,
customs officers and inspectors, and immigration inspectors when engaged
in inspection; (7) witnesses attending any legal investigation in which the
public service is an interested party; (8) persons injured in accidents or
wrecks, and physicians and nurses attending such persons; (9) peace officers
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and men of regularly constituted fire departments. (As amended by Com. Act
No. 454.)
(j) Adopt, maintain, or apply practices or measures, rules or regulations to which
the public shall be subject in its relations with the public service.
CHAPTER IV
PENALTIES FOR VIOLATIONS
SECTION 21. Every public service violating or failing to comply with the terms and
conditions of any certificate or any orders, decisions or regulations of the Commission
shall be subject to a fine of not exceeding two hundred pesos per day for every day
during which such default or violation continues; and the Commission is hereby
authorized and empowered to impose such fine, after due notice and hearing.
The fines so imposed shall be paid to the Government of the Philippines through the
Commission, and failure to pay the fine in any case within the same specified in the
order or decision of the Commission shall be deemed good and sufficient reason for
the suspension of the certificate of said public service until payment shall be made.
Payment may also be enforced by appropriate action brought in a court of competent
jurisdiction. The remedy provided in this section shall not be a bar to, or affect any
other remedy provided in this Act but shall be cumulative and additional to such
remedy or remedies.
SECTION 22. Observance of the orders, decisions, and regulations of the
Commission and of the terms and conditions of any certificate may also be enforced
by mandamus or injunction in appropriate cases, or by action to compel the specific
performance of the orders, decisions, and regulations so made, or of the duties imposed
by law upon such public service: Provided, that the Commission may compromise any
case that arise under this Act in such manner and for such amount as it may deem just
and reasonable.
SECTION 23. Any public service corporation that shall perform, commit, or do any
act or thing forbidden or prohibited or shall neglect, fail or omit to do or perform any
act or thing herein to be done or performed, shall be punished by a fine not exceeding
twenty-five thousand pesos, or by imprisonment not exceeding five years, or both, in
the discretion of the court.
SECTION 24. Any person who shall knowingly and willfully perform, commit, or
do, or participate in performing, committing, or doing, or who shall knowingly and
willfully cause, participate, or join with others in causing any public service
corporation or company to do, perform or commit, or who shall advice, solicit,
persuade, or knowingly and willfully instruct, direct, or order any officer, agent, or
employee of any public service corporation or company to perform, commit, or do any
act or thing forbidden or prohibited by this Act, shall be punished by a fine not
exceeding two thousand pesos, or imprisonment not exceeding two years, or both, in
the discretion of the court: Provided, however, that for operating a private passenger
automobile as a public service without having a certificate of public convenience for
the same the offender shall be subject to the penalties provided for in section sixty-
seven (j) of Act numbered thirty-nine hundred an ninety-two.
SECTION 25. Any person who shall knowingly and willfully neglect, fail, or omit to
do or perform, or who shall knowingly and willfully cause or join or participate with
others in causing any public service corporation or company to neglect, fail or omit to
do or perform, or who shall advise, solicit, or persuade, or knowingly and willfully
instruct, direct, or order any officer, agent, or employee of any public service
corporation or company to neglect, fail, or omit to do any act or thing required to be
done by this Act, shall be published by a fine not exceeding two thousand pesos or by
imprisonment not exceeding two years, or both, in the discretion of the court.
SECTION 26. Any person who shall destroy, injure, or interfere with any apparatus
or appliance owned or operated by to in charge of the Commission or its agents, shall
be deemed guilty of a misdemeanor and upon conviction shall be published by a fine
not exceeding one thousand pesos or imprisonment not exceeding six months, or both
in the discretion of the court.
Any public service permitting the destruction, injury to, or interference with, any such
apparatus or appliances shall forfeit a sum not exceeding four thousand pesos for each
offense.
SECTION 27. This Act shall not have the effect to release or waive any right of action
by the Commission or by any person for any right, penalty, or forfeiture which may
have arisen or which may arise, under any of the laws of the Philippines, and any
penalty or forfeiture enforceable under this Act shall not be a bar to or affect a recovery
for a right, or affect or bar any criminal proceedings against any public service or
person or persons operating such public services, its officers, directors, agents, or
employees.
SECTION 28. Violations of the orders, decisions, and regulations of the Commission
and of the terms and conditions of any certificate issued by the Commission shall
prescribe after sixty days, and violations of the provisions of this Act shall prescribe
after one hundred and eighty days.
CHAPTER V
PROCEDURE AND REVIEW
SECTION 29. All hearings and investigations before the Commission shall be
governed by rules adopted by the Commission, and in the conduct thereof the
Commission shall not be bound by the technical rules of legal evidence: Provided,
That the Public Service Commissioner or associate commissioners may summarily
punish for contempt by a fine not exceeding two hundred pesos or by imprisonment
not exceeding ten days, or both, any person guilty of misconduct in the presence of the
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Commissioner or associate commissioners or so near the same as to interrupt the
hearing or session or any proceeding before them, including cases in which a person
present at a hearing, session, or investigation held by either of the commissioners
refuses to be sworn as a witness or to answer as such when lawfully required to do so.
To enforce the provisions of this section, the Commission may, if necessary, request
the assistance of the municipal police for the execution of any order made for said
purpose.
(1) While the Commission is authorized to make rules for the conduct of their
business, it could not set at naught the fundamental rule of all proceedings that
only parties having a real interest will be heard.
(2) A party not affected or prejudiced cannot file an opposition.
(3) One public service corporation cannot assume the name and be substituted in
the place of another public service corporation.
(4) A legal representative of the estate of a deceased applicant may be substituted
for the latter. If the right consists in the prosecution of unfinished proceedings
upon an application for a certificate of public convenience of the deceased
before the Public service Commission, it is but logical that the legal
representative be empowered and entitled in behalf of the estate to make the
right effective in that proceeding.
(5) One who has been granted a legislative franchise to operate an ice plant,
although not yet an operator of such public utility, has sufficient interest or
personality either to oppose an established operator's application for an
increase in the capacity of his existing plant, or to ask for a joint hearing of
said application and the grantee's own application for the issuance of a
certificate of public convenience in order to operate under such franchise.
(6) The fact that a party is the lessee of a line does not bar him from applying for
a certificate of its own in the same line. Even in cases where the owner of a
certificate has sold it subject to the condition that he would not apply for a
similar service on the same line sold by him, it has been held that such an
argument does not bar the seller from applying and that the Public Service
Commission, if it finds that there is public need for the new service applied
for, may properly grant the certificate requested. In other words the primary
consideration is a finding by the Commission that public interest and
convenience require a given service and that parties may not by agreement
deprive the Commission of its power.
(7) A case involving the grant of a Certificate of Public Convenience to the
respondent becomes moot and academic where the respondent ceases to be a
bus operator, and it should be dismissed.
SECTION 30. (a) The Commission may issue subpoenas and subpoenas duces tecum,
for witnesses in any matter or inquiry pending before the Commission and require the
production of all books, papers, tariffs, contracts, agreements, and all other documents,
which the Commission may deem necessary in any proceeding. such process shall be
issued under the seal of the Commission, signed by one of the Commissioners or by
the secretary, and may be served by any person of full age, or by registered mail. In
case of disobedience to such subpoena, the Commission may invoke the said of the
Supreme Court or of any Court of First Instance of the Philippines in requiring the
attendance and testimony of witness and the production of books, papers, and
documents under the provisions of this chapter, and the Supreme Court, or any Court
of First Instance of the Philippines within the jurisdiction of which such inquiry is
carried on, may in case of contumacy of refusal to obey a subpoena, issue to any public
service subject to the provisions of this Act, or to any person, an order requiring such
public service or other person to appear before the Commission and produce and
papers if so ordered and give evidence touching the matter; and any failure to obey
such order of the court may be punished by such court as a contempt thereof.
(b) Any person who shall neglect or refuse to answer any lawful inquiry or produce
the Commission books, paper, tariffs, contracts, agreements, and documents or other
things called for by said Commission, if in his power to do so, in obedience to the
subpoena or lawful inquiry of the Commission, upon conviction thereof by a court of
competent jurisdiction, shall be punished by a fine not exceeding five thousand pesos
or by imprisonment not exceeding one year, or both, in the discretion of the court.
(c) The Commissioner and associate commissioners, the chiefs of divisions, the
attorneys of the Commission, and the deputy secretaries shall have the power to
administer oaths in all matters under the jurisdiction of the Commission.
(d) Any person who shall testify falsely or make any false affidavit or oath before the
Commission or before any of its members shall be guilty of perjury, and upon
conviction thereof in a court of competent jurisdiction, shall be punished as provided
by law.
(e) Witnesses appearing before the Commission in obedience to subpoena or subpoena
duces tecum, shall be entitled to receive the same fees and mileage allowance as
witnesses attending Courts of First Instance in civil cases.
(f) Any person who shall obstruct the Commission or either of the Commissioners
while engaged in the discharge of Official duties, or who shall conduct himself in a
rude, disrespectful or disorderly manner before the Commission or either of the
Commissioners, while engaged in the discharge of official duties, or shall orally or in
writing be disrespectful to, offend or insult either of the Commissioners on occasion
or by reason of the performance of official duties, upon conviction thereof by a court
of competent jurisdiction, shall be punished for each offense by a fine not exceeding
one thousand pesos, or by imprisonment not exceeding six months, or both, in the
discretion of the court.
SECTION 31. No person shall be excused from testifying or from producing any
book, document, or paper in any investigation or inquiry by or upon the hearing before
the Commission, when ordered so to do by said Commission, except when the
testimony or evidence required of him may tend to incriminate him. Without the
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consent of the interested party no member or employee of the Commission shall be
compelled or permitted to give testimony in any civil suit to which the Commission is
not a party, with regard to secrets obtained by him in the discharge of his official duty.
SECTION 32. The Commission may, in any investigation or hearing, by its order in
writing cause the deposition of witnesses residing within or without the Philippines to
be taken in the manner prescribed by the Rules of Court. Where witnesses reside in
places distant from Manila and it would be inconvenient and expensive for them to
appear personally before the Commission, the Commission may, by proper order,
commission any clerk of the Court of First Instance, municipal judge or justice of the
peace of the Philippines to take the deposition of witnesses in any case pending before
the Commission. It shall be the duty of the official so commissioned, to designated
promptly a date or dates for the taking of such deposition, giving timely notice to the
parties, and on said date to proceed to take the deposition, reducing it to writing. After
the depositions have been taken, the official so commissioned shall certify to the
depositions taken and forward them as soon as possible to the Commission. It shall be
the duty of the respective parties to furnish stenographers for taking and transcribing
the testimony taken. in case the are no stenographers available, the testimony shall be
taken in long hand by such person as the clerk of court, the municipal judge or justice
of the peace may designate. The Commission may also commission a notary public to
take the depositions in the same manner herein provided.
The Commission may also, by proper order, authorize any of the attorneys of the legal
division or division chiefs of the Commission, if they be lawyers, to hear and
investigate any case filed, with the Commission and in connection therewith to receive
such evidence as may be material thereto. At the conclusion of the hearing or
investigation, the attorney or division chief so authorized shall submit the evidence
received by him to the Commission to enable the latter to render its decision. (As
amended by Rep. Act No. 723.)
SECTION 33. Every order made by the Commission shall be served upon the person
or public service affected thereby, within ten days from the time said order is filed by
personal delivery or by ordinary mail, upon the attorney of record, or in case there be
no attorney of record, upon the party interested; and in case such certified copy is sent
by registered mail, the registry mail receipt shall be prima facie evidence of the receipt
of such order by the public service in due course of mail. All orders of the Commission
to continue an existing service or prescribing rates to be charged shall be immediately
operative; all other orders shall become effective upon the dates specified thereon:
Provided, however, that orders, resolutions or decisions in converted matters and not
referring to the continuance of an existing service or prescribing rates to be charged
shall not be effective unless otherwise provided by the Commission, and shall take
effect thirty days after notice to the parties.
SECTION 34. Any interested party may request the reconsideration of any order,
ruling, or decision of the Commission by means of a petition filed not later than fifteen
days after the date of the notice of the order, ruling, or decision in question. The
grounds on which the request for reconsideration is based shall be clearly and
specifically stated in the petition. Copies of said petition shall be served on all parties
interested in the matter. It shall be the duty of the Commission to call a hearing to
decide the same promptly, either denying the petition or revoking or modifying the
order, ruling or decision under consideration.
SECTION 35. The Supreme Court is hereby given jurisdiction to review any order,
ruling, or decision of the Commission and to modify or set aside such order, ruling, or
decision when it clearly appears that there was no evidence before the Commission to
support reasonably such order, ruling, or decision, or that the same is contrary to law,
or that it was without the jurisdiction of the Commission. The evidence presented to
the Commission, together with the record of the proceedings before the Commission,
shall be certified by the secretary of the Commission to the Supreme Court. Any order,
ruling, or decision of the Commission may likewise be reviewed by the Supreme Court
upon a writ of certiorari in proper cases. The procedure for review, except as herein
provided, shall be prescribed by rules of the Supreme Court.
SECTION 36. Any other, ruling, or decision of the may be reviewed on the
application of any person or public service affected thereby, by certiorari in
appropriate cases, or by petition, to be known as petition for review, which shall be
filed within thirty days from the notification of such order, ruling or decision, or in
case of a petition is filed in accordance with the preceding section for the
reconsideration of such order, ruling or decision and the same is denied it shall be filed
within fifteen days after notice of the order denying reconsideration. Said petition shall
be placed on file in the office of the Clerk of the Supreme Court who shall furnish
copies thereof to the Secretary of the Commission and other parties interested.
SECTION 37. The institution of a writ of certiorari or other special remedies in the
Supreme Court shall in no case supersede or stay any order, ruling or decision of the
Commission, unless the Supreme Court shall so direct, and the appellant may be
required by the Supreme Court to give bond in such form and of such amount as may
be deemed proper.
SECTION 38. The chief of the legal division or any other attorneys of the
Commission shall represent the same in all judicial proceedings. It shall be the duty of
the Solicitor General to represent the Commission in any judicial proceedings if, for
special reason, the Commissioner shall request his intervention.
There is hereby created under the administrative supervision of the Secretary of Justice
an office to be known as the Office of the People's Counsel in the Public Service
Commission. The people's Counsel shall have two assistants and such number of
employees as may be necessary to perform the functions hereinafter specified. The
People's Counsel and his assistants shall be appointed by the President of the
Philippines with the consent of the commission on appointments of the Congress of
102
the Philippines. The employees of the office of the People's Counsel shall be appointed
by the Secretary of Justice upon recommendation of the People's Counsel.
The People's Counsel and his assistants shall posses the qualifications of a provincial
fiscal. The People's Counsel shall receive compensation at the rate of seven thousand
two hundred pesos per annum, and the first and second assistant's People's Counsel, at
the rate of six thousand pesos per annum each.
The People's Counsel, his assistants, and the employees of the Office of the People's
Counsel shall not, during their continuance in office, intervene directly or indirectly in
the management or control of, or be financially interested directly or indirectly in any
public service as defined in this Act.
It shall be the duty of the People's Counsel (1) to institute proceedings before the
Commission, in behalf of the public, for the purpose of fixing just and reasonable rates
or charges to be followed and observed by public services as herein defined, whenever
he has reason to believe that the existing rates or charges of such public services are
unjust and unreasonable or unjustly discriminatory; (2) to represent and appear for the
public before the Commission or any court of the Philippines in every case involving
the interest of users of the products of, or service furnished by any public service under
the jurisdiction of the Commission; (3) to represent and appear for petitioners
appearing before the Commission for the purpose of complaining in matters of the
rates and services; (4) to investigate the service given by the rates charged by, and the
valuation of the properties of the public services under the jurisdiction of the
Commission, and such other matters relating to said public services as affect the
interests of users of the products or service thereof, and to take all the steps necessary
for the protection of the interests of the person or persons or of the public affected
thereby. In connection with such investigation he is hereby empowered to issue
subpoena or subpoena duces tecum.
The People's Counsel is authorized to call upon and obtain such assistance as he may
deem necessary in the performance of his duties from any officer or employee of any
department, bureau, office, agency, or instrumentality of the government including
corporations owned, controlled or operated by the government. (As amended by Rep.
Act No. 178.)
SECTION 39. Any preceding in any court of the Philippines directly affecting an
order of the Commission or to which the Commission is a party, shall have preference
over all other civil proceedings pending in such court, except election cases.
CHAPTER VI
FEES
SECTION 40. The Commission is authorized and ordered to charge and collect from
any public service or applicant, as the case may be, the following fees as
reimbursement of its expenses in the authorization, supervision and/or regulation of
public services:
(a) The charge of fifty pesos for the registration of:
(1) Applications under the provisions of Section sixteen (a), (b), (c), and (d),
and twenty (a), (b) (c), (e), (f), and (h): Provided however, That in case
of transportation services an additional filing fee of five pesos shall be
charged for each additional unit or vehicle in excess of five units or
vehicles applied for: And provided, finally, That no filing fee shall be
collected for the reduction of rates if the same does not alter or modify
in any way the basic rates of the schedule.
(2) Applications for the approval or modification of maximum rates under
Section fourteen.
(b) Thirty pesos shall be collected from any operator of land transportation for
the registration of:
(1) Applications under Section seventeen (f).
(2) Applications for the extension of time covering a period of thirty days
for the registration of motor vehicles previously authorized by the
Commission.
(c) The charge of thirty pesos for the filing of other applications by any public
service operator not specifically provided for in the preceding paragraphs of
this section other than motions of a temporary or incidental character:
Provided, however, That fifteen pesos only shall be collected for each
certificate of public convenience or certificate of public convenience and
necessity in diploma form issued to a public service operator.
(d) For annual reimbursement of the expenses incurred by the Commission for
the supervision and regulation of the operations of motor vehicle services:
(1) For each automobile, ten pesos.
(2) For each motor vehicle, truck, or trailer of less than two tons gross
transportation capacity, ten pesos.
(3) For each motor vehicle, truck, or trailer of two tons or more, but less than
three tons gross transportation capacity, twenty pesos.
(4) For each motor vehicle, truck, or trailer of three tons or more but less
than four tons gross transportation capacity, thirty pesos.
(5) Motor vehicles, trucks, trailers or buses of four tons or more gross
capacity shall pay at the rate of ten pesos per ton gross. The fees provided
in paragraphs (d) and (e) hereof shall be paid on or before September
thirtieth of each year with a penalty of fifty per centum in case of
delinquency: Provided, further, That if the fees or any balance thereof
are not paid within sixty days from the said date, the penalty shall be
increased by one per centum for every month thereafter of delinquency:
Provided, however, That motor vehicles registered in the Motor Vehicles
Office after September thirtieth shall be exempt from payment for said
year.
(e) For annual reimbursement of the expenses incurred by the Commission in the
supervision of other public services and/or in the regulation or fixing of their
103
rates, twenty centavos for each one hundred pesos or fraction thereof, of the
capital stock subscribed or paid, or if no shares have been issued, of the
capital invested, or of the property and equipment, whichever is higher.
(f) For the issue or increase of capital stock, twenty centavos for each one
hundred pesos or fraction thereof, of the increased capital.
(g) For each permit authorizing the increase of equipment, the installation of new
units or authorizing the increase of capacity. or the extension of means or
general extension in the services, twenty centavos for each one hundred pesos
or fraction of the additional capital necessary to carry out the permit.
(h) For the inspection or certification made in the meter laboratory of the
Commission or each apparatus or meter used by any public service, four
pesos, and for examination made outside the meter laboratory of the
Commission, the additional expenses as may be incurred in making the
examination shall also be paid.
(i) For certification of copies of official documents in the files of the
Commission, fifty centavos plus fifty centavos for each page or folio so
certified.
This section shall not be applicable to the Republic of the Philippines, nor to its
instrumentalities.
Aside from the appropriations for the Commission under the annual General
Appropriation Act, any unexpended balance of the fees collected by the Commission
under this section shall be constituted receipts automatically appropriated each year,
and together with any surplus in the standardizing meter laboratory revolving fund
under Commonwealth Act Numbered Three hundred forty-nine, shall be disbursed by
the Public Service Commissioner in accordance with special budgets to be approved
by the Department of Justice, the Budget Commission and the Office of the President
of the Philippines for additional needed personal services, maintenance and operating
expenses, acquisition of urgently needed vehicles, furniture and equipment,
maintenance of an adequate reference library, acquisition of a lot and building for the
Commission, and other expenses necessary for efficient administration and effective
supervision and regulation of public services. (As amended by Com. Act No. 454 and
RA No. 3792, approved June 22, 1963.)
CHAPTER VII
GENERAL AND TRANSITORY PROVISIONS
SECTION 41. A substantial compliance with the requirements of this Act shall be
sufficient to give effect to all the rules, orders, acts and regulations of the Commission
and they shall not be declared inoperative, illegal, or void for any omission of a
technical nature in respect thereto.
SECTION 42. Copies of all official documents and orders filled or deposited in the
office of the Commission, certified by either of the commissioners, or by the secretary
to be true copy of the original, under the seal of the Commission shall be evidence in
like manner as the originals in all courts of the Philippines.

SECTION 43. The Commission created under this Act shall succeed the Commission
created under Act numbered thirty-one hundred and eight in the dispatch, hearing, and
determination of all pending matters before the latter; and shall take charge of its
archives, books, furniture, equipment, and other properties of whatsoever nature.

SECTION 44. In addition to the sum appropriated for the former commission under
Act numbered forty-one hundred and thirty-two, the General Appropriation Act for
nineteen hundred and thirty-six, the sum of six thousand seven hundred and sixty-eight
pesos and thirty-four centavos is hereby appropriated out of any funds in the
Philippines Treasury not otherwise; and in addition to the sum appropriated under Act
numbered thirty-eight, the General Appropriation Act for nineteen hundred and thirty-
seven, the sum of twenty-three thousand six hundred and ten pesos, or so much thereof
as may be necessary, is hereby appropriated, out of any funds in the Philippines
Treasury not otherwise appropriated, for carrying out the purposes of this Act.

Section 45. If, any reason, any section, subsection, sentence, clauses or terms of this
Act is held to the unconstitutional such decision shall not affect the validity of the other
provisions of this Act.

Section 46. Act numbered thirty-two hundred and forty-seven and Act numbered
thirty-five hundred and eighteen shall continue in force and effect; but all provisions
of Act numbered thirty-one hundred and eight and amendments thereof, and all other
acts or parts or acts inconsistent with the provisions of this Act are hereby repealed.

Section 47. This Act shall take effect upon its approval.

104
 CODE OF COMMERCE
MARITIME COMMERCE LAW
TITLE I
Vessels
ARTICLE 573. Merchant vessels constitute property which may be acquired and
transferred by any of the means recognized by law. The acquisition of a vessel must
be included in a written instrument, which shall not produce any effect with regard to
third persons if not recorded in the mercantile registry.
The ownership of a vessel shall also be acquired by the possession thereof in good
faith for three years, with a good title duly recorded.
In the absence of any of these requisites, uninterrupted possession for ten years shall
be necessary in order to acquire ownership.
A captain can not acquire by prescription the ship of which he is in command.
ARTICLE 574. The builders of vessels may employ the material and with regard to
their construction and rigging may follow the system which is most convenient to their
interests. Ship agents and seamen shall be subject to the provisions of the laws and
regulations of the public administration on navigation, customs, health, safety of the
vessels, and other similar provisions.
ARTICLE 575. Part owners of vessels shall enjoy the right of option of purchase and
withdrawal in the sales made to strangers; but they can only exercise it within the nine
days following the record of the sale in the registry and by delivering the price at once.
ARTICLE 576. The rigging, tackle, stores, and engine of a vessel, if it is a steamer,
shall always be understood as included in the sale thereof if they are owned by the
vendor at the time of the sale.
The arms, munitions of war, provisions, and fuel shall not be considered as included
in the sale.
The vendor shall be under the obligation to deliver to the purchaser a certificate of the
record of the vessel in the registry up to the date of the sale.
ARTICLE 577. If the alienation of the vessel should take place while said vessel is
on a voyage, the purchaser shall receive all the freights it earns from the time it
received its last cargo, and the payment of the crew and other persons which go to
make up its complement shall be paid by the purchaser for the said voyage.
105
If the sale takes place after the arrival of the vessel at the port of its destination, the
freights shall belong to the vendors and he shall pay the crew and other persons which
go to make up its complement, unless there is an agreement to the contrary in either
case.
ARTICLE 578. If, the steamer being on a voyage or in a foreign port, her owner or
owners should voluntarily alienate her either to Spaniards or to foreigners domiciled
in the capital or in a port of another country, the bill of sale shall be executed before
the consul of Spain of the port where she terminates her voyage, and said instrument
shall have no effect with regard to third persons if it is not recorded in the
registry of the consulate. The consul shall immediately forward a true copy of the
bill of purchase of the vessel to the [commercial registry] of the port where said vessel
is recorded and registered.
In every case the alienation of the vessel must be stated, indicating whether the vendor
receives the full price or part thereof, or whether he retains any interest in said vessel
in full or in part. In case the sale is made to a Spaniard, this fact shall be stated in the
certificate of navigation.
When, the ship being on a voyage, it should be rendered useless for navigation, the
captain shall apply to the judge or court of competent jurisdiction of the port of arrival,
should it be a foreign port, to the consul of Spain, should there be one or to the judge,
or court, or local authority in the absence of the former; and the consul, or the judge,
or court, or in their absence, the local authority, shall order an examination of the
vessel to be made.
If the consignee or the underwriter should reside at said port, or should have
representatives there, they must be cited in order to take part in the proceedings for the
account of whom it may concern.
ARTICLE 579. After the damage to the vessel has been proven as well as the
impossibility of her being repaired, to continue the voyage, her sale at public auction
shall be ordered, subject to the following rules:
1. The hull of the vessel, her rigging, engines, stores, and other articles shall be
appraised by means of an inventory, said proceedings being brought to the
notice of the persons who may wish to take part in the auction.
2. The order or decree ordering the public auction shall be posted in the usual
places, and shall be advertised in the newspapers of the port where the auction
is to be held, should there be any, and in the other newspapers which the court
may determine.
The period which may be fixed for the auction can not be less than twenty days.
3. These advertisements shall be repeated every ten days, and their publication
shall be stated in the proceedings.
4. The auction shall be held on the day fixed, with the formalities prescribed in the
common law for judicial sales.
 5. If the sale should take place when the vessel is in a foreign country, the special
provisions governing such cases shall be observed.
ARTICLE 580. In all judicial sales of vessels for the payment of creditors, the said
creditors shall have preference in the order stated:
1. The credits in favor of the public treasury proven by means of an official
certificate of the competent authority.
2. The judicial costs of the proceedings, according to an appraisement approved
by the judge or court.
3. The pilotage charges, tonnage dues, and the other sea or port charges, proven
by means of proper certificates of the officers intrusted with the collection.
4. The salaries of the caretakers and watchmen of the vessel and any other
expense connected with the preservation of said vessel, from the
time of arrival until her sale, which appear to have been paid or are due by
virtue of a true account approved by the judge or court.
5. The rent of the warehouse where the rigging and stores of the vessel have been
taken care of, according to contract.
6. The salaries due the captain and crew during their last voyage, which shall be
verified by virtue of the liquidation made from the rolls of the crew and
account books of the vessel, approved by the chief of the Bureau of Merchant
Marine where there is one, and in his absence by the consul, or judge, or court.
7. The reimbursement for the parts of the freight the captain may have sold in
order to repair the vessel, provided the sale has been ordered by a judicial
instrument executed with the formalities required in such cases, and recorded
in the certificate of the registry of the vessel.
8. The part of the price which has not been paid the last vendor, the credits
pending for the payment of material and work in the construction of the
vessel, when it has not navigated, and those arising from the repair and
equipment of the vessel and its provisioning with victuals and fuel during its
last voyage.
In order that the credits provided for in this subdivision may enjoy the
preference they must appear by contracts recorded in the commercial registry,
or if they were contracted for the vessel while on a voyage and said vessel has
not returned to the port of her registry, they must be made under the authority
required for such cases and entered in the certificate of registry of the said
vessel.
9. The amounts borrowed on bottomry bonds before the departure of the vessel,
proven by means of the contracts executed according to law and recorded in
the commercial registry; the amounts borrowed during the voyage with the
authority mentioned in the foregoing subdivision, filling the same requisites,
and the insurance premium, proven by the policy of the contract or certificate
taken from the books of the broker.
10. The indemnity due the shippers for the value of the goods shipped, which were
not delivered to the consignees, or for averages suffered for which the vessel
is liable, provided either appear in a judicial or arbitration decision.
106
ARTICLE 581. If the proceeds of the sale are not sufficient to pay all the creditors
included in one number or grade, the amount shall be divided among them pro rata.
ARTICLE 582. After the bill of the judicial sale at auction has been executed and
recorded in the commercial registry, all the other liabilities of the vessel in favor of the
creditors shall be considered canceled.
But if the sale should have been voluntary, and took place while the vessel was on a
voyage, the creditors shall retain their rights against the vessel until her return to the
port of her registry, and three months after the record of sale in the commercial
registry, or after her arrival.
ARTICLE 583. If the ship being on a voyage the captain should find it necessary to
contract one or more of the obligations mentioned in Nos. 8 and 9 of Article 580, he
shall apply to the judge or court if he is in Spanish territory, and otherwise to the
consul of Spain, should there be one, and, in his absence to the judge or court or to
the proper local authority, presenting the certificate of the registry of the vessel
treated of in Article 612, and the instruments proving the obligation contracted.
The judge or court, the consul or the local authority as the case may be, in view of the
result of the proceedings instituted, shall make a temporary memorandum in the
certificate of their result, in order that it may be recorded in the registry when the
vessel returns to the port of her registry, or so that it can be admitted as a legal and
preferred obligation in case of sale before the return, by reason of the sale of the vessel
by virtue of a declaration of unseaworthiness.
The lack of this formality shall make the captain personally liable to the creditors who
may be prejudiced through his fault.
ARTICLE 584. The vessels subject to the liability for the credits mentioned in Article
580 may be attached and judicially sold in the manner prescribed in Article 579, in the
port in which they are, at the instance of any of the creditors; but if they should be
freighted and ready to sail the attachment can not take place except for debts contracted
for the preparation and provisioning of the vessel for the same voyage, and even then
the attachment shall be dissolved if any person interested in her sailing should give
bond for the return of the vessel within the period fixed in the certificate of navigation,
and binding himself to pay the debt in so far as it may be legal, should the vessel be
delayed in her return even if it were caused by some fortuitous event.
For debts of any other kind whatsoever not included in the said Article 580, the vessel
can only be attached in the port of her registry.
ARTICLE 585. For all purposes of law not modified or restricted by the
provisions of this Code, vessels shall continue to be considered as personal property.

TITLE II
Persons Who May Take Part in Maritime Commerce
SECTION I
Owners of Vessels and Ship Agents
ARTICLE 586. The owner of a vessel and the agent shall be civilly liable for the
acts of the captain and for the obligations contracted by the latter to repair, equip, and
provision the vessel, provided the creditor proves that the amount claimed was
invested therein.
By agent is understood the person intrusted with the provisioning of a vessel, or who
represents her in the port in which she happens to be.
ARTICLE 587. The agent shall also be civilly liable for the indemnities in
favor of third persons which arise from the conduct of the captain in the care of the
goods which the vessel carried; but he may exempt himself therefrom by abandoning
the vessel with all her equipments and the freight he may have earned during the
voyage.
ARTICLE 588. Neither the owner of the vessel nor the agent shall be liable for the
obligations contracted by the captain if the latter exceeds his powers and privileges
which are his by reason of his position or have been conferred upon him by the former.
However, if the amounts claimed were made use of for the benefit of the vessel, the
owner or agent shall be liable.
ARTICLE 589. If two or more persons should be part owners of a merchant vessel,
an association shall be presumed as established by the part owners.
This association shall be governed by the resolutions of a majority of the members.
A majority shall be the relative majority of the voting members.
If there should be only two part owners, in case of disagreement the vote of the
member having the largest interest shall be decisive. If the interests are equal, it shall
be decided by lot.
The representation of the smallest part in the ownership shall have one vote; and
proportionately the other part owners as many votes as they have parts equal to the
smallest one.
A vessel can not be detained, attached or levied upon execution in her entirety for the
private debts of a part owner, but the proceedings shall be limited to the interest the
debtor may have in the vessel, without interfering with her navigation.
107
ARTICLE 590. The owners of a vessel shall be civilly liable in the proportion of their
contribution to the common fund, for the results of the acts of the captain, referred to
in Article 587.
Each part owner may exempt himself from this liability by the abandonment before a
notary of the part of the vessel belonging to him.
ARTICLE 591. All the part owners shall be liable, in proportion to their respective
ownership, for the expenses of repairs to the vessel, and for other expenses which are
incurred by virtue of a resolution of the majority.
They shall likewise be liable in the same proportion for the expenses of maintenance,
equipment, and provisioning of the vessel, necessary for navigation.
ARTICLE 592. The resolutions of the majority with regard to the repair, equipment,
and provisioning of the vessel in the port of departure shall bind the majority unless
the partners in the minority renounce their participation therein, which must be
acquired by the other part owners after a judicial appraisement of the value of the
portion or portions assigned.
The resolutions of the majority relating to the dissolution of the association and
sale of the vessel shall also be binding on the minority.
The sale of the vessel must take place at a public auction, subject to the
provisions of the law of civil procedure unless the part owners unanimously agree
otherwise, the right of option to purchase and to withdraw mentioned in Article 575
being always reserved in favor of said part owners.
ARTICLE 593. The owners of a vessel shall have preference in her charter to other
persons, offering equal conditions and price. If two or more of the former should claim
said right the one having greater interest shall be preferred, and should they have an
equal interest it shall be decided by lot.
ARTICLE 594. The part owners shall elect the manager who is to represent them in
the capacity of agent.
The appointment of director or agent shall be revocable at the will of the members.
ARTICLE 595. The agent, be he at the same time an owner of a vessel or a manager
for an owner or for an association of co-owners, must be qualified to trade and must
be recorded in the merchant's registry of the province.
The agent shall represent the ownership of the vessel, and may in his own name and
in such capacity take judicial and extrajudicial steps in all that relates to commerce.
ARTICLE 596. The agent may discharge the duties of captain of the vessel, subject,
in every case, to the provisions contained in Article 609.
If two or more co-owners request the position of captain, the disagreement shall be
decided by a vote of the members; and if the vote should result in a tie, the position
shall be given to the part owner having the larger interest in the vessel.
If the interest of the petitioners should be the same, and there should be a tie, the matter
shall be decided by lot.
ARTICLE 597. The agent shall select and come to an agreement with the captain, and
shall contract in the name of the owners, who shall be bound in all that refers to repairs,
details of equipment, armament, provisions, fuel, and freight of the vessel, and, in
general, in all that relates to the requirements of navigation.
ARTICLE 598. The agent can not order a new voyage, nor make contracts for a new
charter, nor insure the vessel, without the authority of her owner or by virtue of a
resolution of the majority of the co-owners, unless these privileges were granted him
in the certificate of his appointment.
If he should insure the vessel without authority therefor he shall be secondarily liable
for the solvency of the underwriter.
ARTICLE 599. The managing agent of an association, shall give his co-owners an
account of the results of each voyage of the vessel, without prejudice to always having
the books and correspondence relating to the vessel and to its voyages at the
disposal of the same.
ARTICLE 600. After the account of the managing agent has been approved by a
relative majority, the co-owners shall satisfy the expenses in proportion to their
interest, without prejudice to the civil or criminal actions which the minority may deem
fit to institute afterwards.
In order to enforce the payment, the managing agent shall have a right of action to
secure execution, which shall be instituted by virtue of a resolution of the majority,
and without further proceedings than the acknowledgment of the signatures of the
persons who voted the resolution.
ARTICLE 601. Should there be any profits, the co-owners may demand of the
managing agent the amount due them, by means of an executory action without further
requisites than the acknowledgment of the signatures of the instrument approving the
account.
ARTICLE 602. The agent shall indemnify the captain for all the expenses he may
have incurred from his own funds or from those of other persons, for the benefit of the
vessel.
ARTICLE 603. Before a vessel goes out to sea the agent shall have at his discretion,
a right to discharge the captain and members of the crew whose contract did not state
108
a definite period nor a definite voyage, paying them the salaries earned according to
their contracts, and without any indemnity whatsoever, unless there is a special and
specific agreement in respect thereto.
ARTICLE 604. If the captain or any other member of the crew should be discharged
during the voyage, they shall receive their salary until the return to the place where the
contract was made, unless there are good reasons for the discharge, all in accordance
with Articles 636 et seq. of this Code.
ARTICLE 605. If the contracts of the captain and members of the crew with the agent
should be for a definite period or voyage, they can not be discharged until the
fulfillment of their contracts, except for reasons of insubordination in serious matters,
robbery, theft, habitual drunkenness, and damage caused to the vessel or to its cargo
by malice or manifest or proven negligence.
ARTICLE 606. If the captain should be a part owner in the vessel, he can not be
discharged without the agent returning him the amount of his interest therein, which,
in the absence of an agreement between the parties, shall be appraised by experts
appointed in the manner established in the law of civil procedure.
ARTICLE 607. If the captain who is a part owner should have obtained the
command of the vessel by virtue of a special agreement contained in the articles of co-
partnership, he can not be deprived thereof except for the reasons mentioned in Article
605.
ARTICLE 608. In case of the voluntary sale of the vessel, all contracts between the
agent and captain shall terminate, the right to proper indemnity being reserved in
favor of the captain, according to the agreements made with the agent.
They vessel sold shall remain subject to the security of the payment of said indemnity
if, after the action against the vendor has been instituted, the latter should be insolvent.
SECTION II
Captains and Masters of Vessels
ARTICLE 609. Captains and masters of vessels must be Spaniards having legal
capacity to bind themselves in accordance with this Code, and must prove that they
have the skill, capacity, and qualifications required to command and direct the vessel,
as established by marine laws, ordinances, or regulations, or by those of navigation,
and that they are not disqualified according to the same for the discharge of the
duties of that position.
If the owner of a vessel desires to be the captain thereof and does not have the legal
qualifications therefor, he shall limit himself to the financial administration of the
vessel, and shall intrust her navigation to a person possessing the qualifications
required by said ordinances and regulations.

ARTICLE 610. The following powers are inherent in the position of captain or
master of a vessel:
1. To appoint or make contracts with the crew in the absence of the agent and
propose said crew, should said agent be present; but the agent shall not be
permitted to employ any member against the captain's express refusal.
2. To command the crew and direct the vessel to the port of its destination, in
accordance with the instructions he may have received from the agent.
3. To impose, in accordance with the agreements and the laws and
regulations of the merchants marine, on board the vessel, correctional
punishment upon those who do not comply with his orders or who conduct
themselves against discipline, holding a preliminary investigation on the
crimes committed on board the vessel on the high seas, which shall be turned
over to the authorities, who are to take cognizance thereof, at the first port
touched.
4. To make contracts for the charter of the vessel in the absence of the agent
or of her consignee, acting in accordance with the instructions received and
protecting the interests of the owner most carefully.
5. To adopt all the measures which may be necessary to keep the vessel well
supplied and equipped, purchasing for the purpose all that may be necessary,
provided there is no time to request instructions of the agent.
6. To make, in similar urgent cases and on a voyage, the repairs to the hull and
engines of the vessel and to her rigging and equipment which are absolutely
necessary in order for her to be able to continue and conclude her voyage;
but if she should arrive at a point where there is a consignee of the vessel, he
shall act in concurrence with the latter.
ARTICLE 611. In order to comply with the obligations mentioned in the foregoing
article, the captain, when he has no funds and does not expect to receive any from the
agent, shall procure the same in the successive order stated below:
1. By requesting said funds of the consignees or correspondents of a vessel.
2. By applying to the consignees of the cargo or to the persons interested
therein.
3. By drawing on the agent.
4. By borrowing the amount required by means of a bottomry bond.
5. By selling a sufficient amount of the cargo to cover the amount absolutely
necessary to repair the vessel, and to equip her to pursue the voyage.
In the two latter cases he must apply to the judicial authority of the port, if in Spain and
to the Spanish consul, if in a foreign country; and where there should be none, to the
local authority, proceeding in accordance with the prescriptions of Article 583, and
with the provisions of the law of civil procedure.
ARTICLE 612. The following obligations are inherent in the office of captain:
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1. To have on board before starting on a voyage a detailed
inventory of the hull, engines, rigging, tackle, stores, and other
equipments of the vessel; the navigation certificate; the roll of the
persons who make up the crew of the vessel, and the contracts
entered into with the crew; the list of passengers; the health
certificate; the certificate of the registry proving the
ownership of the vessel, and all the obligations which encumber the
same up to that date; the charters or authenticated copies thereof; the
invoices or manifest of the cargo, and the instrument of the expert
visit or inspection, should it have been made at the port of departure.
2. To have a copy of this Code on board.
3. To have three folioed and stamped books, placing at the
beginning of each one a note of the number of folios it contains,
signed by the maritime official, and in his absence by the competent
authority.
1. In the first book, which shall be called "log book," he shall enter every day
the condition of the atmosphere, the prevailing winds, the course sailed, the
rigging carried, the horsepower of the engines, the distance covered, the
maneuvers executed, and other incidents of navigation. He shall also enter
the damage suffered by the vessel in her hull, engines, rigging, and tackle, no
matter what is its cause, as well as the imperfections and averages of the
cargo, and the effects and consequence of the jettison, should there be any;
and in cases of grave resolutions which require the advice or a meeting of the
officers of the vessel, or even of the passengers and crew, he shall record the
decision adopted. For the informations indicated he shall make use of the
binnacle book, and of the steam or engine book kept by the engineer.
2. In the second book, called the "accounting book," he shall enter all the
amounts collected and paid for the account of the vessel, entering specifically
article by article, the sources of the collection, and the amounts invested in
provisions, repairs, acquisition of rigging or goods, fuel, outfits, wages, and
all other expenses. He shall furthermore enter therein a list of all the
members of the crew, stating their domiciles, their wages and salaries, and
the amounts they may have received on account, either directly or by delivery
to their families.
3. In the third book, called "freight book," he shall record the entry and
exit of all the goods, stating their marks and packages, names of the shippers
and of the consignees, ports of loading and unloading, and the freight earned.
In the same book he shall record the names and places of sailing of the
passengers and the number of packages of which their baggage consists, and
the price of the passage.
4. To make, before receiving the freight, with the officers of the crew, and the
two experts, if required by the shippers and passengers, an examination of the
vessel, in order to ascertain whether she is watertight, and whether the rigging
and engines are in good condition; and if she has the equipment required for
good navigation, preserving a certificate of the memorandum of this
 inspection, signed by all the persons who may have taken part therein, under
their liability.
5. The experts shall be appointed one by the captain of the vessel and the other
one by the persons who request the examination, and in case of disagreement
a third shall be appointed by the marine authority of the port.
6. To remain constantly on board the vessel with the crew during the time the
freight is taken on board and carefully watch the stowage thereof; not to
consent to any merchandise or goods of a dangerous character to be taken on,
such as inflammable or explosive substances, without the precautions which
are recommended for their packing, management and isolation; not to permit
that any freight be carried on deck which by reason of its disposition, volume,
or weight makes the work of the sailors difficult, and which might endanger
the safety of the vessel; and if, on account of the nature of the merchandise,
the special character of the shipment, and principally the favorable season it
takes place, he allows merchandise to be carried on deck, he must hear the
opinion of the officers of the vessel, and have the consent of the shippers
and of the agent.
7. To demand a pilot at the expense of the vessel whenever required by
navigation, and principally when a port, canal, or river, or a roadstead or
anchoring place is to be entered with which neither he, the officers nor the
crew are acquainted.
8. To be on deck at the time of sighting land and to take command on entering
and leaving ports, canals, roadsteads, and rivers, unless there is a pilot on
board discharging his duties. He shall not spend the night away from the
vessel except for serious causes or by reason of official business. cdtai
9. To present himself, when making a port in distress, to the maritime authority
if in Spain * and to the Spanish * consul if in a foreign country, before
twenty-four hours have elapsed, and make a statement of the name, registry,
and port of departure of the vessel, of its cargo, and reason of arrival, which
declaration shall be vised by the authority or by the consul if after examining
the same it is found to be acceptable, giving the captain the proper certificate
in order to show his arrival under stress and the reasons therefor. In the
absence of marine officials or of the consul, the declaration must be made
before the local authority.
10. To take the steps necessary before the competent authority in order to enter
in the certificate of the Commercial Registry of the vessel the obligations
which he may contract in accordance with Article 583.
11. To put in a safe place and keep all the papers and belongings of any
members of the crew who might die on the vessel, drawing up a detailed
inventory, in the presence of passengers as witnesses, and, in their
absence, of members of the crew.
12. To conduct himself according to the rules and precepts contained in the
instructions of the agent, being liable for all that he may do in violation
thereof.
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13. To give an account to the agent from the port where the vessel arrives, of the
reason thereof, taking advantage of the semaphore, telegraph, mail, etc.,
according to the cases; notify him the freight he may have received, stating
the name and domicile of the shippers, freight earned, and amounts borrowed
on bottomry bond, advise him of his departure, and give him any information
and data which may be of interest.
14. To observe the rules on the situation of lights and evolutions to prevent
collisions.
15. To remain on board in case of danger to the vessel, until all hope to save her
is lost, and before abandoning her to hear the officers of the crew, abiding by
the decision of the majority; and if he should have to take a boat he shall take
with him, before anything else, the books and papers, and then the
articles of most value, being obliged to prove in case of the loss of the books
and papers that he did all he could to save them.
16. In case of wreck he shall make the proper protest in due form at the first port
reached, before the competent authority or the Spanish * consul, within
twenty-four hours, stating therein all the incidents of the wreck, in
accordance with case 8 of this article.
17. To comply with the obligations imposed by the laws and rules of navigation,
customs, health, and others.
ARTICLE 613. A captain who navigates for freight in common or on shares can not
make any transaction for his exclusive account, and should he do so the profit shall
belong to the other persons in interest, and the losses shall be for his own exclusive
account.
ARTICLE 614. A captain who, having made an agreement to make a voyage, should
not fulfill his obligation, without being prevented by an accident case or by force
majeure, shall pay for all the losses his action may cause, without prejudice to criminal
penalties which may be proper.
ARTICLE 615. Without the consent of the agent, the captain can not have himself
substituted by another person; and should he do so, besides being liable for all the
acts of the substitute and bound to the indemnities mentioned in the foregoing article,
the substitute as well as the captain may be discharged by the agent.
ARTICLE 616. If the provisions and fuel of the vessel are consumed before arriving
at the port of destination, the captain shall decide, with the consent of the
officers of the same, to make the nearest port to get a supply of either; but if there are
persons on board who have provisions of their own he may force them to turn said
provisions over for the common consumption of all persons on board, paying the price
thereof immediately, or at the latest, at the first port reached.
ARTICLE 617. The captain can not contract loans on respondentia, and should he do
so the contracts shall be void.

Neither can he borrow money on bottomry for his own transactions, except on the
portion of the vessel he owns, provided no money has been previously borrowed on
the whole vessel, and provided there does not exist any other kind of lien or obligation
thereon. When he is permitted to do so, he must necessarily state what interest he has
in the vessel.
In case of violation of this article the principal, interest, and costs shall be charged to
the private account of the captain, and the agent may furthermore have the right to
discharge him.
ARTICLE 618. The captain shall be civilly liable to the agent, and the latter to the
third persons who may have made contracts with the former —
1. For all the damages suffered by the vessel and his cargo by
reason of want of skill or negligence on his part. If a misdemeanor or crime
has been committed he shall be liable in accordance with the Penal Code.
2. For all the thefts committed by the crew, reserving his right of action against
the guilty parties.
3. For the losses, fines, and confiscations imposed an
account of violation of the laws and regulations of customs, police, health,
and navigation.
4. For the losses and damages caused by mutinies on board the vessel, or by
reason of faults committed by the crew in the service and defense of the
same, if he does not prove that he made full use of his authority to prevent
or avoid them.
5. For those arising by reason of an undue use of powers and non-
fulfillment of the obligations which are his in accordance with Articles 610
and 612.
6. For those arising by reason of his going out of his course or taking a course
which he should not have taken without sufficient cause, in the
opinion of the officers of the vessel, at a meeting with the shippers or
supercargoes who may be on board.
No exception whatsoever shall exempt him from this obligation.
7. For those arising by reason of his voluntarily entering a port other than his
destination, with the exception of the cases or without the formalities
referred to in Article 612.
8. For those arising by reason of the non-observance of the provisions
contained in the regulations for lights and evolutions for the
purpose of preventing collisions.
ARTICLE 619. The captain shall be liable for the cargo from the time it is turned over
to him at the dock, or afloat alongside the ship, at the port of loading until he delivers
it on the shores or on the discharging wharf, of the port of unloading unless the
contrary has been expressly agreed upon.
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ARTICLE 620. The captain shall not be liable for the damages caused to the vessel
or to the cargo by reason of force majeure; but he shall always be so — no agreement
to the contrary being valid — for those arising through his own fault.
Neither shall he be personally liable for the obligations he may have contracted for the
repair, equipment, and provisioning of the vessel, which shall be incurred by the agent,
unless the former has expressly bound himself personally or signed a draft or
promissory note in his name.
ARTICLE 621. A captain who borrows money on bottomry, or who pledges or sells
merchandise or provisions in other cases and without the formalities prescribed in
this Code, shall be liable for the principle, interest, and costs, and shall indemnify for
the damages he may cause.
The captain who commits fraud in his accounts shall reimburse the amount defrauded,
and shall be subject to the provisions contained in the Penal Code.
ARTICLE 622. If when on a voyage the captain should receive news of the
appearance of privateers or men of war against his flag, he shall be obliged to make
the nearest neutral port, inform his agent or shippers, and await an occasion to sail
under convoy or until the danger is over or to receive final orders from the agent or
shippers.
ARTICLE 623. If he should find himself being attacked by a privateer and after
having done all that was possible to avoid the encounter and have resisted the
delivery of the equipment of the vessel or of its cargo, they should be forcibly taken
away from him, or he should be obliged to deliver them, he shall make an entry in his
freight book and shall prove the fact before the competent authority at the first port he
touches.
After the force majeure has been proven, he shall be exempted from liability.
ARTICLE 624. A captain whose vessel has gone through a hurricane or who believes
that the cargo has suffered damages or averages, shall make a protest thereon before
the competent authority at the first port he touches within the twenty-four hours
following his arrival, and shall ratify it within the same period when he arrives at the
place of his destination, immediately preceding with the proof of the facts, it not being
permitted to open the hatches until this has been done.
The captain shall proceed in the same manner if, the vessel having been wrecked, he
is saved alone or with part of his crew, in which case he shall appear before the nearest
authority, and make a sworn statement of the facts.
The authority or the consul abroad shall verify the said facts, receiving a sworn
statement of the members of the crew and passengers who may have been saved, and
taking the other steps which may assist in arriving at the facts, drafting a
certificate of the result of the proceedings in the log book and in that of the sailing
mate, and shall deliver the original records of the proceedings to the captain, stamped
and folioed, with a memorandum of the folios, which he must rubricate, for their
presentation to the judge or court of the port of destination.
The statement of the captain shall be believed if it is in accordance with those of the
crew and passengers; if they disagree, the latter shall be accepted, unless there is proof
to the contrary.
ARTICLE 625. The captain, under his personal liability, as soon as he arrives at the
port of destination, obtains the necessary permission from the health and customs
officers and fulfills the other formalities required by the regulations of the
administration, shall turn over the cargo, without any defalcation, to the consignees,
and, in a proper case, the vessel, rigging, and freights to the agent.
If, by reason of the absence of the consignee or on account of the nonappearance of a
legal holder of the invoices, the captain does not know to whom he is to make the legal
delivery of the cargo, he shall place it at the disposal of the proper judge or court or
authority, in order that he may decide with regard to its deposit, preservation, and
custody.
SECTION III
Officers and Crews of Vessels
ARTICLE 626. In order to be a sailing mate it shall be necessary:
1. To have the conditions required by the marine or navigation laws or
regulations.
2. Not to be disqualified in accordance therewith for the discharge of the
position.
ARTICLE 627. The sailing mate, as the second chief of the vessel and unless the
agent orders otherwise, shall take the place of the captain in cases of absence, sickness,
or death, and shall then assume all his powers, obligations, and responsibilities.
ARTICLE 628. The sailing mate must supply himself with charts of the waters which
are to be navigated, with the maps and quadrants or sextants which are in use and
which are necessary for the discharge of his duties, being liable for the accidents which
may arise by reason of his fault in this matter.
ARTICLE 629. The sailing mate shall personally and specially keep a book folioed
and stamped on all its pages, called the "binnacle book", with a memorandum at the
beginning stating the number of folios it contains, signed by the competent authority,
and shall enter therein daily the distance and course travelled, the variations of the
needle, the leeway, the direction and force of the wind, the condition of the
atmosphere and of the sea, the rigging set, the latitude and longitude observed, the
number of furnaces fired, the steam pressure, the number of revolutions, and under the
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name of "incidents" the revolutions made, the meetings with other vessels, and all the
particulars and accidents which may occur during the voyage.
ARTICLE 630. In order to change the course and to take the one most convenient for
a good voyage of the vessel, the sailing mate shall come to an agreement with the
captain. If the latter should object, the sailing mate shall make the remarks he may
consider necessary in the presence of the other officers of the vessel. If the captain
should still insist on his objection, the sailing mate shall make the proper protest,
signed by him and by another one of the officers in the log book, and shall obey the
captain, who shall be the only one liable for the consequences of his order.
ARTICLE 631. The sailing mate shall be liable for all the damages suffered by the
vessel and cargo by reason of his negligence or want of skill, without prejudice to the
criminal liability which may arise, if a felony or misdemeanor were committed. aisadc
ARTICLE 632. It shall be the duty of the second mate:
1. To watch over the preservation of the hull, and rigging of the vessel, and to
take charge of the tackle and equipment which make up her outfit, suggesting
to the captain the repairs necessary and the replacement of the goods and
implements which are rendered useless and lost.
2. To take care that the cargo is well arranged, keeping the vessel always ready
for evolutions.
3. To preserve order, discipline, and good service among the crew, requesting
the necessary orders and instructions of the captain, and quickly informing
him of any occurrence in which the intervention of his authority may be
necessary.
4. To assign to each sailor the work he is to do on board, in accordance with the
instructions received, and see that it is exactly and carefully carried out.
5. To take charge by inventory of the rigging and all the equipments of the
vessel, if it should be laid up, unless the agent has ordered otherwise.
With regard to engineers the following rules shall govern:
1. In order to be taken on board as a marine engineer forming part of the
complement of a merchant vessel it shall be necessary to possess the
qualifications which the laws and regulations require, and not to be
disqualified in accordance therewith to hold said position. Engineers shall be
considered as officers of the vessel, but they shall exercise no command nor
intervention except that which refers to the motive power.
2. When there are two or more engineers on one vessel, one of them shall be the
chief, and the other engineers and all the personnel of the engines shall be
under his orders; he shall furthermore have the motive power under his charge,
as well as the spare pieces, instruments, and implements belonging thereto, the
fuel, the lubricating material and, finally, all which comes under the
jurisdiction of an engineer on board a vessel.
3. He shall keep the engines and boilers in good condition and in
state of cleanliness, and shall order what may be proper in order that they may
always be ready for regular use, being liable for the accidents or damages
 which may arise by reason of his want of skill or negligence to the motive
apparatus, or to the vessel and cargo, without prejudice to the criminal liability
which may be proper if a felony or misdemeanor is proven.
4. He shall make no change in the motive apparatus, nor shall he repair the
averages he may have noticed in the same, nor change the normal speed of its
movement without the prior authority of the captain, to whom, if he should
object to their being made, he shall state the reasons he may deem proper in
the presence of the other engineers or officers; and if, notwithstanding this, the
captain should insist on his objection, the chief engineer shall make the proper
protest, entering the same in the engine book, and shall obey the captain, who
shall be the only one liable for the consequences of his order.
5. He shall inform the captain of any average which may occur to the motive
apparatus, and shall inform him when it may be necessary to stop the engines
for some time, or when any other incident occurs in his department of which
the captain should be immediately informed, frequently advising him
furthermore of the consumption of fuel and lubricating material.
6. He shall keep a book or registry called the "Engine Book," in which there shall
be entered all the data that refer to the work of the engines, such as, for
example, the number of furnaces fired, the steam pressure in the boilers and
cylinders, the vacuum in the condenser, the temperatures, the
degree of saturation of the water, the consumption of fuel and lubricating
material, and under the heading of "Noteworthy occurrences" the average and
imperfections which occur in the engines and boilers, the causes therefor, and
the means employed to repair the same. There shall also be stated, taking the
information from the binnacle book, and direction of the wind, the rigging set,
and the speed of the vessel.
ARTICLE 633. The second mate shall take command of the vessel in case of the
impossibility or disability of the captain and sailing mate, assuming in such case their
powers and liability.
ARTICLE 634. The captain may make up his crew with the number he may consider
advisable, and in the absence of Spanish sailors he may ship foreigners residing in the
country, the number thereof not to exceed one-fifth of the total crew. If in foreign ports
the captain should not find a sufficient number of Spanish sailors, he may make up the
crew with foreigners, with the consent of the consul or marine authorities.
The agreements which the captain may make with the members of the crew and others
who go to make up the complement of the vessels, to which reference is made in
Article 612, must be reduced to writing in the account book without the
intervention of a notary public or clerk, signed by the parties thereto, and vised by the
marine authority if they are executed in Spanish territory, or by the consuls or consular
agents of Spain if executed abroad, stating therein all the obligations which each one
contracts and all the rights they acquire, said authorities taking care that these
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obligations and rights are recorded in a concise and clear manner, which will not give
rise to doubts or claims.
The captain shall take care to read to them the articles of this Code, which concern
them, stating that they were read in the said document.
If the book includes the requisites prescribed in Article 612, and there should not
appear any signs of alterations in its clauses, it shall be admitted as evidence in
questions which may arise between the captain and the crew with regard to the
agreements contained therein and the amounts paid on account of the same.
Every member of the crew may request a copy of the captain, signed by the
latter, of the agreement and of the liquidation of his wages, as they appear in the book.
ARTICLE 635. A sailor who has been contracted to serve on a vessel can not rescind
his contract nor fail to comply therewith except by reason of a legitimate impediment
which may have occurred.
Neither can he pass from the service of one vessel to another without obtaining the
written consent of the vessel on which he may be.
If, without obtaining said permission, the sailor who has signed for one vessel should
sign for another one, the second contract shall be void, and the captain may choose
between forcing him to fulfill the service to which he first bound himself or look for a
person to substitute him at his expense.
Said sailor shall furthermore lose the wages earned on his first contract to the
benefit of the vessel for which he may have signed.
A captain who, knowing that a sailor is in the service of another vessel, should have
made a new agreement with him, without having requested the permission referred to
in the foregoing paragraphs, shall be personally liable to the captain of the vessel to
which the sailor first belonged for that part of the indemnity, referred to in the third
paragraph of this article, which the sailor could not pay.
ARTICLE 636. Should a fixed period for which a sailor has signed not be stated, he
can not be discharged until the end of the return voyage to the port where he enrolled.
ARTICLE 637. Neither can the captain discharge a sailor during the time of his
contract except for sufficient cause, the following being considered as such:
1. The perpetration of a crime which disturbs order on the vessel.
2. Repeated offenses of insubordination, against discipline, or against the
fulfillment of the service.
3. Repeated incapacity or negligence in the fulfillment of the service to be
rendered.
4. Habitual drunkenness.
 5. Any occurrence which incapacitates the sailor to carry out the work under his
charge, with the exception of the provisions contained in Article 644.
6. Desertion.
The captain may, however, before setting out on a voyage and without giving any
reason whatsoever, refuse to permit a sailor he may have engaged from going on board
and may leave him on land, in which case he will be obliged to pay him his wages as
if he had rendered services.
This indemnity shall be paid from the funds of the vessel if the captain should have
acted for reasons of prudence and in the interest of the safety and good service of the
former. Should this not be the case, it shall be paid by the captain personally.
After the vessel has sailed, and during the voyage and until the conclusion thereof, the
captain can not abandon any member of his crew on land or on the sea, unless, by
reason of being guilty of some crime, his imprisonment and delivery to the competent
authority is proper in the first port touched, which will be obligatory on the captain.
ARTICLE 638. If, the crew having been engaged, the voyage is revoked by the
will of the agent or of the charterers before or after the vessel has put to sea or if the
vessel is in the same manner given a different destination than that fixed in the
agreement with the crew, the latter shall be indemnified because of the
rescission of the contract according to the case, viz:
1. If the revocation of the voyage should be decided before the departure of the
vessel from the port, each sailor engaged shall be given one month's salary,
besides what may be due him in accordance with his contract, for the services
rendered to the vessel up to the date of the revocation.
2. If the agreement should have been for a fixed amount for the whole voyage,
there shall be graduated what may be due for said month and days, calculating
the same in proportion to the estimated duration of the voyage, in the
judgment of experts, in the manner established in the law of civil procedure;
and if the proposed voyage should be of such short duration that it is calculated
at one month more or less, the indemnity shall be fixed for fifteen days,
discounting in all cases the sums advanced.
3. If the revocation should take place after the vessel has put to sea, the sailors
engaged for a fixed amount for the voyage shall receive the salary which may
have been offered them in full as if the voyage had terminated, and those
engaged by the month shall receive the amount corresponding to the time they
might have been on board and to the time they may require to arrive at the
port of destination, the captain being obliged, furthermore, to pay said sailors
the passage to the said port or to the port of sailing of the vessel, as may be
convenient for them.
4. If the agent or the charterers of the vessel should give said vessel a destination
other than that fixed in the agreement, and the members of the crew should not
agree thereto, they shall be given by way of indemnity half the amount fixed
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in case No. 1, besides what may be owed them for the part of the monthly
wages corresponding to the days which have elapsed from the date of their
agreements.
If they accept the change, and the voyage, on account of the greater distance or for
other reasons, should give rise to an increase of wages, the latter shall be privately
regulated, or through amicable arbitrators in case of disagreement. Even though the
voyage may be to a nearer point, this shall not give rise to a reduction in the wages
agreed upon.
If the revocation or change of the voyage should originate from the shippers or
charterers, the agent shall have a right to demand of them the indemnity which is justly
due.
ARTICLE 639. If the revocation of the voyage should arise from a just cause
independent of the will of the agent or charterers, and the vessel should not have left
the port, the members of the crew shall not have any other right than to receive the
wages earned up to the day on which the revocation took place.
ARTICLE 640. The following shall be just causes for the revocation of the voyage:
1. A declaration of war or interdiction of commerce with the power to whose
territory the vessel was bound.
2. The blockade of the port of destination or the breaking out of an epidemic
after the agreement.
3. The prohibition to receive in said port the goods which make up the
cargo of the vessel.
4. The detention or embargo of the same by order of the Government, or for any
other reason independent of the will of the agent.
5. The inability of the vessel to navigate.
ARTICLE 641. If, after a voyage has been begun, any of the first three causes
mentioned in the foregoing article should occur, the sailors shall be paid at the port the
captain may deem it advisable to make for the benefit of the vessel and cargo,
according to the time they may have served thereon; but if the vessel is to continue the
voyage, the captain and the crew may mutually demand the enforcement of the
contract.
In case of the occurrence of the fourth cause, the crew shall continue to be paid half
wages, if the agreement is by month but if the detention should exceed three months,
the engagement shall be rescinded and the crew shall be paid what they should have
earned, according to the contract, if the voyage had been made. And if the agreement
had been made for a fixed sum for the voyage, the contract must be complied within
the terms agreed upon.
In the fifth case, the crew shall not have any other right than be entitled to recover the
wages earned; but if the disability of the vessel should have been caused by the
negligence or lack of skill of the captain, engineer, or sailing mate, they shall
indemnify the crew for the loss suffered, always reserving the criminal liability which
may be proper.
ARTICLE 642. If the crew has been engaged to work on shares they shall not be
entitled, by reason of the revocation, delay, or greater extension of the voyage, to
anything but the proportionate part of the indemnity paid into the common funds of the
vessel by the persons liable for said occurrences.
ARTICLE 643. If the vessel and her freight should be totally lost, by
reason of capture or wreck, all rights of the crew to demand any wages whatsoever
shall be extinguished, as well as that of the agent for the recovery of the advances
made.
If a portion of the vessel or freight should be saved, or part of either, the crew engaged
on wages, including the captain, shall retain their rights on the salvage, so far as they
go, on the remainder of the vessel as well as value of the freightage or the cargo saved;
but sailors who are engaged on shares shall not have any right whatsoever to the
salvage of the hull, but only on the portion of the freightage saved. If they should have
worked to collect the remainder of the ship-wrecked vessel, they shall be given an
award in proportion to the efforts made and to the risks encountered in order to
accomplish the salvage.
ARTICLE 644. A sailor who falls sick shall not lose his right to wages during the
voyage, unless the sickness is the result of his own fault. At any rate, the costs of the
attendance and cure shall be defrayed from the common funds, in the form of a loan.
If the sickness should be caused by an injury received in the service or defense of the
vessel the sailor shall be attended and cured from the common funds, there being
deducted before anything else from the proceeds of the freight, the cost of the
attendance and cure.
ARTICLE 645. If a sailor should die during the voyage his heir shall be given the
wages earned and not received, according to his engagement and the reason for his
death, namely —
If he should have died a natural death and should have been engaged on wages there
shall be paid what may have been earned up to the date of his death.
If the engagement had been made for a fixed sum for the whole voyage there shall be
paid half the amount earned if the sailor died on the voyage out, and the whole amount
if he died on the return voyage.
And if the engagement had been made on shares and the death should have occurred
after the voyage was begun, the heirs shall be paid the entire portion due the sailor; but
should the latter have died before the departure of the vessel from the port, the heirs
shall not be entitled to claim anything.
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If the death should have occurred in the defense of the vessel, the sailor shall be
considered as living, and his heirs shall be paid, at the end of the voyage, the full
amount of wages or the full part of the profits due him as to the others of his grade.
The sailor shall likewise be considered as present in the event of his capture when
defending the vessel, in order to enjoy the same benefits as the rest; but should he have
been captured on account of carelessness or other accident not related to the service,
he shall only receive the wages due up to the day of his capture.
ARTICLE 646. The vessel with her engines, rigging, equipment, and freights shall be
liable for the wages earned by the crew engaged per month or for the trip, the
liquidation and payment ought to take place between one voyage and the other.
After a new voyage has been undertaken, credits such as the former shall lose their
right of preference.
ARTICLE 647. The officers and the crew of the vessel shall be exempted from all
obligations contracted, if they deem it proper, in the following cases:
1. If, before the beginning of the voyage, the captain attempts to change it, or
there occurs a naval war with the power to which the vessel was destined.
2. If a disease should break out and be officially declared epidemic in the
port of destination.
3. If the vessel should change owner or captain.
ARTICLE 648. By the complement of a vessel shall be understood all the persons
embarked, from the captain to the cabin boy, necessary for the management,
evolutions, and service, and there shall, therefore, be understood as included in the
complement the crew, sailing mates, engineers, stokers, and other persons not having
a specific name; but there shall not be included the passengers nor the persons the
vessel is only transporting.
SECTION IV
Supercargoes
ARTICLE 649. Supercargoes shall discharge on board the vessel the administrative
duties which the agent or shippers may have assigned them; they shall keep an account
and record of their transactions in a book which shall have the same conditions and
requisites as required for the accounting book of the captain, and shall respect the latter
in his duties as chief of the vessel.
The powers and liabilities of the captain shall cease, when there is a supercargo, with
regard to that part of the administration legitimately conferred upon the latter, but shall
continue in force for all acts which are inseparable from his authority and office.
ARTICLE 650. All the provisions contained in the second section of Title III, Book
II, with regard to qualifications, manner of making contracts, and liabilities of factors
shall be applicable to supercargoes.
ARTICLE 651. Supercargoes can not, without special authorization or agreement,
make any transaction for their own account during the voyage, with the
exception of the ventures which, in accordance with the custom of the
port of destination, they are permitted to do.
Neither shall they be permitted to invest in the return trip more than the profits from
the ventures, unless there is a special authorization thereto from the principals.
TITLE III
Special Contracts of Maritime Commerce
SECTION I
Charter Parties
1. Forms and Effects of Charter Parties
ARTICLE 652. A charter party must be drawn in duplicate and signed by the
contracting parties, and when either does not know how or can not do so, by two
witnesses at their request.
The charter party shall include, besides the conditions unrestrictedly stipulated, the
following statements:
1. The kind, name, and tonnage of the vessel.
2. Her flag and port of registry.
3. The name, surname, and domicile of the captain.
4. The name, surname, and domicile of the agent, if the latter should make the
charter party.
5. The name, surname, and domicile of the charterer, and if he states that he is
acting by commission, that of the person for whose account he makes the
contract.
6. The port of loading and unloading.
7. The capacity, number of tons or weight, or measure which they respectively
bind themselves to load and transport, or whether it is the total cargo.
8. The freightage to be paid, stating whether it is to be a fixed amount for the
voyage or so much per month, or for the space to be occupied, or for the
weight or measure of the goods of which the cargo consists, or in any other
manner whatsoever agreed upon.
9. The amount of primage to be paid to the captain.
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10. The days agreed upon for loading and unloading.
11. The lay days and extra lay days to be allowed and the rate of demurrage.
ARTICLE 653. If the freight should be received without the charter party having been
signed, the contract shall be understood as executed in accordance with what appears
in the bill of lading, which shall be the only instrument with regard to the freight to
determine the rights and obligations of the owner, of the captain, and of the charterer.
ARTICLE 654. The charter parties executed with the intervention of a broker, who
certifies to the authenticity of the signatures of the contracting parties made in his
presence, shall be full evidence in court; and if said signatures should not agree the
ones identical with the signatures the broker must keep in his registry, if kept in
accordance to law, shall be final.
The contracts shall also be admitted as evidence, even though a broker has not taken
part therein, if the contracting parties acknowledge the signatures to be the same as
their own.
Should no broker have taken part in the charter party and should the signatures not
have been acknowledged, doubts shall be decided by what is provided for in the
bill of lading, and in the absence thereof by the proofs submitted by the parties.
ARTICLE 655. Charter parties executed by the captain in the absence of the agent
shall be valid and efficient, even though in executing them he should have acted in
violation of the orders and instructions of the agent or shipowner; but the latter shall
have a right of action against the captain to recover damages.
ARTICLE 656. If in the charter party the time in which the loading and unloading is
to take place is not stated, the customs of the port where these acts take place shall be
observed. After the period stipulated or the customary one has passed, and should there
not be in the freight contract an express clause fixing the indemnification for the delay,
the captain shall be entitled to demand demurrage for the usual and extra lay days
which may have elapsed in loading and unloading.
ARTICLE 657. If during the voyage the vessel should be rendered unseaworthy the
captain shall be obliged to charter another one at his expense, in good condition, to
take the cargo to its destination, for which purpose he shall be obliged to look for a
vessel not only at the port of arrival but in the other ports within a distance of 150
kilometers.
If the captain should not furnish a vessel to take the cargo to its destination, either
through indolence or malice, the freighters, after a demand of the captain to charter a
vessel within an unextendible period, may charter one and apply to the judicial
authority requesting that the charter party which may have been made be immediately
approved.

The same authority shall judicially compel the captain to confirm the charter made by
the shippers for his account and under his responsibility.
If the captain, notwithstanding his efforts, should not find a vessel to charter, he shall
deposit the cargo at the disposal of the freighters, to whom he shall communicate the
facts on the first opportunity presenting itself, the charter being regulated in such cases
by the distance covered by the vessel, there being no right to any indemnification
whatsoever.
ARTICLE 658. The freight shall be paid according to the conditions stipulated in the
contract, and should they not be specific, or should they be ambiguous, the following
rules shall be observed:
1. If the vessel has been chartered by months or by days, the freight shall begin
to run from the day the loading of the vessel is begun.
2. In charters made for a fixed period, the freight shall begin from that very day.
3. If the freight is charged according to weight, the payment shall be made
according to gross weight, including the containers, such as barrels or any
other objects containing the cargo.
ARTICLE 659. The merchandise sold by the captain to pay for the necessary repairs
to the hull, machinery or equipment, or for unavoidable and urgent requirements, shall
pay freight.
The price of this merchandise shall be fixed according to the success of the voyage,
namely:
1. If the vessel should arrive safely at the port of destination, the captain shall
pay the price which the sale of merchandise of the same kind brings at that
port.
2. If the vessel should be lost, the captain shall pay the price said merchandise
would have brought in the sale.
The same rule shall be observed in the payment of the freight which shall be
in full if the vessel arrives at her destination, and in proportion to the distance
covered if she should be lost beforehand.
ARTICLE 660. Merchandise jettisoned for the common safety shall not pay freight;
but its value shall be considered as general average, and shall be computed in
proportion to the distance covered when it was jettisoned.
ARTICLE 661. Neither shall merchandise which was lost by reason of shipwreck or
stranding pay freight, nor that seized by pirates or enemies.
If the freight should have been paid in advance, it shall be returned, unless there was
an agreement to the contrary.
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ARTICLE 662. If the vessel or the merchandise should be recovered, or should the
goods of the shipwreck be picked up, the freight corresponding to the distance covered
by the vessel transporting the cargo shall be paid; and should the vessel be repaired
and transport said merchandise to the port of destination, the full freight shall be paid,
without prejudice to what may be due by reason of the average.
ARTICLE 663. Merchandise which is damaged or reduced on account of its own
defects or bad quality and condition of the packing, or by reason of an accidental case,
shall pay full freight, and as was stipulated in the charter party.
ARTICLE 664. The natural increase in weight or size of the merchandise loaded on
the vessel shall accrue to the benefit of the owner, and shall pay the proper freight
fixed in the contract for the same.
ARTICLE 665. The cargo shall be specially liable for the payment of the freight
expenses, and duties arising therefrom, which must be reimbursed by the shippers, as
well as for the part of the general average which may be due, but it shall not be legal
for the captain to delay unloading on account of delay in complying with this
obligation.
Should there be reasons for distrust, the judge or court, at the instance of the captain,
may order the deposit of the merchandise until he has been paid in full.
ARTICLE 666. The captain may request the sale of the cargo to the amount necessary
to pay the freight, expenses, and averages due him, reserving the right to demand the
balance due him therefor if the proceeds of the sale should not have sufficed to cover
his credit.
ARTICLE 667. The goods loaded shall be liable in the first place for their freight and
expenses during twenty days, to be counted from the date of their delivery or deposit.
During this period, the sale of the same may be requested, even though there be other
creditors and the case of bankruptcy of the freighter or consignee should occur.
This right can not be made use of, however, on the goods which after being delivered,
were turned over to a third person without malice on the part of the latter and for a
valuable consideration.
ARTICLE 668. If the consignee should not be found or should refuse to receive the
cargo, the judge or court, at the instance of the captain, shall order its deposit and the
sale of the merchandise in so far as necessary to pay the freight and other expenses on
the same.
The sale shall likewise take place when the goods deposited run the
risk of deteriorating or by reason of their condition or for other reasons the
expenses of preservation and custody should be disproportionate to the value thereof.

2. Rights and Obligations of Owners
ARTICLE 669. The owners or the captain shall observe in charter parties the
capacity of the vessel or that expressly designated in the registry of the same, a
difference greater than 2 per cent between that stated and her true capacity not being
permissible.
If the owners or the captain should contract to carry a greater amount of cargo than the
vessel can hold, in view of her tonnage, they shall indemnify the freighters whose
contracts they do not fulfill for the losses they may have caused them by reason of their
default, according to the cases, viz:
If the vessel has been chartered by one freighter only, and there should appear to be an
error or fraud in her capacity, and the charterer should not wish to rescind the contract,
when he has a right to do so, the charter should be reduced in proportion to the cargo
the vessel can not receive, the person from whom the vessel is chartered being
furthermore obliged to indemnify the charterer for the losses he may have caused.
If, on the contrary, there should be several charter parties, and by reason of the
want of space all the cargo contracted for can not be received, and none of the
charterers desires to rescind the contract, preference shall be given to the person who
has already loaded and arranged the freight in the vessel, and the rest shall take the
place corresponding to them in the order of the dates of their contracts.
Should there be no priority, the charterers may load, if they wish, pro rata of the
amounts of weight or space they may have engaged, and the person from whom the
vessel was chartered shall be obliged to indemnify them for the loss and damage.
ARTICLE 670. If the person from whom the vessel is chartered, after receiving a
part of the freight, should not find sufficient to make up at least three-fifths of the
amount which the vessel can hold, at the price he may have fixed, he may substitute
for the transportation another vessel inspected and declared suitable for the same
voyage, the expenses of transfer being defrayed by him, as well as the increase, should
there be any, in the price of the charter. Should he not be able to make this change, the
voyage shall be undertaken at the time agreed upon; and should no time have been
fixed, within fifteen days from the time of beginning to load, should nothing to the
contrary have been stipulated.
If the owner of the part of the freight already loaded should procure some more at the
same price and under similar or proportionate conditions to those accepted for the
freight received, the person from whom the vessel is chartered or the captain can not
refuse to accept the rest of the cargo; and should he do so, the freighter shall have a
right to demand that the vessel put to sea with the cargo she may have on board.
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ARTICLE 671. After three-fifths of the vessel is loaded, the person from whom she
is chartered can not, without the consent of the charterers or freighters substitute the
vessel designated in the charter party by another one, under the penalty of making
himself thereby liable for all the losses and damages occurring during the voyage to
the cargo of the person who did not consent to the change.
ARTICLE 672. If the vessel has been chartered in whole, the captain can not, without
the consent of the person chartering her, accept freight from any other person; and
should he do so, said charterer may oblige him to unload it and require him to
indemnify him for the losses suffered thereby.
ARTICLE 673. The person from whom the vessel is chartered shall be liable for all
the losses caused the charterer by reason of the voluntary delay of the captain in
putting to sea, according to the rules prescribed, provided he has been requested to put
to sea at the proper time through a notary or judicially.
ARTICLE 674. If the charterer should carry to the vessel more freight than that
contracted for, the excess may be admitted in accordance with the price stipulated in
the contract, if it can be well stowed without injuring the other freighters, but if in
order to stow said freight it should be necessary to stow it in such manner as to throw
the vessel out of trim the captain must refuse it or unload it at the expense of its owner.
The captain may likewise, before leaving the port, unload the merchandise placed on
board clandestinely, or transport it, if he can do so and keep the vessel in trim,
demanding by way of freightage the highest price which may have been stipulated for
said voyage.
ARTICLE 675. If the vessel has been chartered to receive the cargo in another port,
the captain shall appear before the consignee designated in the charter party, and,
should the latter not deliver the cargo to him, he shall inform the charterer and await
his instructions, and in the meantime the lay days agreed upon shall begin to run, or
those allowed by custom in the port, unless there is a special agreement to the contrary.
Should the captain not receive an answer within the time necessary therefor, he shall
make efforts to find freight; and should he not find any after the lay days and extra lay
days have elapsed, he shall make a protest and return to the port where the charter was
made.
The charterer shall pay the freightage in full, discounting that which may have been
earned on the merchandise which may have been carried on the voyage out or on the
return trip, if carried for the account of third persons.
The same shall be done if a vessel, having been chartered for the round trip, should
not be given any cargo for her return.
ARTICLE 676. The captain shall lose the freightage and shall indemnify the
charterers if the latter should prove, even against the certificate of inspection, should
one have taken place at the port of departure, that the vessel was not in a condition to
navigate at the time of receiving the cargo.
ARTICLE 677. The charter party shall be enforced if the captain should not have any
instructions from the charterer, and a declaration of war or a blockade should take
place during the voyage.
In such case the captain shall be obliged to make the nearest safe and neutral port, and
request and await orders from the freighter; and the expenses incurred and salaries
earned during the detention shall be paid as general average.
If, by orders of the freighter, the cargo should be discharged at the port of arrival, the
freight for the voyage out shall be paid in full.
ARTICLE 678. If the time necessary, in the opinion of the judge or court, in which to
receive orders from the freighters should have elapsed without the captain having
received any instructions, the cargo shall be deposited, and it shall be liable for the
payment of the freight and expenses incurred by reason of the delay which shall be
paid from the proceeds of the part first sold.
3. Obligations of Charterers
ARTICLE 679. The charterer of an entire vessel may subcharter the whole or part
thereof for the amounts he may consider most convenient, without the captain being
allowed to refuse to receive on board the freight delivered by the second charterers,
provided the conditions of the first charter are not changed, and that the person from
whom the vessel is chartered be paid the full price agreed upon even though the full
cargo is not embarked, with the limitation established in the next article.
ARTICLE 680. A charterer who does not make up the full cargo he bound himself to
ship shall pay the freightage of the amount he fails to ship, if the captain did not take
other freight to make up the cargo of the vessel, in which case he shall pay the first
charterer the difference should there be any.
ARTICLE 681. If the charterer should ship goods different from those indicated at
the time of executing the charter party, without the knowledge of the person from
whom the vessel was chartered or of the captain, and should thereby give rise to losses,
by reason of confiscation, embargo, detention, or other causes, to the person from
whom the vessel was chartered or to the shippers, the person giving rise thereto shall
be liable with the value of his shipment and furthermore with his property, for the full
indemnity to all those injured through his fault.
ARTICLE 682. If the merchandise shipped should have been for the
purpose of illicit commerce, and was taken on board with the knowledge of the person
from whom the vessel was chartered or of the captain, the latter, jointly with the
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owner of the same, shall be liable for all the losses which may be caused the other
shippers, and even though it may have been agreed, they can not demand any
indemnity whatsoever of the charterer for the damage caused the vessel.
ARTICLE 683. In case of making a port to repair the hull, machinery, or
equipment of the vessel, the freighters must wait until the vessel is repaired, being
permitted to unload her at their own expense should they deem it advisable.
If, for the benefit of the cargo subject to deterioration, the freighters or the court, or
the consul, or the competent authority in a foreign land should order the merchandise
to be unloaded, the expenses of loading and unloading shall be for the account of the
former.
ARTICLE 684. If the charterer, without the occurrence of any of the cases of force
majeure mentioned in the foregoing article, should wish to unload his merchandise
before arriving at the port of destination, he shall pay the full freight, the
expenses of the stop made at his request, and the losses and damages caused the other
freighters, should there be any.
ARTICLE 685. In charters for transportation of general freight any of the freighters
may unload the merchandise before the beginning of the voyage, by paying one-half
the freight, the expense of stowing and restowing the cargo, and any other damage
which may be caused the other shippers.
ARTICLE 686. After the vessel has been unloaded and the cargo placed at the
disposal of the consignee, the latter must immediately pay the captain the freight due
and the other expenses to which he may be liable for said cargo.
The primage must be paid in the same proportion and at the same time as the freight,
all the changes and modifications to which the latter should be subject also governing
the former.
ARTICLE 687. The charters and freighters can not abandon merchandise damaged
on account of the inherent vice of the goods or by reason of an accidental case, for the
payment of the freight and other expenses.
The abandonment shall be proper, however, if the cargo should consist of liquids and
should they have leaked out, there not remaining in the containers more than one-
quarter of their contents.
4. Total or Partial Rescissions of Charter Parties
ARTICLE 688. A charter party may be annulled at the request of the charterer:
1. If before loading the vessel he should abandon the charter, paying half of the
freightage agreed upon.
 2. If the capacity of the vessel should not agree with that stated in the
certificate of the tonnage, or if there is an error in the statement of the flag
under which she sails.
3. If the vessel should not be placed at the disposal of the charterer within the
period and in the manner agreed upon.
4. If, after the vessel has put to sea, she should return to the port of departure,
on account of risk of pirates, enemies, or bad weather, and the freighters
should agree to unload her.
5. In the second and third cases the person from whom the vessel was chartered
shall indemnify the charterer for the losses he may suffer.
6. In the fourth case the person from whom the vessel was chartered shall have
a right to the freightage in full for the voyage out.
7. If the charter should have been made by the months, the charterers shall pay
the full freightage for one month, if the voyage were to a port in the same
waters, and two months, if the voyage were to a port in different waters.
8. From one port to another of the Peninsula and adjacent islands, the freightage
for one month only shall be paid.
5. If a vessel should make a port during the voyage in order to make urgent
repairs and the freighters should prefer to dispose of the merchandise.
9. When the delay does not exceed thirty days, the freighters shall pay the full
freight for the voyage out.
10. Should the delay exceed thirty days, they shall only pay the freight in
proportion to the distance covered by the vessel.
ARTICLE 689. At the request of the person from whom the vessel is chartered the
charter party may be rescinded:
1. If the charterer at the termination of the extra lay days does not place the
cargo alongside the vessel.
In such case the charterer must pay half the freight stipulated besides the
demurrage for the lay days and extra lay days elapsed.
2. If the person from whom the vessel was chartered should sell her before the
charterer has begun to load her and the purchaser should load her for his own
account.
In such case the vendor shall indemnify the charterer for the losses he may
suffer.
If the new owner of the vessel should not load her for his own account the
charter party shall be respected, and the vendor shall indemnify the purchaser
if the former did not inform him of the charter pending at the time of making
the sale.
ARTICLE 690. The charter party shall be rescinded and all action arising therefrom
shall be extinguished if, before the vessel puts to sea from the port of departure,
any of the following cases should occur:
1. A declaration of war or interdiction of commerce with the power to whose
ports the vessel was going to sail.
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2. A condition of blockade of the port of destination of said vessel, or the
breaking out of an epidemic after the contract was executed.
3. The prohibition to receive the merchandise of the vessel at the said port.
4. An indefinite detention, by reason of an embargo of the vessel by order of the
government or for any other reason independent of the will of the agent.
5. The impossibility of the vessel to navigate, without fault of the captain or
agent.
The unloading shall be made for the account of the charterer.
ARTICLE 691. If the vessel can not put to sea on account of the closing of the
port of departure, or any other temporary cause, the charter shall be in force without
any of the contracting parties having a right to claim damages.
The subsistence and wages of the crew shall be considered as general average.
During the interruption the charterer may, at the proper time and for his own account,
unload and load the merchandise, paying demurrage if the reloading should continue
after the reason for the detention has ceased.
ARTICLE 692. A charter party shall be partially rescinded, unless there is an
agreement to the contrary, and the captain shall only be entitled to the freight for the
voyage out, if, by reason of a declaration of war, closing of ports, or
interdiction of commercial relations during the voyage, the vessel should make the
port designated for such a case in the instructions of the charterer.
5. Passengers on Sea Voyages
ARTICLE 693. Should the passage price not have been agreed upon, the judge or
court shall summarily fix it, after a statement of experts.
ARTICLE 694. Should the passenger not arrive on board at the time fixed, or should
leave the vessel without permission from the captain, when the latter is ready to leave
the port, the captain may continue the voyage and demand the full passage price.
ARTICLE 695. The right to passage, if issued to a specified person, can not be
transferred without the consent of the captain or of the consignee.
ARTICLE 696. If before beginning the voyage the passenger should die, his heirs
shall only be obliged to pay half of the passage agreed upon.
If there should be understood in the price stipulated the expenses of subsistence, the
judge, or court, hearing experts if he considers it necessary, shall fix the amount to be
paid the vessel.
Should another passenger be received in the place of the deceased, nothing shall be
paid by said heirs.
ARTICLE 697. If before beginning the voyage it should be suspended through the
sole fault of the captain or agent, the passengers shall be entitled to have their passage
refunded and to recover for losses and damages; but if the suspension was due to an
accidental cause, or to force majeure, or to any other cause beyond the control of the
captain or agent, the passengers shall only be entitled to the return of the passage
money.
ARTICLE 698. In case a voyage already begun should be interrupted the passengers
shall be obliged only to pay the passage in proportion to the distance covered, and shall
not be entitled to recover for losses and damages if the interruption is due to an
accidental cause or to force majeure, but have a right to indemnity if the interruption
should have been caused by the captain exclusively. If the interruption should be by
reason of the disability of the vessel, and the passenger should agree to await her
repair, he can not be required to pay any increased price of passage, but his living
expenses during the delay shall be for his own account.
In case the departure of the vessel is delayed the passengers have a right to remain on
board and to be furnished with food for the account of the vessel, unless the delay is
due to an accidental cause or to force majeure. If the delay should exceed ten days, the
passengers who request it shall be entitled to the return of the passage; and if it were
due exclusively to the captain or agent they may furthermore demand indemnity for
losses and damages.
A vessel which is exclusively destined to the transportation of passengers must take
them directly to the port or ports of destination, no matter what the
number of passengers may be, making all the stops indicated in her itinerary.
ARTICLE 699. After the contract has been rescinded, before or after the
commencement of the voyage, the captain shall have a right to claim payment for what
he may have furnished the passengers.
ARTICLE 700. In all that relates to the preservation of order and police on board the
vessel the passengers shall conform to the orders given by the captain, without any
distinction whatsoever.
ARTICLE 701. The convenience or the interest of the passengers shall not obligate
nor empower the captain to stand in shore or enter places which may take the vessel
out of her course, nor to remain in the ports he must or is under the
necessity of touching for a period longer than that required for the business of the
navigation.
ARTICLE 702. In the absence of an agreement to the contrary, it shall be understood
that the maintenance of the passengers during the voyage is included in the price of the
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passage; but should said maintenance be for the account of the latter, the captain shall
be under the obligation, in case of necessity, to furnish them the victuals at a
reasonable price necessary for their maintenance.
ARTICLE 703. A passenger shall be looked upon as a shipper in so far as the goods
he carries on board are concerned, and the captain shall not be liable for what said
passenger may preserve under his immediate and special custody unless the damage
arises from an act of the captain or of the crew.
ARTICLE 704. The captain, in order to collect the price of the passage and
expenses of maintenance, may retain the goods belonging to the passenger, and in
case of the sale of the same he shall be given preference over the other creditors, acting
in the same way as in the collection of freight.
ARTICLE 705. In case of the death of a passenger during the voyage the captain is
authorized, with regard to the body, to take the steps required by the circumstances,
and shall carefully take care of the papers and goods there may be on board belonging
to the passenger, observing the provisions of Case No. 10 of Article 612 with regard
to members of the crew.
6. Bills of Lading
ARTICLE 706. The captain and the freighter of the vessel are obliged to draft the
bill of lading, in which there shall be stated:
1. The name, registry, and tonnage of the vessel.
2. The name of the captain and his domicile.
3. The port of loading and that of unloading.
4. The name of the shipper.
5. The name of the consignee, if the bill of lading is issued to order.
6. The quantity, quality, number of packages, and marks of the merchandise.
7. The freight and the primage stipulated.
The bill of lading may be issued to bearer, to order, or in the name of a specific person,
and must be signed within twenty-four hours after the cargo has been received on
board, the freighter being able to request the unloading thereof at the expense of the
captain should he not sign it, and in every case indemnity for the losses and damages
suffered thereby.
ARTICLE 707. Four true copies of the original bill of lading shall be made,
all of which shall be signed by the captain and by the freighter. Of these copies the
freighter shall keep one and send another to the consignee; the captain shall take two,
one for himself and another for the agent.
There may, furthermore, be made as many copies of the bill of lading as may be
considered necessary by the persons interested; but when they are issued to order or to
the bearer there shall be stated in all the copies, be they either of the first four or of the
subsequent ones, the destination of each one, stating whether it is for the agent, for the
captain, for the freighter, or for the consignee. If the copy sent to the latter should be
duplicated there must be stated in said duplicate this fact, and that it is not valid except
in case of the loss of the first one.
ARTICLE 708. The bills of lading issued to the bearer sent to the consignee shall be
transferable by the actual delivery of the instrument; and by virtue of an indorsement,
those issued to order.
In either case, the person to whom the bill of lading is transferred shall acquire all the
rights and actions of the assignor or indorser with regard to the merchandise mentioned
in the same.
ARTICLE 709. A bill of lading drawn up in accordance with the provisions of this
title shall be proof as between all those interested in the cargo and between the latter
and the underwriters, proof to the contrary being reserved by the latter.
ARTICLE 710. Should the bills of lading not agree, and there should not be observed
any correction or erasure in any of them, those possessed by the freighter or consignee
signed by the captain shall be proof against the captain or agent in favor of the
consignee or freighter; and those possessed by the captain or agent signed by the
freighter shall be proof against the freighter or consignee in favor of the captain or
agent.
ARTICLE 711. The legitimate holder of a bill of lading who does not present it to the
captain of the vessel before her unloading, obliging the latter thereby to unload it and
place it in deposit, shall be liable for the cost of warehousing and other expenses
arising therefrom.
ARTICLE 712. The captain can not himself change the destination of merchandise.
In admitting this change at the instance of the freighter, he must first take up the
bills of lading he may have issued, under the penalty of being liable for the cargo to
the legitimate holder of the same.
ARTICLE 713. If before delivering the cargo a new bill of lading should be
demanded of the captain, it being alleged that the previous ones are not presented on
account of their loss or for any other sufficient cause, he shall be obliged to issue it,
provided security for the value of the cargo is given to his satisfaction; but without
changing the consignment and stating therein the circumstances prescribed in the last
paragraph of Article 707, when the bills of lading referred to therein are in question,
under the penalty otherwise to be liable for said cargo if not properly delivered through
his fault.
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ARTICLE 714. If before the vessel puts to sea the captain should die or should
discontinue in his position through any accident, the freighters shall have a right to
demand of the new captain the ratification of the first bills of lading, and the latter
must do so, provided all the copies previously issued be presented or returned to him,
and it should appear from an examination of the cargo that they are correct.
The expenses arising from the examination of the cargo shall be defrayed by the agent,
without prejudice to the right of action of the latter against the first captain, if he
ceased to be such through his own fault. Should said examination not be made, it shall
be understood that the new captain accepts the cargo as it appears from the
bills of lading issued.
ARTICLE 715. Bills of lading will give rise to a most summary action or to judicial
compulsion, according to the case, for the delivery of the cargo and the payment of the
freightage and proper expenses.
ARTICLE 716. If several persons should present bills of lading issued to bearer or to
order, indorsed in their favor, demanding the same merchandise, the captain shall
prefer in delivering the same, the person presenting the copy first issued, with the
exception of the case when the latter one was issued on account of the loss of the first
one, and if they are held by different persons.
In such case, as well as when only second or subsequent copies issued without this
proof are presented, the captain shall apply to the judge or court, so that he may order
the deposit of the merchandise, and that through him it may be delivered to the proper
person.
ARTICLE 717. The delivery of the bill of lading shall effect the cancellation of all
the provisional receipts of prior date given by the captain or his subalterns for partial
deliveries of the cargo which may have been made.
ARTICLE 718. After the cargo has been delivered, the bills of lading which the
captain signed shall be returned to him, or at least the copy by reason of which the
delivery is made, with the receipt for the merchandise mentioned therein.
The delay on the part of the consignee shall make him liable for the damages which
may be caused the captain thereby.
SECTION II
Loans on Bottomry and Respondentia
ARTICLE 719. A loan on bottomry or respondentia shall be considered that which
the repayment of the sum loaned and the premium stipulated, under any condition
whatsoever, depends on the safe arrival in port of the goods on which it is made,
or of their value in case of accident.
ARTICLE 720. Loans on bottomry or respondentia may be executed:
1. By means of a public instrument.
2. By means of a bond signed by the contracting parties and the broker who took
part therein.
3. By means of a private instrument.
Under whichever of these forms the contract is executed, it shall be entered in the
certificate of the registry of the vessel and shall be recorded in the commercial
registry, without which requisites the credits originating from the same shall not have,
with regard to other credits, the preference which, according to their nature, they
should have, although the obligation shall be valid between the contracting parties.
The contracts made during a voyage shall be governed by the provisions of Articles
583 and 611, and shall be effective with regard to third persons from the date of their
execution, if they should be recorded in the commercial registry of the
port of registry of the vessel before eight days have elapsed from the date of her
arrival. If said eight days should elapse without the record having been made in the
commercial registry, the contracts made during the voyage of a vessel shall not have
any effect with regard to third persons, except from the day and date of their entry.
In order that the bonds of the contracts celebrated in accordance with No. 2 may have
legal force, they must conform to the registry of the broker who took part therein. In
those celebrated in accordance with No. 3 the acknowledgment of the signature must
precede.
Contracts which are not reduced to writing shall not be the basis for a judicial action.
ARTICLE 721. In a bottomry or respondentia bond there must be stated:
1. The kind, name, and registry of the vessel.
2. The name, surname, and domicile of the captain.
3. The names, surnames, and domicile of the person giving and of the person
receiving the loan.
4. The amount of the loan and the premium stipulated.
5. The time for repayment.
6. The goods pledged to secure repayment.
7. The voyage for which the risk is run.
ARTICLE 722. The bonds may be issued to order, in which case they shall be
transferable by indorsement, and the assignee shall acquire all the rights and run all
the risks corresponding to the indorser.
ARTICLE 723. Loans may be made in goods and in merchandise, their value being
fixed in order to determine the amount of the loan.
ARTICLE 724. The loans may be constituted jointly or separately:
1. On the hull of the vessel.
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2. On the rigging.
3. On the equipment, provisions, and fuel.
4. On the engine, if the vessel is a steamer.
5. On the cargo.
If the loan is constituted on the hull of the vessel, there shall be understood as also
subject to the liability of the loan, the rigging, equipment and other goods, provisions,
fuel, steam engines, and the freight earned during the voyage subject to the loan.
If the loan is made on the cargo, all that constitutes the same shall be subject to the
repayment; and if on a particular object of the vessel or of the cargo, the object
exclusively and specifically mentioned only shall be liable.
ARTICLE 725. No loans can be made on the salaries of the crew, nor on the profits
which it is expected to earn.
ARTICLE 726. If the lender should prove that he loaned a larger amount than the
value of the article liable for the bottomry loan, by reason of fraudulent measures
employed by the borrower the loan shall only be valid for the amount at which said
object is appraised by experts.
The surplus principal shall be returned with legal interest for the whole period of the
duration of the disbursement.
ARTICLE 727. If the full amount of the loan contracted to load the vessel should not
be made use of for the cargo, the surplus shall be returned before clearing.
The same procedure shall be observed with regard to the goods taken as a loan if they
could not all have been loaded.
ARTICLE 728. The loan which the captain takes at the point of residence of the
owners of the vessel shall only affect that part of the latter which belongs to the
captain, if the other owners or their agents should not have given their express
authorization thereto or should not have taken part in the transaction.
If one or more of the owners should be requested to furnish the amount necessary to
repair or provision the vessel, and should not do so within twenty-four hours, the
interest which the parties in default may have in the vessel shall be liable for the loan
in the proper proportion.
Outside of the residence of the owners the captain may contract loans in accordance
with the provisions of Articles 583 and 611.
ARTICLE 729. Should the goods on which money is taken not be subjected to any
risk, the contract shall be considered an ordinary loan, the borrower being under the
obligation to return the principal and interest at the legal rate, if the interest stipulated If the loan were on the vessel or any of her parts, the freightage earned during the
should not have been lower. voyage for which said loan was contracted shall also be liable for its payment, as far
as it is available.
ARTICLE 730. Loans made during the voyage shall have preference over those made
before the clearing of the vessel, and they shall be graduated by the inverse order to ARTICLE 735. If the same vessel or cargo should be the object of a loan on bottomry
that of their dates. or respondentia and marine insurance, the value of what may be saved shall be
divided, in case of shipwreck, between the lender and the underwriter, in proportion
The loans for the last voyage shall have preference over prior ones. to the legitimate interest of each one, taking into consideration, for this purpose only,
the principal with relation to the loan, and without prejudice to the
Should several loans have been made at a port made under stress and for the same right of preference of other creditors in accordance with Article 580.
purpose, all of them shall be paid pro rata.
ARTICLE 736. If there should be delay in the repayment of the principal or
ARTICLE 731. The actions which may be brought by the lender shall be extinguished premiums of the loan, the former only shall bear legal interest.
by the absolute loss of the goods on which the loan was made, if said loss arose from
an accident of the sea at the time and during the voyage designated in the contract, and
should it be proven that the cargo was on board; but this shall not take place if the loss
were caused by the inherent defect of the thing or through the fault or malice of the
borrower, or through barratry on the part of the captain, or if it were caused by
damages suffered by the vessel as a consequence of being engaged in contraband, or
if it arose through loading the merchandise on a vessel other than that designated in
the contract, unless this change should have been made by reason of force majeure.

The proof of the loss is incumbent upon the person who received the loan, as well as
the proof of the existence in the vessel of the goods declared to the lender as the object
thereof.

ARTICLE 732. Lenders on bottomry or respondentia shall suffer in proportion to

their respective interest, the general average which may take place in the goods on
which the loan was made.

In particular averages, in the absence of an express agreement between the contracting

parties, the lender on bottomry or respondentia shall also contribute in proportion to
his respective interest, should it not belong to the kind of risks excepted in the
foregoing article.

ARTICLE 733. Should it not have been stated in the contract for what period the
lender runs the risk, the said risk shall last with regard to the vessel, engines, rigging,
and equipment from the moment said vessel puts to sea until she drops anchor in the
port of destination, and with regard to the merchandise, from the time it is loaded on
the shore or wharf of the port of shipment until unloaded in the port of consignment.

ARTICLE 734. In case of shipwreck the amount liable for the return of the loan shall
be reduced to the proceeds of the goods saved, after the costs of the salvage have been
deducted.

124
 WARSAW CONVENTION
CHAPTER I
SCOPE OF DEFINITIONS
ARTICLE 1.
(1) This convention shall apply to all international transportation of persons, baggage,
or goods performed by aircraft for hire. It shall apply equally to gratuitous
transportation by aircraft performed by an air transportation enterprise.
(2) For the purposes of this convention the expression "international transportation"
shall mean any transportation in which, according to the contract made by the parties,
the place of departure and the place of destination, whether or not there be a break in
the transportation or a transshipment, are situated either within the territories of two
High Contracting Parties, or within the territory of a single High Contracting Party, if
there is an agreed stopping place within a territory subject to the sovereignty,
suzerainty, mandate or authority of another power, even though that power is not a
party to this convention. Transportation without such an agreed stopping place
between territories subject to the sovereignty, suzerainty, mandate, or authority of the
same High Contracting Party shall not be deemed to be international for the purposes
of this convention.
(3) Transportation to be performed by several successive air carriers shall be deemed,
for the purposes of this convention, to be one undivided transportation, if it has been
regarded by the parties as a single operation, whether it has been agreed upon under
the form of a single contract or of a series of contracts, and it shall not lose its
international character merely because one contract or a series of contracts is to be
performed entirely within a territory subject to the sovereignty, suzerainty, mandate,
or authority of the same High Contracting Party.
ARTICLE 2.
(1) This convention shall apply to transportation performed by the state or by legal
entities constituted under public law provided it falls within the conditions laid down
in Article 1.
(2)This convention shall not apply to transportation performed under the terms of any
international postal convention.
CHAPTER II
TRANSPORTATION DOCUMENTS
SECTION I
Passenger Ticket
125
ARTICLE 3.
(1) For the transportation of passengers the carrier must deliver a passenger ticket
which shall contain the following particulars:
(a) The place and date of issue;
(b) The place of departure and of destination;
(c) The agreed stopping places, provided that the carrier may reserve the right
to alter the stopping places in case of necessity, and that if he exercises that
right, the alteration shall not have the effect of depriving the transportation
of its international character;
(d) The name and address of the carrier or carriers;
(e) A statement that the transportation is subject to the rules relating to liability
established by this convention.
(2) The absence, irregularity, or loss of the passenger ticket shall not affect the
existence or the validity of the contract of transportation, which shall none the less be
subject to the rules of this convention. Nevertheless, if the carrier accepts a passenger
without a passenger ticket having been delivered he shall not be entitled to avail
himself of those provisions of this convention which exclude or limit his liability.
SECTION II
Baggage Check
ARTICLE 4.
(1) For the transportation of baggage, other than small personal objects of which the
passenger takes charge himself, the carrier must deliver a baggage check.
(2) The baggage check shall be made out in duplicate, one part for the passenger and
the other part for the carrier.
(3) The baggage check shall contain the following particulars:
(a) The place and date of issue;
(b) The place of departure and of destination;
(c) The name and address of the carrier or carriers;
(d) The number of the passenger ticket;
(e) A statement that delivery of the baggage will be made to the bearer of the
baggage check;
(f) The number and weight of the packages;
(g) The amount of the value declared in accordance with article 22 (2);
(h) A statement that the transportation is subject to the rules relating to liability
established by this convention.
(4) The absence, irregularity, or loss of the baggage check shall not affect the existence
or the validity of the contract of transportation which shall none the less be subject to
the rules of this convention. Nevertheless, if the carrier accepts baggage without a
baggage check having been delivered, or if the baggage check does not contain the
particulars set out at (d), (f), and (h) above, the carrier shall not be entitled to avail
himself of those provisions of the convention which exclude or limit his ability.
SECTION III
Air Waybill
ARTICLE 5.
(1) Every carrier of goods has the right to require the consignor to make out and hand
over to him a document called an "air waybill"; every consignor has the right to require
the carrier to accept this document.
(2) The absence, irregularity, or loss of this document shall not affect the existence or
the validity of the contract of transportation which shall, subject to the provisions of
Article 9, be none the less governed by the rules of this convention.
ARTICLE 6.
(1) The air waybill shall be made out by the consignor in three original parts and be
handed over with the goods.
(2) The first part shall be marked "for the carrier", and shall be signed by the consignor.
The second part shall be marked "for the consignee"; it shall be signed by the consignor
and by the carrier and shall accompany the goods. The third part shall be signed by the
carrier and handed by him to the consignor after the goods have been accepted.
(3) The carrier shall sign on acceptance of the goods.
(4) The signature of the carrier may be stamped; that of the consignor may be printed
or stamped.
(5) If, at the request of the consignor, the carrier makes out the air waybill, he shall be
deemed, subject to proof to the contrary, to have done so on behalf of the consignor.
ARTICLE 7. The carrier of goods has the right to require the consignor to make out
separate waybills when there is more than one package.
ARTICLE 8. The air waybill shall contain the following particulars:
(a) The place and date of its execution;
(b) The place of departure and of destination;
(c) The agreed stopping places, provided that the carrier may reserve the right to
alter the stopping places in case of necessity, and that if he exercises that right
the alteration shall not have the effect of depriving the transportation of its
international character;
(d) The name and address of the consignor;
(e) The name and address of the first carrier;
(f) The name and address of the consignee, if the case so requires;
(g) The nature of the goods;
126
(h) The number of packages, the method of packing, and the particular marks or
numbers upon them;
(i) The weight, the quantity, the volume, or dimensions of the goods;
(j) The apparent condition of the goods and of the packing;
(k) The freight, if it has been agreed upon, the date and place of payment, and the
person who is to pay it;
(l) If the goods are sent for payment on delivery, the price of the goods, and, if
the case so requires, the amount of the expenses incurred;
(m) The amount of the value declared in accordance with Article 22 (2).
(n) The number of parts of the air waybill;
(o) The documents handed to the carrier to accompany the air waybill;
(p) The time fixed for the completion of the transportation and a brief note of the
route to be followed, if these matters have been agreed upon;
(q) A statement that the transportation is subject to the rules relating to liability
established by this convention.
ARTICLE 9. If the carrier accepts goods without an air waybill having been made
out, or if the air waybill does not contain all the particulars set out in Article 8 (a) to
(i), inclusive, and (q), the carrier shall not be entitled to avail himself of the provisions
of this convention which exclude or limit his liability.
ARTICLE 10.
(1) The consignor shall be responsible for the correctness of the particulars and
statements relating to the goods which he inserts in the air waybill.
(2) The consignor shall be liable for all damages suffered by the carrier or any other
person by reason of the irregularity, incorrectness or incompleteness of the said
particulars and statements.
ARTICLE 11.
(1) The air waybill shall be prima facie evidence of the conclusion of the contract, of
the receipt of the goods and of the conditions of transportation.
(2) The statements in the air waybill relating to the weight, dimensions, and packing
of the goods, as well as those relating to the number of packages, shall be prima
facie evidence of the facts stated; those relating to the quantity, volume and condition
of the goods shall not constitute evidence against the carrier except so far as they both
have been, and are stated in the air waybill to have been, checked by him in the
presence of the consignor, or relate to the apparent condition of the goods.
ARTICLE 12.
(1) Subject to his liability to carry out all his obligations under the contract of
transportation, the consignor shall have the right to dispose of the goods by
withdrawing them at the airport of departure or destination, or by stopping them in the
course of the journey on any landing, or by calling for them to be delivered at the place
of destination, or in the course of the journey to a person other than the consignee
named in the air waybill, or by requiring them to be returned to the airport of departure.
He must not exercise this right of disposition in such a way as to prejudice the carrier
or other consignors, and he must repay any expenses occasioned by the exercise of this
right.
(2) If it is impossible to carry out the orders of the consignor the carrier must so inform
him forthwith.
(3) If the carrier obeys the orders of the consignor for the disposition of the goods
without requiring the production of the part of the air waybill delivered to the latter,
he will be liable, without prejudice to his right of recovery from the consignor, for any
damage which may be caused thereby to any person who is lawfully in possession of
that part of the air waybill.
(4) The right conferred on the consignor shall cease at the moment when that of the
consignee begins in accordance with Article 13, below. Nevertheless, if the consignee
declines to accept the waybill or the goods, or if he cannot be communicated with, the
consignor shall resume his right of disposition.
ARTICLE 13.
(1) Except in the circumstances set out in the preceding article, the consignee shall be
entitled, on arrival of the goods at the place of destination, to require the carrier to hand
over to him the air waybill and to deliver the goods to him, on payment of the charges
due and on complying with the conditions of transportation set out in the air waybill.
(2) Unless it is otherwise agreed, it shall be the duty of the carrier to give notice to the
consignee as soon as the goods arrive.
(3) If the carrier admits the loss of the goods, or if the goods have not arrived at the
expiration of seven days after the date on which they ought to have arrived, the
consignee shall be entitled to put into force against the carrier the rights which flow
from the contract of transportation.
ARTICLE 14. The consignor and the consignee can respectively enforce all the rights
given them by Articles 12 and 13, each in his own name, whether he is acting in his
own interest or in the interest of another, provided that he carries out the obligations
imposed by the contract.
ARTICLE 15.
(1) Articles 12, 13, and 14 shall not affect either the relations of the consignor and the
consignee with each other or the relations of third parties whose rights are derived
either from the consignor or from the consignee.
(2) The provisions of Article 12, 13, and 14 can only be varied by express provision
in the air waybill.
127
ARTICLE 16.
(1) The consignor must furnish such information and attach to the air waybill such
documents as are necessary to meet the formalities of customs, octroi, or police before
the goods can be delivered to the consignee. The consignor shall be liable to the carrier
for any damage occasioned by the absence, insufficiency, or irregularity of any such
information or documents, unless the damage is due to the fault of the carrier or his
agents.
(2) The carrier is under no obligation to enquire into the correctness or sufficiency of
such information or documents.
CHAPTER III
LIABILITY OF THE CARRIER
ARTICLE 17. The carrier shall be liable for damage sustained in the event of the
death or wounding of a passenger or any other bodily injury suffered by a passenger,
if the accident which caused the damage so sustained took place on board the aircraft
or in the course of any of the operations of embarking or disembarking.
ARTICLE 18.
(1) The carrier shall be liable for damage sustained in the event of the destruction or
loss of, or of damage to, any checked baggage or any goods, if the occurrence which
caused the damage so sustained took place during the transportation by air.
(2) The transportation by air within the meaning of the preceding paragraph shall
comprise the period during which the baggage or goods are in charge of the carrier,
whether in an airport or on board an aircraft, or, in the case of a landing outside an
airport, in any place whatsoever.
(3) The period of the transportation by air shall not extend to any transportation by
land, by sea, or by river performed outside an airport. If, however, such transportation
takes place in the performance of a contract for transportation by air, for the purpose
of loading, delivery or transshipment, any damage is presumed, subject to proof to the
contrary, to have been the result of an event which took place during the transportation
by air.
ARTICLE 19. The carrier shall be liable for damage occasioned by delay in the
transportation by air of passengers, baggage, or goods.
ARTICLE 20.
(1) The carrier shall not be liable if he proves that he and his agents have taken all
necessary measures to avoid the damage or that it was impossible for him or them to
take such measures.
(2) In the transportation of goods and baggage the carrier shall not be liable if he proves
that the damage was occasioned by an error in piloting, in the handling of the aircraft,
or in navigation and that, in all other respects, he and his agents have taken all
necessary measures to avoid the damage.
ARTICLE 21. If the carrier proves that the damage was caused by or contributed to
by the negligence of the injured person the court may, in accordance with the
provisions of its own law, exonerate the carrier wholly or partly from his liability.
ARTICLE 22.
(1) In the transportation of passengers the liability of the carrier for each passenger
shall be limited to the sum of 125,000 francs. Where, in accordance with the law of
the court to which the case is submitted, damages may be awarded in the form of
periodical payments, the equivalent capital value of the said payments shall not exceed
125,000 francs. Nevertheless, by special contract, the carrier and the passenger may
agree to a higher limit of liability.
(2) In the transportation of checked baggage and of goods, the liability of the carrier
shall be limited to a sum of 250 francs per kilogram, unless the consignor has made,
at the time when the package was handed over to the carrier, a special declaration of
the value at delivery and has paid a supplementary sum if the case so requires. In that
case the carrier will be liable to pay a sum not exceeding the declared sum, unless he
proves that the sum is greater than the actual value to the consignor at delivery.
(3) As regards objects of which the passenger takes charge himself the liability of the
carrier shall be limited to 5,000 francs per passenger.
(4) The sums mentioned above shall be deemed to refer to the French franc consisting
of 65½ milligrams of gold at the standard of fineness of nine hundred thousandths.
These sums may be converted into any national currency in round figures.
ARTICLE 23. Any provision tending to relieve the carrier of liability or to fix a lower
limit than that which is laid down in this convention shall be null and avoid, but the
nullity of any such provision shall not involve the nullity of the whole contract, which
shall remain subject to the provisions of this convention.
ARTICLE 24.
(1) In the cases covered by Articles 18 and 19 any action for damages, however
founded, can only be brought subject to the conditions and limits set out in this
convention.
(2) In the cases covered by Article 17 the provisions of the preceding paragraph shall
also apply, without prejudice to the questions as to who are the persons who have the
right to bring suit and what are their respective rights.
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ARTICLE 25.
(1) The carrier shall not be entitled to avail himself of the provisions of this convention
which exclude or limit his liability, if the damage is caused by his wilful misconduct
or by such default on his part as, in accordance with the law of the court to which the
case is submitted, is considered to be equivalent to wilful misconduct.
(2) Similarly the carrier shall not be entitled to avail himself of the said provisions, if
the damage is caused under the same circumstances by any agent of the carrier acting
within the scope of his employment.
ARTICLE 26.
(1) Receipt by the person entitled to the delivery of baggage or goods without
complaint shall be prima facie evidence that the same have been delivered in good
condition and in accordance with the document of transportation.
(2) In case of damage, the person entitled to delivery must complain to the carrier
forthwith after the discovery of the damage, and, at the latest, within 3 days from the
date of receipt in the case of baggage and 7 days from the date of receipt in the case of
goods. In case of delay the complaint must be made at the latest within 14 days from
the date on which the baggage or goods have been placed at his disposal.
(3) Every complaint must be made in writing-upon the document of transportation or
by separate notice in writing dispatched within the times aforesaid.
(4) Failing complaint within the times aforesaid, no action shall lie against the carrier,
save in the case of fraud on his part.
ARTICLE 27. In the case of the death of the person liable, an action for damages lies
in accordance with the terms of this convention against those legally representing his
estate.
ARTICLE 28.
(1) An action for damages must be brought, at the option of the plaintiff, in the territory
of one of the High Contracting Parties, either before the court of the domicile of the
carrier or of his principal place of business or where he has a place of business through
which the contract has been made or before the court at the place of destination.
(2) Questions of procedure shall be governed by the law of the court to which the case
is submitted.
ARTICLE 29.
(1) The right to damages shall be extinguished if an action is not brought within 2
years, reckoned from the date of arrival at the destination, or from the date on which
the aircraft ought to have arrived, or from the date on which the transportation stopped.
(2) The method of calculating the period of limitation shall be determined by the law
of the court to which the case is submitted.
ARTICLE 30.
(1) In the case of transportation to be performed by various successive carriers and
falling within the definition set out in the third paragraph of Article 1, each carrier who
accepts passengers, baggage or goods shall be subject to the rules set out in this
convention, and shall be deemed to be one of the contracting parties to the contract of
transportation insofar as the contract deals with that part of the transportation which is
performed under his supervision.
(2) In the case of transportation of this nature, the passenger or his representative can
take action only against the carrier who performed the transportation during which the
accident or the delay occurred, save in the case where, by express agreement, the first
carrier has assumed liability for the whole journey.
(3) As regards baggage or goods, the passenger or consignor shall have a right of action
against the first carrier, and the passenger or consignee who is entitled to delivery shall
have a right of action against the last carrier, and further, each may take action against
the carrier who performed the transportation during which the destruction, loss,
damage, or delay took place. These carriers shall be jointly and severally liable to the
passenger or to the consignor or consignee.
CHAPTER IV
PROVISIONS RELATING TO COMBINED TRANSPORTATION
ARTICLE 31.
(1) In the case of combined transportation performed partly by air and partly by any
other mode of transportation, the provisions of this convention shall apply only to the
transportation, by air, provided that the transportation by air falls within the terms of
Article 1.
(2) Nothing in this convention shall prevent the parties in the case of combined
transportation from inserting in the document of air transportation conditions relating
to other modes of transportation, provided that the provisions of this convention are
observed as regards the transportation by air.
CHAPTER V
GENERAL AND FINAL PROVISIONS
ARTICLE 32. Any clause contained in the contract and all special agreements entered
into before the damage occurred by which the parties purport to infringe the rules laid
down by this convention, whether by deciding the law to be applied, or by altering the
rules as to jurisdiction, shall be null and void. Nevertheless for the transportation of
goods arbitration clauses shall be allowed, subject to this convention, if the arbitration
129
is to take place within one of the jurisdictions referred to in the first paragraph of article
28.
ARTICLE 33. Nothing contained in this convention shall prevent the carrier either
from refusing to enter into any contract of transportation or from making regulations
which do not conflict with the provisions of this convention.
ARTICLE 34. This convention shall not apply to international transportation by air
performed by way of experimental trial by air navigation enterprises with the view to
the establishment of regular lines of air navigation, nor shall it apply to transportation
performed in extraordinary circumstances outside the normal scope of an air carrier's
business.
ARTICLE 35. The expression "days" when used in this convention means current
days, not working days.
ARTICLE 36. This convention is drawn up in French in a single copy which shall
remain deposited in the archives of the Ministry for Foreign Affairs of Poland and of
which one duly certified copy shall be sent by the Polish Government to the
Government of each of the High Contracting Parties.
ARTICLE 37.
(1) This convention shall be ratified. The instruments of ratification shall be deposited
in the archives of the Ministry for Foreign Affairs of Poland, which shall give notice
of the deposit to the Government of each of the High Contracting Parties.
(2) As soon as this convention shall have been ratified by five of the High Contracting
Parties it shall come into force as between them on the ninetieth day after the deposit
of the fifth ratification. Thereafter it shall come into force between the High
Contracting Parties which shall have ratified and the High Contracting Party which
deposits its instrument of ratification on the ninetieth day after the deposit.
(3) It shall be the duty of the Government of the Republic of Poland to notify the
Government of each of the High Contracting Parties of the date on which this
convention comes into force as well as the date of the deposit of each ratification.
ARTICLE 38.
(1) This convention shall, after it has come into force, remain open for adherence by
any state.
(2) The adherence shall be effected by a notification addressed to the Government of
the Republic of Poland, which shall inform the Government of each of the High
Contracting Parties thereof.
(3) The adherence shall take effect as from the ninetieth day after the notification made
to the Government of the Republic of Poland.

ARTICLE 39.
(1) Any one of the High Contracting Parties may denounce this convention by a
notification addressed to the Government of the Republic of Poland, which shall at
once inform the Government of each of the High Contracting Parties.

(2) Denunciation shall take effect six months after the notification of denunciation,
and shall operate only as regards the party which shall have proceeded to denunciation.

ARTICLE 40.
(1) Any High Contracting Party may, at the time of signature or of deposit of
ratification or of adherence, declare that the acceptance which it gives to this
convention does not apply to all or any of its colonies, protectorates, territories under
mandate, or any other territory subject to its sovereignty or its authority, or any other
territory under its suzerainty.

(2) Accordingly any High Contracting Party may subsequently adhere separately in
the name of all or any of its colonies, protectorates, territories under mandate, or any
other territory subject to its sovereignty or to its authority or any other territory under
its suzerainty which have been thus excluded by its original declaration.

(3) Any High Contracting Party may denounce this Convention, in accordance with its
provisions, separately or for all or any of its colonies, protectorates, territories under
mandate, or any other territory subject to its sovereignty or to its authority, or any other
territory under its suzerainty.

ARTICLE 41. Any High Contracting Party shall be entitled not earlier than two years
after the coming into force of this convention to call for the assembling of a new
international conference in order to consider any improvements which may be made
in this convention. To this end it will communicate with the Government of the French
Republic which will take the necessary measures to make preparations for such
conference.

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

130
 AN ACT ALLOWING FOREIGN VESSELS TO TRANSPORT
AND CO-LOAD FOREIGN CARGOES FOR DOMESTIC
TRANSSHIPMENT AND FOR OTHER PURPOSES
REPUBLIC ACT No. 10668
SECTION 1. Declaration of Policy. — It is the policy of the State:
(a) To assist importers and exporters in enhancing their competitiveness in light
of intensifying international trade; and
(b) To lower the cost of shipping export cargoes from Philippine ports to
international ports and import cargoes from international ports for the benefit
of the consumers.
SECTION 2. Definition of Terms. — As used in this Act:
(a) Co-loading refers to agreements between two (2) or more international or
domestic sea carriers whereby a sea carrier bound for a specified destination
agrees to load, transport, and unload the container van or cargo of another
carrier bound for the same destination;
(b) Container van refers to a standardized reusable steel box used for the safe,
efficient and secure storage and movement of materials and products within
an intermodal freight transport system where the cargo carried in the
container van can be moved from one (1) mode of transport to another
without having to unload or reload the contents of such container van;
(c) Domestic cargo refers to goods, articles, commodities or merchandise which
are intended to be shipped from one (1) Philippine port to another Philippine
port, even if, in the carriage of such cargo, there may be an intervening
foreign port;
(d) Export cargo refers to goods, articles, commodities or merchandise carried in
foreign vessels and duly declared before the Bureau of Customs at the port of
origin as cargoes for shipment to a port outside the jurisdiction of the
Philippines;
(e) Foreign cargo refers to import or export cargo carried by a foreign vessel;
(f) Foreign container van refers to a container van, whether empty or loaded
with foreign cargo, which belongs to a foreign vessel;
(g) Foreign port refers to any seaport outside the jurisdiction of the Philippines;
(h) Foreign ship operator refers to a citizen, partnership, or corporation, whether
foreign or local, owning or chartering a foreign vessel;
(i) Foreign vessel refers to a ship registered or documented in a flag registry
other than that of the Philippines;
(j) Import cargo refers to goods, articles, commodities or merchandise of foreign
origin carried in a foreign vessel which are intended to be cleared before the
Bureau of Customs for delivery to the port of final destination within the
jurisdiction of the Philippines;
(k) Philippine port refers to any port within the Philippines authorized by a
government contract to handle domestic import or export cargo;
131
(l) Port Authorities refer to entities engaged in the development and operation
of seaports including, but not limited to, Philippine Ports Authority, Cebu
Port Authority, PHIVIDEC Industrial Authority, Cagayan Special Economic
Zone Authority, Aurora Special Economic Zone Authority, Bases
Conversion and Development Authority, Authority of the Free Port Area of
Bataan and Subic Bay Metropolitan Authority; and
(m) Transshipment refers to the transfer of cargo from one (1) vessel or
conveyance to another vessel for further transit to complete the voyage and
carry the cargo to its final destination.
SECTION 3. Scope. — This Act shall apply exclusively to foreign vessels carrying
foreign container vans or foreign cargoes.
SECTION 4. Carriage of a Foreign Cargo by a Foreign Vessel. — A foreign vessel:
(a) Arriving from a foreign port, shall be allowed to carry a foreign cargo to its
Philippine port of final destination, after being cleared at its port of entry;
(b) Arriving from a foreign port, shall be allowed to carry a foreign cargo by
another foreign vessel calling at the same port of entry to the Philippine port
of final destination of such foreign cargo;
(c) Departing from a Philippine port of origin through another Philippine port to
its foreign port of final destination, shall be allowed to carry a foreign cargo
intended for export; and
(d) Departing from a Philippine port of origin, shall be allowed to carry a foreign
cargo by another foreign vessel through a domestic transshipment port and
transferred at such domestic transshipment port to its foreign port of final
destination.
(a) For purposes of this Act, an empty foreign container van going to or coming
from any Philippine port, or going to or coming from a foreign port, and being
transshipped between two (2) Philippine ports shall be allowed.
SECTION 5. Authority of the Commissioner of Customs. — The Commissioner of
Customs, upon such reasonable conditions as may be imposed, may do the following
acts:
(a) Authorize the conveyance of foreign cargo brought from abroad by a foreign
vessel;
(b) Allow a foreign vessel to take cargo intended for export at any Philippine port
and convey the same upon such foreign vessel to a foreign port; and
(c) Authorize the transshipment of such foreign cargo intended for import or
export through another Philippine port by another foreign vessel to the cargo's
port of final destination.
Provided, That such acts shall not diminish or impair any existing and valid
government contract covering the handling of import and export cargo: Provided,
further, That the Commissioner of Customs shall have the authority to impose
penalties to foreign ship operators found to have violated any provision of this Act and
to take measures to address illegal activities, including smuggling.
SECTION 6. Application of the Carriage of Goods by Sea Act. — Carriage conducted
in accordance with this Act shall be governed by Commonwealth Act No. 65,
otherwise known as the "Carriage of Goods by Sea Act" with respect to the liability of
the carrier for the loss of, or damage to, goods carried.

SECTION 7. Carriage by Foreign Vessels Not a Public Service, Foreign Vessels Not
Common Carriers. — Foreign vessels engaging in carriage conducted in accordance
with this Act shall not be considered common carriers as provided in Republic Act No.
386, otherwise known as the "Civil Code of the Philippines"; neither shall such foreign
vessels be considered as offering a public service and thus shall fall outside the
coverage of Republic Act No. 9295, otherwise known as the "Domestic Shipping
Development Act of 2004".

SECTION 8. Prohibitions. — Foreign ship operators shall submit their cargo

manifest to the Port Authorities to ensure that no domestic cargoes are carried by the
foreign ship. No foreign vessel shall be allowed to carry any domestic cargo or
domestic container van, whether loaded or empty, even if such domestic container van
may contain foreign cargo.

SECTION 9. Fines and Penalties. — The Bureau of Customs, upon due notice,
hearing and determination of the existence of any breach or violation of the provisions
of this Act or any rule and regulation issued pursuant thereto, shall impose a penalty
or fine on any erring foreign ship operator in accordance with applicable provisions of
the Tariff and Customs Code of the Philippines and other related laws.

SECTION 10. Implementing Rules and Regulations. — Within sixty (60) days from
the approval of this Act, the Department of Finance, the Bureau of Customs, the
Department of Trade and Industry, the Bureau of Immigration, and all Port Authorities,
shall promulgate such rules and regulations necessary for the effective implementation
of this Act.

SECTION 11. Separability Clause. — If any provision of this Act is subsequently

declared invalid or unconstitutional, other provisions hereof which are not affected
thereby shall remain in full force and effect.

SECTION 12. Repealing Clause. — Section 1009 of Presidential Decree No. 1464,
otherwise known as the "Tariff and Customs Code of 1978" and all laws, decrees,
orders, rules and regulations, and other issuances, or parts thereof, inconsistent with
the provisions of this Act are hereby repealed or modified accordingly.

SECTION 13. Effectivity. — This Act shall take effect fifteen (15) days after its
publication in the Official Gazette or in a newspaper of general circulation.

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 REVISED CORPORATION CODE OF THE PHILIPPINES
REPUBLIC ACT No. 11232
TITLE I
General Provisions
Definitions and Classifications
SECTION 1. Title of the Code. — This Code shall be known as the
"Revised Corporation Code of the Philippines."
SECTION 2. Corporation Defined. — A corporation is an artificial being created by
operation of law, having the right of succession and the powers, attributes, and
properties expressly authorized by law or incidental to its existence.
SECTION 3. Classes of Corporations. — Corporations formed or organized under
this Code may be stock or nonstock corporations. Stock corporations are those 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. All other corporations are nonstock corporations.
SECTION 4. Corporations Created by Special Laws or Charters. — Corporations
created by special laws or charters shall be governed primarily by the provisions of the
special law or charter creating them or applicable to them, supplemented by the
provisions of this Code, insofar as they are applicable.
SECTION 5. Corporators and Incorporators, Stockholders and Members. —
Corporators are those who compose a corporation, whether as stockholders or
shareholders in a stock corporation or as members in a nonstock corporation.
Incorporators are those stockholders or members mentioned in the articles of
incorporation as originally forming and composing the corporation and who are
signatories thereof.
SECTION 6. Classification of Shares. — The classification of shares, their
corresponding rights, privileges, or restrictions, and their stated par value, if any, must
be indicated in the articles of incorporation. Each share shall be equal in all respects
to every other share, except as otherwise provided in the articles of incorporation and
in the certificate of stock.
The shares in stock corporations may be divided into classes or series of shares, or
both. 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,
That there shall always be a class or series of shares with complete voting rights.
133
Holders of nonvoting shares shall nevertheless be entitled to vote on the following
matters:
(a) Amendment of the articles of incorporation;
(b) Adoption and amendment of bylaws;
(c) Sale, lease, exchange, mortgage, pledge, or other disposition of all or
substantially all of the corporate property;
(d) Incurring, creating, or increasing bonded indebtedness;
(e) Increase or decrease of authorized capital stock;
(f) Merger or consolidation of the corporation with another corporation or
other corporations;
(g) Investment of corporate funds in another corporation or business in
accordance with this Code; and
(h) Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote required under
this Code to approve a particular corporate act shall be deemed to refer only to stocks
with voting rights.
The shares or series of shares may or may not have a par value: Provided, That banks,
trust, insurance, and preneed companies, public utilities, building and loan
associations, and other corporations authorized to obtain or access funds from the
public, whether publicly listed or not, shall not be permitted to issue no-par value
shares of stock.
Preferred shares of stock issued by a corporation may be given preference in the
distribution of dividends and in the distribution of corporate assets in case of
liquidation, or such other preferences: 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, further, That such terms and conditions shall be
effective upon filing of a certificate thereof with the Securities and Exchange
Commission, hereinafter referred to as the "Commission".
Shares of capital stock issued without par value shall be deemed fully paid and
nonassessable and the holder of such shares shall not be liable to the corporation or to
its creditors in respect thereto: Provided, That no-par value shares must be issued for
a consideration of at least Five pesos (P5.00) 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 further classify its shares for the purpose of ensuring compliance
with constitutional or legal requirements.
SECTION 7. Founders' Shares. — Founders' shares may be given certain rights and
privileges not enjoyed by the owners of other stocks. 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 from the date of incorporation: Provided, That such
exclusive right shall not be allowed if its exercise will violate Commonwealth Act No.
108, otherwise known as the "Anti-Dummy Law"; Republic Act No. 7042, otherwise
known as the "Foreign Investments Act of 1991"; and other pertinent laws.
SECTION 8. Redeemable Shares. — Redeemable shares may be issued by the
corporation when expressly provided in the articles of incorporation. They are shares
which may be purchased by the corporation from the holders of such shares 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
stated in the articles of incorporation and the certificate of stock representing the
shares, subject to rules and regulations issued by the Commission.
SECTION 9. Treasury Shares. — Treasury shares are shares of stock which have
been issued and fully paid for, but subsequently reacquired by the issuing corporation
through purchase, redemption, donation, or 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
SECTION 10. Number and Qualifications of Incorporators. — Any person,
partnership, association or corporation, singly or jointly with others but not more than
fifteen (15) in number, may organize a corporation for any lawful purpose or
purposes: Provided, That natural persons who are licensed to practice a profession,
and partnerships or associations organized for the purpose of practicing a profession,
shall not be allowed to organize as a corporation unless otherwise provided under
special laws. Incorporators who are natural persons must be of legal age.
Each incorporator of a stock corporation must own or be a subscriber to at least one
(1) share of the capital stock.
A corporation with a single stockholder is considered a One Person Corporation as
described in Title XIII, Chapter III of this Code.
SECTION 11. Corporate Term. — A corporation shall have perpetual existence
unless its articles of incorporation provides otherwise.
Corporations with certificates of incorporation issued prior to the effectivity of this
Code, and which continue to exist, shall have perpetual existence, unless the
corporation, upon a vote of its stockholders representing a majority of its outstanding
capital stock, notifies the Commission that it elects to retain its specific corporate term
pursuant to its articles of incorporation: Provided, That any change in the corporate
134
term under this section is without prejudice to the appraisal right of dissenting
stockholders in accordance with the provisions of this Code.
A corporate term for a specific period may be extended or shortened by amending the
articles of incorporation: Provided, That no extension may be made earlier than three
(3) 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 Commission: Provided,
further, That such extension of the corporate term shall take effect only on the day
following the original or subsequent expiry date(s).
A corporation whose term has expired may apply for a revival of its corporate
existence, together with all the rights and privileges under its certificate of
incorporation and subject to all of its duties, debts and liabilities existing prior to its
revival. Upon approval by the Commission, the corporation shall be deemed revived
and a certificate of revival of corporate existence shall be issued, giving it perpetual
existence, unless its application for revival provides otherwise.
No application for revival of certificate of incorporation of banks, banking and quasi-
banking institutions, preneed, insurance and trust companies, non-stock savings and
loan associations (NSSLAs), pawnshops, corporations engaged in money service
business, and other financial intermediaries shall be approved by the Commission
unless accompanied by a favorable recommendation of the appropriate government
agency.
SECTION 12. Minimum Capital Stock Not Required of Stock Corporations. — Stock
corporations shall not be required to have a minimum capital stock, except as
otherwise specifically provided by special law.
SECTION 13. Contents of the Articles of Incorporation. — All corporations shall file
with the Commission articles of incorporation in any of the official languages, duly
signed and acknowledged or authenticated, in such form and manner as may be
allowed by the Commission, containing substantially the following matters, except as
otherwise prescribed by this Code or by special law:
(a) The name of the corporation;
(b) The specific purpose or purposes for which the corporation is being formed.
Where a corporation has more than one stated purpose, the articles of
incorporation shall indicate the primary purpose and the secondary purpose
or purposes: Provided, That a nonstock corporation may not include a
purpose which would change or contradict its nature as such;
(c) The place where the principal office of the corporation is to be located, which
must be within the Philippines;
(d) The term for which the corporation is to exist, if the corporation has not
elected perpetual existence;
(e) The names, nationalities, and residence addresses of the incorporators;
 (f) The number of directors, which shall not be more than fifteen (15) or the _______________ _______________ _______________
number of trustees which may be more than fifteen (15); _______________ _______________ _______________
(g) The names, nationalities, and residence addresses 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; _______________ _______________ _______________
(h) If it be a stock corporation, the amount of its authorized capital stock, number
of shares into which it is divided, the par value of each, names, nationalities, Sixth: That the number of directors or trustees of the corporation shall be
and residence addresses of the original subscribers, amount subscribed and _____________; and the names, nationalities, and residence addresses of the first
paid by each on the subscription, and a statement that some or all of the shares directors or trustees of the corporation are as follows:
are without par value, if applicable;
(i) If it be a nonstock corporation, the amount of its capital, the names, Name Nationality Residence
nationalities, and residence addresses of the contributors, and amount _______________ _______________ _______________
contributed by each; and _______________ _______________ _______________
(j) Such other matters consistent with law and which the incorporators may deem _______________ _______________ _______________
necessary and convenient. _______________ _______________ _______________
An arbitration agreement may be provided in the articles of incorporation pursuant to _______________ _______________ _______________
Section 181 of this Code. _______________ _______________ _______________

The articles of incorporation and applications for amendments thereto may be filed Seventh: That the authorized capital stock of the corporation is ___________ PESOS
with the Commission in the form of an electronic document, in accordance with the (P______), divided into ________ shares with the par value of _________ PESOS
Commissions rules and regulations on electronic filing. (P______) per share. (In case all the shares are without par value): That the capital
stock of the corporation is __________________ shares without par value.
SECTION 14. Form of Articles of Incorporation. — Unless otherwise prescribed by (In case some shares have par value and some are without par value): That the capital
special law, the articles of incorporation of all domestic corporations shall comply stock of said corporation consists of _____________________ shares, of which
substantially with the following form: ___________________ shares have a par value of _________________ PESOS
Articles of Incorporation (P__________) each, and of which ____________________ shares are without par
of value.
________________________ Eighth: That the number of shares of the authorized capital stock above-stated has been
(Name of Corporation) subscribed as follows:
The undersigned incorporators, all of legal age, have voluntarily agreed to form a
(stock) (nonstock) corporation under the laws of the Republic of the Philippines and Name of Nationality No. of Shares Amount Amount
certify the following: Subscriber Subscribed Subscribed Paid
First: That the name of said corporation shall be "________________, Inc.,
Corporation or OPC";
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 corporation shall have perpetual existence or a term of ________
years from the date of issuance of the certificate of incorporation; (Modify No. 8 if shares are with no-par value. In case the corporation is nonstock, Nos.
Fifth: That the names, nationalities, and residence addresses of the incorporators of the 7 and 8 of the above articles may be modified accordingly, and it is sufficient if the
corporation are as follows: articles state the amount of capital or money contributed or donated by specified
persons, stating the names, nationalities, and residence addresses of the contributors
Name Nationality Residence or donors and the respective amount given by each.)
_______________ _______________ _______________ Ninth: That ________________ has been elected by the subscribers as Treasurer of
the Corporation to act as such until after the successor is duly elected and qualified in
135
accordance with the bylaws, that as Treasurer, authority has been given to receive in
the name and for the benefit of the corporation, all subscriptions, contributions or
donations paid or given by the subscribers or members, who certifies the information
set forth in the seventh and eighth clauses above, and that the paid-up portion of the
subscription in cash and/or property for the benefit and credit of the corporation has
been duly received.
Tenth: That the incorporators undertake to change the name of the corporation
immediately upon receipt of notice from the Commission that another corporation,
partnership or person has acquired a prior right to the use of such name, that the name
has been declared not distinguishable from a name already registered or reserved for
the use of another corporation, or that it is contrary to law, public morals, good customs
or public policy.
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 capital stock as provided by existing laws shall
be allowed or permitted to be 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 ___________, 20___ in the City/Municipality of
_____________, Province of _______________, Republic of the Philippines.
_________________ _________________
_________________ _________________
_________________ _________________
_________________ _________________
_________________ _________________
(Names and signatures of the incorporators)
_________________________________
(Name and signature of Treasurer)
SECTION 15. Amendment of Articles of Incorporation. — Unless otherwise
prescribed by this Code or by special law, and for legitimate purposes, any provision
or matter stated in the articles of incorporation may be amended by a majority vote of
the board of directors or trustees and the vote or written assent of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice
to the appraisal right of dissenting stockholders in accordance with the provisions of
this Code. The articles of incorporation of a nonstock corporation may be amended by
the vote or written assent of majority of the trustees and at least two-thirds (2/3) of the
members.
The original and amended articles together shall contain all provisions required by law
to be set out in the articles of incorporation. Amendments to the articles shall be
indicated by underscoring the change or changes made, and a copy thereof duly
136
certified under oath by the corporate secretary and a majority of the directors or
trustees, with a statement that the amendments have been duly approved by the
required vote of the stockholders or members, shall be submitted to the Commission.
The amendments shall take effect upon their approval by the Commission or from the
date of filing with the said Commission if not acted upon within six (6) months from
the date of filing for a cause not attributable to the corporation.
SECTION 16. Grounds When Articles of Incorporation or Amendment May be
Disapproved. — The Commission may disapprove the articles of incorporation or any
amendment thereto if the same is not compliant with the requirements of this
Code: Provided, That the Commission shall give the incorporators, directors, trustees,
or officers a reasonable time from receipt of the disapproval within which to modify
the objectionable portions of the articles or amendment. The following are grounds for
such disapproval:
(a) The articles of incorporation or any amendment thereto is not substantially in
accordance with the form prescribed herein;
(b) The purpose or purposes of the corporation are patently unconstitutional,
illegal, immoral or contrary to government rules and regulations;
(c) The certification concerning the amount of capital stock subscribed and/or
paid is false; and
(d) The required percentage of Filipino ownership of the capital stock under
existing laws or the Constitution has not been complied with.
No articles of incorporation or amendment to articles of incorporation of banks,
banking and quasi-banking institutions, preneed, insurance and trust companies,
NSSLAs, pawnshops, and other financial intermediaries shall be 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.
SECTION 17. Corporate Name. — No corporate name shall be allowed by the
Commission if it is not distinguishable from that already reserved or registered for the
use of another corporation, or if such name is already protected by law, or when its use
is contrary to existing law, rules and regulations.
A name is not distinguishable even if it contains one or more of the following:
(a) The word "corporation", "company", "incorporated", "limited", "limited
liability", or an abbreviation of one of such words; and
(b) Punctuations, articles, conjunctions, contractions, prepositions,
abbreviations, different tenses, spacing, or number of the same word or
phrase.
The Commission, upon determination that the corporate name is: (1) not
distinguishable from a name already reserved or registered for the use of another
corporation; (2) already protected by law; or (3) contrary to law, rules and regulations,
may summarily order the corporation to immediately cease and desist from using such
name and require the corporation to register a new one. The Commission shall also
cause the removal of all visible signages, marks, advertisements, labels, prints and
other effects bearing such corporate name. Upon the approval of the new corporate
name, the Commission shall issue a certificate of incorporation under the amended
name.
If the corporation fails to comply with the Commission's order, the Commission may
hold the corporation and its responsible directors or officers in contempt and/or hold
them administratively, civilly and/or criminally liable under this Code and other
applicable laws and/or revoke the registration of the corporation.
SECTION 18. Registration, Incorporation and Commencement of Corporate
Existence. — A person or group of persons desiring to incorporate shall submit the
intended corporate name to the Commission for verification. If the Commission finds
that the name is distinguishable from a name already reserved or registered for the use
of another corporation, not protected by law and is not contrary to law, rules and
regulations, the name shall be reserved in favor of the incorporators. The incorporators
shall then submit their articles of incorporation and bylaws to the Commission.
If the Commission finds that the submitted documents and information are fully
compliant with the requirements of this Code, other relevant laws, rules and
regulations, the Commission shall issue the certificate of incorporation.
A private corporation organized under this Code commences its corporate existence
and juridical personality from the date the Commission issues the certificate of
incorporation under its official seal and thereupon the incorporators,
stockholders/members and their successors shall constitute a body 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.
SECTION 19. 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.
SECTION 20. Corporation by Estoppel. — All persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable as general
partners for all debts, liabilities and damages incurred or arising as a result
thereof: Provided, however, That when any such ostensible corporation is sued on any
transaction entered by it as a corporation or on any tort committed by it as such, it shall
not be allowed to use its lack of corporate personality as a defense. Anyone who
assumes an obligation to an ostensible corporation as such cannot resist performance
thereof on the ground that there was in fact no corporation.
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SECTION 21. Effects of Non-Use of Corporate Charter and Continuous Inoperation.
— If a corporation does not formally organize and commence its business within five
(5) years from the date of its incorporation, its certificate of incorporation shall be
deemed revoked as of the day following the end of the five (5)-year period.
However, if a corporation has commenced its business but subsequently becomes
inoperative for a period of at least five (5) consecutive years, the Commission may,
after due notice and hearing, place the corporation under delinquent status.
A delinquent corporation shall have a period of two (2) years to resume operations and
comply with all requirements that the Commission shall prescribe. Upon compliance
by the corporation, the Commission shall issue an order lifting the delinquent status.
Failure to comply with the requirements and resume operations within the period given
by the Commission shall cause the revocation of the corporation's certificate of
incorporation.
The Commission shall give reasonable notice to, and coordinate with the appropriate
regulatory agency prior to the suspension or revocation of the certificate of
incorporation of companies under their special regulatory jurisdiction.
TITLE III
Board of Directors/Trustees and Officers
SECTION 22. The Board of Directors or Trustees of a Corporation; Qualification
and Term. — Unless otherwise provided in this Code, the board of directors or trustees
shall exercise the corporate powers, conduct all business, and control all properties of
the corporation.
Directors shall be elected for a term of one (1) year from among the holders of stocks
registered in the corporation's books, while trustees shall be elected for a term not
exceeding three (3) years from among the members of the corporation. Each director
and trustee shall hold office until the successor is elected and qualified. A director who
ceases to own at least one (1) share of stock or a trustee who ceases to be a member of
the corporation shall cease to be such.
The board of the following corporations vested with public interest shall have
independent directors constituting at least twenty percent (20%) of such board:
(a) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise
known as "The Securities Regulation Code," namely those whose securities
are registered with the Commission, corporations listed with an exchange or
with assets of at least Fifty million pesos (P50,000,000.00) and having two
hundred (200) or more holders of shares, each holding at least one hundred
(100) shares of a class of its equity shares;
(b) Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in
money service business, preneed, trust and insurance companies, and other
financial intermediaries; and
 (c) Other corporations engaged in businesses vested with public interest similar
to the above, as may be determined by the Commission, after taking into
account relevant factors which are germane to the objective and purpose of
requiring the election of an independent director, such as the extent of
minority ownership, type of financial products or securities issued or offered
to investors, public interest involved in the nature of business operations, and
other analogous factors.
An independent director is a person who, apart from shareholdings and fees received
from the corporation, is independent of management and free from any business or
other relationship which could, or could reasonably be perceived to materially interfere
with the exercise of independent judgment in carrying out the responsibilities as a
director.
Independent directors must be elected by the shareholders present or entitled to vote in
absentia during the election of directors. Independent directors shall be subject to rules
and regulations governing their qualifications, disqualifications, voting requirements,
duration of term and term limit, maximum number of board memberships and other
requirements that the Commission will prescribe to strengthen their independence and
align with international best practices.
SECTION 23. Election of Directors or Trustees. — Except when the exclusive right
is reserved for holders of founders' shares under Section 7 of this Code, each
stockholder or member shall have the right to nominate any director or trustee who
possesses all of the qualifications and none of the disqualifications set forth in this
Code.
At all elections of directors or trustees, there must be present, either in person or
through a representative authorized to act by written proxy, the owners of majority of
the outstanding capital stock, or if there be no capital stock, a majority of the members
entitled to vote. When so authorized in the bylaws or by a majority of the board of
directors, the stockholders or members may also vote through remote communication
or in absentia: Provided, That the right to vote through such modes may be exercised
in corporations vested with public interest, notwithstanding the absence of a provision
in the bylaws of such corporations.
A stockholder or member who participates through remote communication or in
absentia, shall be deemed present for purposes of quorum.
The election must be by ballot if requested by any voting stockholder or member.
In stock corporations, stockholders entitled to vote shall have the right to vote the
number of shares of stock standing in their own names in the stock books of the
corporation at the time fixed in the bylaws or where the bylaws are silent, at the time
of the election. The said stockholder may: (a) vote such number of shares for as many
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persons as there are directors to be elected; (b) cumulate said shares and give one (1)
candidate as many votes as the number of directors to be elected multiplied by the
number of the shares owned; or (c) distribute them on the same principle among as
many candidates as may be seen fit: Provided, That the total number of votes cast shall
not exceed the number of shares owned by the stockholders 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 bylaws, members of nonstock corporations may cast
as many votes as there are trustees to be elected but may not cast more than one (1)
vote for one (1) candidate. Nominees for directors or trustees receiving the highest
number of votes shall be declared elected.
If no election is held, or the owners of majority of the outstanding capital stock or
majority of the members entitled to vote are not present in person, by proxy, or through
remote communication or not voting in absentia at the meeting, such meeting may be
adjourned and the corporation shall proceed in accordance with Section 25 of this
Code.
The directors or trustees elected shall perform their duties as prescribed by law, rules
of good corporate governance, and bylaws of the corporation.
SECTION 24. Corporate Officers. — Immediately after their election, the directors
of a corporation must formally organize and elect: (a) a president, who must be a
director; (b) a treasurer, who must be a resident; (c) a secretary, who must be a citizen
and resident of the Philippines; and (d) such other officers as may be provided in the
bylaws. If the corporation is vested with public interest, the board shall also elect a
compliance officer. The same person may hold two (2) or more positions concurrently,
except that no one shall act as president and secretary or as president and treasurer at
the same time, unless otherwise allowed in this Code.
The officers shall manage the corporation and perform such duties as may be provided
in the bylaws and/or as resolved by the board of directors.
SECTION 25. Report of Election of Directors, Trustees and Officers, Non-Holding
of Election and Cessation from Office. — 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 Commission, the names, nationalities,
shareholdings, and residence addresses of the directors, trustees and officers elected.
The non-holding of elections and the reasons therefor shall be reported to the
Commission within thirty (30) days from the date of the scheduled election. The report
shall specify a new date for the election, which shall not be later than sixty (60) days
from the scheduled date.
If no new date has been designated, or if the rescheduled election is likewise not held,
the Commission may, upon the application of a stockholder, member, director or
trustee, and after verification of the unjustified non-holding of the election, summarily
order that an election be held. The Commission shall have the power to issue such
orders as may be appropriate, including orders directing the issuance of a notice stating
the time and place of the election, designated presiding officer, and the record date or
dates for the determination of stockholders or members entitled to vote.
Notwithstanding any provision of the articles of incorporation or bylaws to the
contrary, the shares of stock or membership represented at such meeting and entitled
to vote shall constitute a quorum for purposes of conducting an election under this
section.
Should a director, trustee or officer die, resign or in any manner cease to hold office,
the secretary, or the director, trustee or officer of the corporation, shall, within seven
(7) days from knowledge thereof, report in writing such fact to the Commission.
SECTION 26. Disqualification of Directors, Trustees or Officers. — A person shall
be disqualified from being a director, trustee or officer of any corporation if, within
five (5) years prior to the election or appointment as such, the person was:
(a) Convicted by final judgment:
(1) Of an offense punishable by imprisonment for a period exceeding six (6)
years;
(2) For violating this Code; and
(3) For violating Republic Act No. 8799, otherwise known as "The
Securities Regulation Code";
(b) Found administratively liable for any offense involving fraudulent acts; and
(c) By a foreign court or equivalent foreign regulatory authority for acts,
violations or misconduct similar to those enumerated in paragraphs (a) and
(b) above.
The foregoing is without prejudice to qualifications or other disqualifications, which
the Commission, the primary regulatory agency, or the Philippine Competition
Commission may impose in its promotion of good corporate governance or as a
sanction in its administrative proceedings.
SECTION 27. 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 in a nonstock
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 for the purpose of removing any director or trustee must be called by the
secretary on order of the president, or upon written demand of the stockholders
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representing or holding at least a majority of the outstanding capital stock, or a
majority of the members entitled to vote. If there is no secretary, or if the secretary,
despite demand, fails or refuses to call the special meeting or to give notice thereof,
the stockholder or member of the corporation signing the demand may call for the
meeting by directly addressing the stockholders or members. 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 23 of this Code.
The Commission shall, motu proprio or upon verified complaint, and after due notice
and hearing, order the removal of a director or trustee elected despite the
disqualification, or whose disqualification arose or is discovered subsequent to an
election. The removal of a disqualified director shall be without prejudice to other
sanctions that the Commission may impose on the board of directors or trustees who,
with knowledge of the disqualification, failed to remove such director or trustee.
SECTION 28. Vacancies in the Office of Director or Trustee; Emergency Board. —
Any vacancy occurring in the board of directors or trustees other than by removal 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 or members in a regular or special meeting called for that
purpose.
When the vacancy is due to term expiration, the election shall be held no later than the
day of such expiration at a meeting called for that purpose. When the vacancy arises
as a result of removal by the stockholders or members, the election may be held on the
same day of the meeting authorizing the removal and this fact must be so stated in the
agenda and notice of said meeting. In all other cases, the election must be held no later
than forty-five (45) days from the time the vacancy arose. A director or trustee elected
to fill a vacancy shall be referred to as replacement director or trustee and shall serve
only for the unexpired term of the predecessor in office.
However, when the vacancy prevents the remaining directors from constituting a
quorum and emergency action is required to prevent grave, substantial, and irreparable
loss or damage to the corporation, the vacancy may be temporarily filled from among
the officers of the corporation by unanimous vote of the remaining directors or
trustees. The action by the designated director or trustee shall be limited to the
emergency action necessary, and the term shall cease within a reasonable time from
the termination of the emergency or upon election of the replacement director or
trustee, whichever comes earlier. The corporation must notify the Commission within
three (3) days from the creation of the emergency board, stating therein the reason for
its creation.
Any directorship or trusteeship to be filled by reason of an increase in the number of
directors or trustees shall be filled only by an election at a regular or at a special
meeting of stockholders or members duly called for the purpose, or in the same
meeting authorizing the increase of directors or trustees if so stated in the notice of the
meeting.
In all elections to fill vacancies under this section, the procedure set forth in Sections
23 and 25 of this Code shall apply.
SECTION 29. Compensation of Directors or Trustees. — In the absence of any
provision in the bylaws fixing their compensation, the directors or trustees shall not
receive any compensation in their capacity as such, except for reasonable per
diems: Provided, however, That the stockholders representing at least a majority of the
outstanding capital stock or majority of the members may grant directors or trustees
with compensation and approve the amount thereof at a regular or special meeting.
In no case shall the total yearly compensation of directors exceed ten percent (10%) of
the net income before income tax of the corporation during the preceding year.
Directors or trustees shall not participate in the determination of their own per diems
or compensation.
Corporations vested with public interest shall submit to their shareholders and the
Commission, an annual report of the total compensation of each of their directors or
trustees.
SECTION 30. Liability of Directors, Trustees or Officers. — Directors or trustees
who willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the affairs
of the corporation or acquire any personal or pecuniary interest in conflict with their
duty as such directors or trustees shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders or members and other
persons.
A director, trustee or officer shall not attempt to acquire, or acquire any interest adverse
to the corporation in respect of any matter which has been reposed in them in
confidence, and upon which, equity imposes a disability upon themselves to deal in
their own behalf; otherwise, the said director, trustee or officer shall be liable as a
trustee for the corporation and must account for the profits which otherwise would
have accrued to the corporation.
SECTION 31. Dealings of Directors, Trustees or Officers with the Corporation. —
A contract of the corporation with one (1) or more of its directors, trustees, officers or
their spouses and relatives within the fourth civil degree of consanguinity or affinity
140
is voidable, at the option of such corporation, unless all the following conditions are
present:
(a) 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;
(b) The vote of such director or trustee was not necessary for the approval of the
contract;
(c) The contract is fair and reasonable under the circumstances;
(d) In case of corporations vested with public interest, material contracts are
approved by at least two-thirds (2/3) of the entire membership of the board,
with at least a majority of the independent directors voting to approve the
material contract; and
(e) In case of an officer, the contract has been previously authorized by the board
of directors.
Where any of the first three (3) conditions set forth in the preceding paragraph is
absent, in the case of a contract with a director or trustee, such contract may be ratified
by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding
capital stock or of at least two-thirds (2/3) of the members in a meeting called for the
purpose: Provided, That full disclosure of the adverse interest of the directors or
trustees involved is made at such meeting and the contract is fair and reasonable under
the circumstances.
SECTION 32. 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 (2) 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 (1) corporation is substantial and the interest in the
other corporation or corporations is merely nominal, the contract shall be subject to
the provisions of the preceding section insofar as the latter corporation or corporations
are concerned.
Stockholdings exceeding twenty percent (20%) of the outstanding capital stock shall
be considered substantial for purposes of interlocking directors.
SECTION 33. Disloyalty of a Director. — Where a director, by virtue of such office,
acquires a business opportunity which should belong to the corporation, thereby
obtaining profits to the prejudice of such corporation, the director must account for
and refund to the latter all such profits, unless the 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 one's own funds in the venture.
SECTION 34. Executive, Management, and Other Special Committees. — If the
bylaws so provide, the board may create an executive committee composed of at least
three (3) directors. 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 bylaws or by majority vote of the board, except with respect to the: (a) approval of
any action for which shareholders' approval is also required; (b) filling of vacancies in
the board; (c) amendment or repeal of bylaws or the adoption of new bylaws; (d)
amendment or repeal of any resolution of the board which by its express terms is not
amendable or repealable; and (e) distribution of cash dividends to the shareholders.
The board of directors may create special committees of temporary or permanent
nature and determine the members' term, composition, compensation, powers, and
responsibilities.
TITLE IV
Powers of Corporations
SECTION 35. Corporate Powers and Capacity. — Every corporation incorporated
under this Code has the power and capacity:
(a) To sue and be sued in its corporate name;
(b) To have perpetual existence unless the certificate of incorporation provides
otherwise;
(c) To adopt and use a corporate seal;
(d) To amend its articles of incorporation in accordance with the provisions of
this Code;
(e) To adopt bylaws, not contrary to law, morals or public policy, and to amend
or repeal the same in accordance with this Code;
(f) In case of stock corporations, to issue or 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 nonstock corporation;
(g) 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;
(h) To enter into a partnership, joint venture, merger, consolidation, or any other
commercial agreement with natural and juridical persons;
(i) To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural, scientific, civic, or similar purposes: Provided,
That no foreign corporation shall give donations in aid of any political party
or candidate or for purposes of partisan political activity;
(j) To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers, and employees; and
(k) 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.
SECTION 36. 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 or members representing at least two-thirds (2/3) of the outstanding
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capital stock or of its members. Written notice of the proposed action and the time and
place of the meeting shall be sent to stockholders or members at their respective place
of residence as shown in the books of the corporation, and must be deposited to the
addressee in the post office with postage prepaid, served personally, or when allowed
in the bylaws or done with the consent of the stockholder, sent electronically in
accordance with the rules and regulations of the Commission on the use of electronic
data messages. In case of extension of corporate term, a dissenting stockholder may
exercise the right of appraisal under the conditions provided in this Code.
SECTION 37. 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 by two-thirds (2/3) of the outstanding
capital stock at a stockholders' meeting duly called for the purpose. Written notice of
the time and place of the stockholders' meeting and the purpose for said meeting must
be sent to the stockholders at their places of residence as shown in the books of the
corporation and served on the stockholders personally, or through electronic means
recognized in the corporation's bylaws and/or the Commission's rules as a valid mode
for service of notices.
A certificate must be signed by a majority of the directors of the corporation and
countersigned by the chairperson and secretary of the stockholders' meeting, setting
forth:
(a) That the requirements of this section have been complied with;
(b) The amount of the increase or decrease of the capital stock;
(c) In case of 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 addresses 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 the 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;
(d) Any bonded indebtedness to be incurred, created or increased;
(e) The amount of stock represented at the meeting; and
(f) The vote authorizing the increase or decrease 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 Commission, and where
appropriate, of the Philippine Competition Commission. The application with the
Commission shall be made within six (6) months from the date of approval of the
board of directors and stockholders, which period may be extended for justifiable
reasons.
Copies of the certificate shall be kept on file in the office of the corporation and filed
with the Commission and attached to the original articles of incorporation. After
approval by the Commission and the issuance by the Commission of its certificate of
filing, the capital stock shall be deemed increased or decreased and the incurring,
creating or increasing of any bonded indebtedness authorized, as the certificate of
filing may declare: Provided, That the Commission shall not accept for filing any
certificate of increase of capital stock unless accompanied by a 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 percent (25%) of the increase in capital
stock has been subscribed and that at least twenty-five percent (25%) of the amount
subscribed has been paid in actual cash to the corporation or that property, the
valuation of which is equal to twenty-five percent (25%) of the subscription, has been
transferred to the corporation: Provided, further, That no decrease in capital stock shall
be approved by the Commission if its effect shall prejudice the rights of corporate
creditors.
Nonstock corporations may incur, create or increase bonded indebtedness when
approved by a majority 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 Commission, which shall
have the authority to determine the sufficiency of the terms thereof.
SECTION 38. Power to Deny Preemptive Right. — All stockholders of a stock
corporation shall enjoy preemptive 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 preemptive right shall not extend to shares issued in compliance with laws
requiring stock offerings or minimum stock ownership by the public; or to shares
issued in good faith with the approval of the stockholders representing two-thirds (2/3)
of the outstanding capital stock, in exchange for property needed for corporate
purposes or in payment of a previously contracted debt.
SECTION 39. Sale or Other Disposition of Assets. — Subject to the provisions
of Republic Act No. 10667, otherwise known as the "Philippine Competition Act,"
and other related laws, a corporation may, by a majority vote of its board of directors
or trustees, sell, lease, exchange, mortgage, pledge, or otherwise dispose of its property
and assets, 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.
A sale of all or substantially all of the corporation's properties and assets, including its
goodwill, must be authorized by the vote of the stockholders representing at least two-
thirds (2/3) of the outstanding capital stock, or at least two-thirds (2/3) of the members,
in a stockholders' or members' meeting duly called for the purpose.
142
In nonstock 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.
The determination of whether or not the sale involves all or substantially all of the
corporation's properties and assets must be computed based on its net asset value, as
shown in its latest financial statements. 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.
Written notice of the proposed action and of the time and place for the meeting shall
be addressed to stockholders or members at their places of residence as shown in the
books of the corporation and deposited to the addressee in the post office with postage
prepaid, served personally, or when allowed by the bylaws or done with the consent
of the stockholder, sent electronically: Provided, That any dissenting stockholder may
exercise the right of appraisal under the conditions provided in this Code.
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 the corporation or if the proceeds of the
sale or other disposition of such property and assets shall be appropriated for the
conduct of its remaining business.
SECTION 40. Power to Acquire Own Shares. — Provided that the corporation has
unrestricted retained earnings in its books to cover the shares to be purchased or
acquired, a stock corporation shall have the power to purchase or acquire its own
shares for a legitimate corporate purpose or purposes, including the following cases:
(a) To eliminate fractional shares arising out of stock dividends;
(b) 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
(c) To pay dissenting or withdrawing stockholders entitled to payment for their
shares under the provisions of this Code.
SECTION 41. 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, 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 nonstock corporations, at a meeting duly
called for the purpose. Notice of the proposed investment and the time and place of
the meeting shall be addressed to each stockholder or member at the place of residence
as shown in the books of the corporation and deposited to the addressee in the post
office with postage prepaid, served personally, or sent electronically in accordance
with the rules and regulations of the Commission on the use of electronic data message,
when allowed by the bylaws or done with the consent of the stockholders: 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.
SECTION 42. 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, 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 stockholders until their unpaid
subscription is fully paid: Provided, further, That no stock dividend shall be issued
without the approval of stockholders representing at least two-thirds (2/3) of the
outstanding capital stock at a regular or special meeting duly called for the purpose.
Stock corporations are prohibited from retaining surplus profits in excess of one
hundred percent (100%) of their paid-in capital stock, except: (a) when justified by
definite corporate expansion projects or programs approved by the board of directors;
or (b) when the corporation is prohibited under any loan agreement with financial
institutions or creditors, whether local or foreign, from declaring dividends without
their consent, and such consent has not yet been secured; or (c) 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.
SECTION 43. Power to Enter into Management Contract. — No corporation shall
conclude a management contract with another corporation unless such contract is
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
nonstock corporation, of both the managing and the managed corporation, at a meeting
duly called for the purpose: Provided, That (a) 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 (b) where a majority of the members of the
board of directors of the managing corporation also constitute a majority of the
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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 nonstock corporation.
These 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 pertinent laws or regulations.
No management contract shall be entered into for a period longer than five (5) years
for any one (1) term.
SECTION 44. Ultra Vires Acts of Corporations. — No corporation shall possess or
exercise corporate powers other than those conferred by this Code or by its articles of
incorporation and except as necessary or incidental to the exercise of the powers
conferred.
TITLE V
Bylaws
SECTION 45. Adoption of Bylaws. — For the adoption of bylaws 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 nonstock
corporations, shall be necessary. The bylaws 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 by a majority of the directors or trustees and countersigned by
the secretary of the corporation, shall be filed with the Commission and attached to the
original articles of incorporation.
Notwithstanding the provisions of the preceding paragraph, bylaws may be adopted
and filed prior to incorporation; in such case, such bylaws shall be approved and signed
by all the incorporators and submitted to the Commission, together with the articles of
incorporation.
In all cases, bylaws shall be effective only upon the issuance by the Commission of a
certification that the bylaws are in accordance with this Code.
The 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 bylaws or amendments are in accordance with law.

SECTION 46. Contents of Bylaws. — A private corporation may provide the
following in its bylaws:
(a) The time, place and manner of calling and conducting regular or special
meetings of the directors or trustees;
(b) The time and manner of calling and conducting regular or special meetings
and mode of notifying the stockholders or members thereof;
(c) The required quorum in meetings of stockholders or members and the manner
of voting therein;
(d) The modes by which a stockholder, member, director, or trustee may attend
meetings and cast their votes;
(e) The form for proxies of stockholders and members and the manner of voting
them;
(f) The directors' or trustees' qualifications, duties and responsibilities, the
guidelines for setting the compensation of directors or trustees and officers,
and the maximum number of other board representations that an independent
director or trustee may have which shall, in no case, be more than the number
prescribed by the Commission;
(g) The time for holding the annual election of directors or trustees and the mode
or manner of giving notice thereof;
(h) The manner of election or appointment and the term of office of all officers
other than directors or trustees;
(i) The penalties for violation of the bylaws;
(j) In the case of stock corporations, the manner of issuing stock certificates; and
(k) Such other matters as may be necessary for the proper or convenient
transaction of its corporate affairs for the promotion of good governance and
anti-graft and corruption measures.
An arbitration agreement may be provided in the bylaws pursuant to Section 181 of
this Code.
SECTION 47. Amendment to Bylaws. — A majority of the board of directors or
trustees, 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 the bylaws or adopt new
bylaws. The owners of two-thirds (2/3) of the outstanding capital stock or two-thirds
(2/3) of the members in a nonstock corporation may delegate to the board of directors
or trustees the power to amend or repeal the bylaws or adopt new bylaws: Provided,
That any power delegated to the board of directors or trustees to amend or repeal the
bylaws or adopt new bylaws shall be considered as revoked whenever stockholders
owning or representing a majority of the outstanding capital stock or majority of the
members shall so vote at a regular or special meeting.
Whenever the bylaws are amended or new bylaws are adopted, the corporation shall
file with the Commission such amended or new bylaws and, if applicable, the
stockholders' or members' resolution authorizing the delegation of the power to amend
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and/or adopt new bylaws, duly certified under oath by the corporate secretary and a
majority of the directors or trustees.
The amended or new bylaws shall only be effective upon the issuance by the
Commission of a certification that the same is in accordance with this Code and other
relevant laws.
TITLE VI
Meetings
SECTION 48. Kinds of Meetings. — Meetings of directors, trustees, stockholders, or
members may be regular or special.
SECTION 49. Regular and Special Meetings of Stockholders or Members. — Regular
meetings of stockholders or members shall be held annually on a date fixed in the
bylaws, or if not so fixed, on any date after April 15 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 twenty-one (21) days
prior to the meeting, unless a different period is required in the bylaws, law, or
regulation: Provided, further, That written notice of regular meetings may be sent to
all stockholders or members of record through electronic mail or such other manner as
the Commission shall allow under its guidelines.
At each regular meeting of stockholders or members, the board of directors or trustees
shall endeavor to present to stockholders or members the following:
(a) The minutes of the most recent regular meeting which shall include, among
others:
(1) A description of the voting and vote tabulation procedures used in the
previous meeting;
(2) A description of the opportunity given to stockholders or members to ask
questions and a record of the questions asked and answers given;
(3) The matters discussed and resolutions reached;
(4) A record of the voting results for each agenda item;
(5) A list of the directors or trustees, officers and stockholders or members
who attended the meeting; and
(6) Such other items that the Commission may require in the interest of good
corporate governance and the protection of minority stockholders;
(b) A members' list for nonstock corporations and, for stock corporations,
material information on the current stockholders, and their voting rights;
(c) A detailed, descriptive, balanced and comprehensible assessment of the
corporation's performance, which shall include information on any material
change in the corporation's business, strategy, and other affairs;
(d) A financial report for the preceding year, which shall include financial
statements duly signed and certified in accordance with this Code and the
rules the Commission may prescribe, a statement on the adequacy of the
 corporation's internal controls or risk management systems, and a statement
of all external audit and non-audit fees;
(e) An explanation of the dividend policy and the fact of payment of dividends
or the reasons for nonpayment thereof;
(f) Director or trustee profiles which shall include, among others, their
qualifications and relevant experience, length of service in the corporation,
trainings and continuing education attended, and their board representations
in other corporations;
(g) A director or trustee attendance report, indicating the attendance of each
director or trustee at each of the meetings of the board and its committees and
in regular or special stockholder meetings;
(h) Appraisals and performance reports for the board and the criteria and
procedure for assessment;
(i) A director or trustee compensation report prepared in accordance with this
Code and the rules the Commission may prescribe;
(j) Director disclosures on self-dealings and related party transactions; and/or
(k) The profiles of directors nominated or seeking election or reelection.
A director, trustee, stockholder, or member may propose any other matter for inclusion
in the agenda at any regular meeting of stockholders or members.
Special meetings of stockholders or members shall be held at any time deemed
necessary or as provided in the bylaws: Provided, however, That at least one (1) week
written notice shall be sent to all stockholders or members, unless a different period is
provided in the bylaws, law or regulation.
A stockholder or member may propose the holding of a special meeting and items to
be included in the agenda.
Notice of any meeting may be waived, expressly or impliedly, by any stockholder or
member: Provided, That general waivers of notice in the articles of incorporation or
the bylaws shall not be allowed; Provided, further, That attendance at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened.
Whenever for any cause, there is no person authorized or the person authorized
unjustly refuses to call a meeting, the Commission, upon petition of a stockholder or
member on a showing of good cause therefor, may issue an order, directing the
petitioning stockholder or member to call a meeting of the corporation by giving
proper notice required by this Code or the bylaws. The petitioning stockholder or
member shall preside thereat until at least a majority of the stockholders or members
present have chosen from among themselves, a presiding officer.
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Unless the bylaws provide for a longer period, the stock and transfer book or
membership book shall be closed at least twenty (20) days for regular meetings and
seven (7) days for special meetings before the scheduled date of the meeting.
In case of postponement of stockholders' or members' regular meetings, written notice
thereof and the reason therefor shall be sent to all stockholders or members of record
at least two (2) weeks prior to the date of the meeting, unless a different period is
required under the bylaws, law or regulation.
The right to vote of stockholders or members may be exercised in person, through a
proxy, or when so authorized in the bylaws, through remote communication or in
absentia. The Commission shall issue the rules and regulations governing participation
and voting through remote communication or in absentia, taking into account the
company's scale, number of shareholders or members, structure, and other factors
consistent with the protection and promotion of shareholders' or members' meetings.
SECTION 50. Place and Time of Meetings of Stockholders or Members. —
Stockholders' or members' meetings, whether regular or special, shall be held in the
principal office of the corporation as set forth in the articles of incorporation, or, if not
practicable, in the city or municipality where the principal office of the corporation is
located: Provided, That any city or municipality in Metro Manila, Metro Cebu, Metro
Davao, and other Metropolitan areas shall, for purposes of this section, be considered
a city or municipality.
Notice of meetings shall be sent through the means of communication provided in the
bylaws, which notice shall state the time, place and purpose of the meetings.
Each notice of meeting shall further be accompanied by the following:
(a) The agenda for the meeting;
(b) A proxy form which shall be submitted to the corporate secretary within a
reasonable time prior to the meeting;
(c) When attendance, participation, and voting are allowed by remote
communication or in absentia, the requirements and procedures to be followed
when a stockholder or member elects either option; and
(d) When the meeting is for the election of directors or trustees, the requirements
and procedure for nomination and election.
All proceedings and any business transacted at a meeting of the stockholders or
members, if within the powers or authority of the corporation, shall be valid even if
the meeting is improperly held or called: Provided, That all the stockholders or
members of the corporation are present or duly represented at the meeting and not one
of them expressly states at the beginning of the meeting that the purpose of their
attendance is to object to the transaction of any business because the meeting is not
lawfully called or convened.
SECTION 51. Quorum in Meetings. — Unless otherwise provided in this Code or in
the bylaws, 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 nonstock
corporations.
S of any written proxy.
ECTION 52. Regular and Special Meetings of Directors or Trustees; Quorum. —
Unless the articles of incorporation or the bylaws provides for a greater majority, a
majority of the directors or trustees as stated in the articles of incorporation shall
constitute a quorum to transact corporate business, and every decision reached by at
least a majority of the directors or trustees constituting a quorum, except for the
election of officers which shall require the vote of a majority of all the members of the
board, shall be valid as a corporate act.
Regular meetings of the board of directors or trustees of every corporation shall be
held monthly, unless the bylaws provide otherwise.
Special meetings of the board of directors or trustees may be held at any time upon the
call of the president or as provided in the bylaws.
Meetings of directors or trustees of corporations may be held anywhere in or outside
of the Philippines, unless the bylaws 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 two (2) days prior to the scheduled meeting, unless a longer time is
provided in the bylaws. A director or trustee may waive this requirement, either
expressly or impliedly.
Directors or trustees who cannot physically attend or vote at board meetings can
participate and vote through remote communication such as videoconferencing,
teleconferencing, or other alternative modes of communication that allow them
reasonable opportunities to participate. Directors or trustees cannot attend or vote by
proxy at board meetings.
A director or trustee who has a potential interest in any related party transaction must
recuse from voting on the approval of the related party transaction without prejudice
to compliance with the requirements of Section 31 of this Code.
SECTION 53. Who Shall Preside at Meetings. — The chairman or, in his absence,
the president shall preside at all meetings of the directors or trustees as well as of the
stockholders or members, unless the bylaws provide otherwise.
SECTION 54. Right to Vote of Secured Creditors and Administrators. — In case a
stockholder grants security interest in his or her shares in stock corporations, the
stockholder-grantor shall have the right to attend and vote at meetings of stockholders,
unless the secured creditor is expressly given by the stockholder-grantor such right in
writing which is recorded in the appropriate corporate books.
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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
SECTION 55. Voting in Case of Joint Ownership of Stock. — The consent of all the
co-owners shall be necessary in voting shares of stock owned jointly by two (2) or
more persons, unless there is a written proxy, signed by all the co-owners, authorizing
one (1) 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.
SECTION 56. Voting Right for Treasury Shares. — Treasury shares shall have no
voting right as long as such shares remain in the Treasury.
SECTION 57. Manner of Voting; Proxies. — Stockholders and members may vote in
person or by proxy in all meetings of stockholders or members.
When so authorized in the bylaws or by a majority of the board of directors, the
stockholders or members of corporations may also vote through remote
communication or in absentia: Provided, That the votes are received before the
corporation finishes the tally of votes.
A stockholder or member who participates through remote communication or in
absentia shall be deemed present for purposes of quorum.
The corporation shall establish the appropriate requirements and procedures for voting
through remote communication and in absentia, taking into account the company's
scale, number of shareholders or members, structure and other factors consistent with
the basic right of corporate suffrage.
Proxies shall be in writing, signed and filed, by the stockholder or member, in any
form authorized in the bylaws and received by the corporate secretary within a
reasonable time before the scheduled meeting. Unless otherwise provided in the proxy
form, 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.
SECTION 58. 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
Commission; otherwise, the agreement is ineffective and unenforceable. The
certificate or certificates of stock covered by the voting trust agreement shall be
cancelled and new ones shall be issued in the name of the trustee or trustees, stating
that they are issued pursuant to said agreement. The books of the corporation shall
state that the transfer in the name of the trustee or trustees is made pursuant to the
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 trustor 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 the 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 purposes of circumventing the laws
against anti-competitive agreements, abuse of dominant position, anti-competitive
mergers and acquisitions, violation of nationality and capital requirements, or for the
perpetuation of fraud.
Unless expressly renewed, all rights granted in a voting trust agreement shall
automatically expire at the end of the agreed period. The voting trust certificates as
well as the certificates of stock in the name of the trustee or trustees shall thereby be
deemed cancelled and new certificates of stock shall be reissued in the name of the
trustors.
The voting trustee or trustees may vote by proxy or in any manner authorized under
the bylaws unless the agreement provides otherwise.
TITLE VII
Stocks and Stockholders
SECTION 59. 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.
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SECTION 60. Pre-incorporation Subscription. — A subscription of shares in 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 the corporation fails to incorporate within the same period or within a
longer period stipulated in the contract of subscription. No pre-incorporation
subscription may be revoked after the articles of incorporation is submitted to the
Commission.
SECTION 61. Consideration for Stocks. — Stocks shall not be issued for a
consideration less than the par or issued price thereof. Consideration for the issuance
of stock may be:
(a) Actual cash paid to the corporation;
(b) 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;
(c) Labor performed for or services actually rendered to the corporation;
(d) Previously incurred indebtedness of the corporation;
(e) Amounts transferred from unrestricted retained earnings to stated capital;
(f) Outstanding shares exchanged for stocks in the event of reclassification or
conversion;
(g) Shares of stock in another corporation; and/or
(h) Other generally accepted form of consideration.
Where the consideration is other than actual cash, or consists of intangible property
such as patents or copyrights, the valuation thereof shall initially be determined by the
stockholders or the board of directors, subject to the approval of the Commission.
Shares of stock shall not be issued in exchange for promissory notes or future service.
The same considerations provided in this section, insofar as 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 by the articles of
incorporation or the bylaws, or if not so fixed, by the stockholders representing at least
a majority of the outstanding capital stock at a meeting duly called for the purpose.
SECTION 62. Certificate of Stock and Transfer of Shares. — The capital stock of
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 bylaws. Shares of
stock so issued are personal property and may be transferred by delivery of the
certificate or certificates indorsed by the owner, his attorney-in-fact, or any 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. The
Commission may require corporations whose securities are traded in trading markets
and which can reasonably demonstrate their capability to do so to issue their securities
or shares of stocks in uncertificated or scripless form in accordance with the rules of
the Commission.
No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation.
SECTION 63. Issuance of Stock Certificates. — No certificate of stock shall be issued
to a subscriber until the full amount of the subscription together with interest and
expenses (in case of delinquent shares), if any is due, has been paid.
SECTION 64. Liability of Directors for Watered Stocks. — A director or officer of a
corporation who: (a) consents to the issuance of stocks for a consideration less than its
par or issued value; (b) consents to the issuance of stocks for a consideration other than
cash, valued in excess of its fair value; or (c) having knowledge of the insufficient
consideration, does not file a written objection with the corporate secretary, shall be
liable to the corporation or its creditors, solidarily with the stockholder concerned for
the difference between the value received at the time of issuance of the stock and the
par or issued value of the same.
SECTION 65. Interest on Unpaid Subscriptions. — Subscribers to stocks shall be
liable to the corporation for interest on all unpaid subscriptions from the date of
subscription, if so required by and at the rate of interest fixed in the subscription
contract. If no rate of interest is fixed in the subscription contract, the prevailing legal
rate shall apply.
SECTION 66. Payment of Balance of Subscription. — Subject to the provisions of
the subscription contract, the board of directors may, at any time, declare due and
payable to the corporation unpaid subscriptions and may collect the same or such
percentage thereof, in either case, with accrued interest, if any, as it may deem
necessary.
Payment of unpaid subscription or any percentage thereof, together with any interest
accrued, shall be made on the date specified in the subscription contract 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 interest rate is provided in the subscription
contract. The interest shall be computed from the date specified, until full payment of
the subscription. If no payment is made within thirty (30) days from the said date, all
stocks covered by the subscription shall thereupon become delinquent and shall be
subject to sale as hereinafter provided, unless the board of directors orders otherwise.
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SECTION 67. 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 the sale, with a copy of the resolution, shall be sent to every delinquent
stockholder either personally, by registered mail, or through other means provided in
the bylaws. The same shall 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 the former's
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 a
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 the purchaser's 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 fully paid 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.
SECTION 68. 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. No such action shall
be maintained unless a complaint is filed within six (6) months from the date of sale.
SECTION 69. Court Action to Recover Unpaid Subscription. — Nothing in this Code
shall prevent the corporation from collecting through court action, the amount due on
any unpaid subscription, with accrued interest, costs and expenses.
SECTION 70. Effect of Delinquency. — No delinquent stock shall be voted for, be
entitled to vote, or be represented 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 payment is made by the
holder of such delinquent stock for the amount due on the subscription with accrued
interest, and the costs and expenses of advertisement, if any.
SECTION 71. Rights of Unpaid Shares, Nondelinquent. — Holders of subscribed
shares not fully paid which are not delinquent shall have all the rights of a stockholder.
SECTION 72. Lost or Destroyed Certificates. — The following procedure shall be
followed by a corporation in issuing new certificates of stock in lieu of those which
have been lost, stolen or destroyed:
(a) The registered owner of a certificate of stock in a corporation or such person's
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. The owner of such certificate of stock shall also submit such other
information and evidence as may be deemed necessary; and
(b) After verifying the affidavit and other information and evidence with the
books of the corporation, the corporation shall publish a notice in a newspaper
of general circulation 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 the corporation, the name of the
registered owner, the serial number of the certificate, the number of shares
represented by such certificate, and shall state that after the expiration of one
(1) year from the date of the last publication, if no contest has been presented
to the corporation regarding the certificate of stock, the right to make such
contest shall be barred and the corporation shall cancel the lost, destroyed or
stolen certificate of stock in its books. In lieu thereof, the corporation shall
issue a new certificate of stock, unless the registered owner files a bond or
other security 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. If a contest
has been presented to the corporation or if an action is pending in court
regarding the ownership of the 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 court renders a final decision regarding the ownership
of the 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
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certificate of stock in lieu of those lost, stolen or destroyed pursuant to the procedure
above-described.
TITLE VIII
Corporate Books and Records
SECTION 73. Books to be Kept; Stock Transfer Agent. — Every corporation shall
keep and carefully preserve at its principal office all information relating to the
corporation including, but not limited to:
(a) The articles of incorporation and bylaws of the corporation and all their
amendments;
(b) The current ownership structure and voting rights of the corporation,
including lists of stockholders or members, group structures, intra-group
relations, ownership data, and beneficial ownership;
(c) The names and addresses of all the members of the board of directors or
trustees and the executive officers;
(d) A record of all business transactions;
(e) A record of the resolutions of the board of directors or trustees and of the
stockholders or members;
(f) Copies of the latest reportorial requirements submitted to the Commission;
and
(g) The minutes of all meetings of stockholders or members, or of the board of
directors or trustees. Such minutes shall set forth in detail, among others: the
time and place of the meeting held, how it was authorized, the notice given,
the agenda therefor, whether the meeting was regular or special, its object if
special, those present and absent, and every act done or ordered done at the
meeting. Upon the demand of a 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 a director, trustee, stockholder or member on
any action or proposed action must be recorded in full upon their demand.
Corporate records, regardless of the form in which they are stored, shall be open to
inspection by any director, trustee, stockholder or member of the corporation in person
or by a representative at reasonable hours on business days, and a demand in writing
may be made by such director, trustee or stockholder at their expense, for copies of
such records or excerpts from said records. The inspecting or reproducing party shall
remain bound by confidentiality rules under prevailing laws, such as the rules on trade
secrets or processes under Republic Act No. 8293, otherwise known as the
"Intellectual Property Code of the Philippines," as amended, Republic Act No. 10173,
otherwise known as the "Data Privacy Act of 2012," Republic Act No. 8799, otherwise
known as "The Securities Regulation Code," and the Rules of Court.
A requesting party who is not a stockholder or member of record, or is a competitor,
director, officer, controlling stockholder or otherwise represents the interests of a
competitor shall have no right to inspect or demand reproduction of corporate records.
Any stockholder who shall abuse the rights granted under this section shall be
penalized under Section 158 of this Code, without prejudice to the provisions
of Republic Act No. 8293, otherwise known as the "Intellectual Property Code of the
Philippines," as amended, and Republic Act No. 10173, otherwise known as the "Data
Privacy Act of 2012."
Any officer or agent of the corporation who shall refuse to allow the inspection and/or
reproduction of records 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 161 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: 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 the demand to examine or reproduce corporate records,
or is a competitor, director, officer, controlling stockholder or otherwise represents the
interests of a competitor.
If the corporation denies or does not act on a demand for inspection and/or
reproduction, the aggrieved party may report such denial or inaction to the
Commission. Within five (5) days from receipt of such report, the Commission shall
conduct a summary investigation and issue an order directing the inspection or
reproduction of the requested records.
Stock corporations must also keep a stock and transfer book, which shall contain a
record of all stocks in the names of the stockholders alphabetically arranged; the
installments paid and unpaid on all stocks 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, by and to whom made; and such other entries as the
bylaws 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.
A 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 upon securing a license from the Commission and the payment of a fee to
be fixed by the Commission, which shall be renewable annually: Provided, That a
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stock corporation is not precluded from performing or making transfers 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: Provided,
further, That the Commission may require stock corporations which transfer and/or
trade stocks in secondary markets to have an independent transfer agent.
SECTION 74. Right to Financial Statements. — A corporation shall furnish a
stockholder or member, within ten (10) days from receipt of their written request, its
most recent financial statement, in the form and substance of the financial reporting
required by the Commission.
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 in accordance with this Code, and the rules the Commission may
prescribe.
However, if the total assets or total liabilities of the corporation are less than Six
hundred thousand pesos (P600,000.00), or such other amount as may be determined
appropriate by the Department of Finance, the financial statements may be certified
under oath by the treasurer and the president.
TITLE IX
Merger and Consolidation
SECTION 75. Plan of Merger or Consolidation. — Two (2) 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:
(a) The names of the corporations proposing to merge or consolidate, hereinafter
referred to as the constituent corporations;
(b) The terms of the merger or consolidation and the mode of carrying the same
into effect;
(c) A statement of the changes, if any, in the articles of incorporation of the
surviving corporation in case of merger; and, in case of consolidation, all the
statements required to be set forth in the articles of incorporation for
corporations organized under this Code; and
(d) Such other provisions with respect to the proposed merger or consolidation
as are deemed necessary or desirable.
SECTION 76. Stockholders' or Members' Approval. — Upon approval by a majority
vote of each of the board of directors or trustees of the constituent corporations of the
plan of merger or consolidation, the same shall be submitted for approval by the
stockholders or members of each of such corporations at separate corporate meetings
duly called for the purpose. Notice of such meetings shall be given to all stockholders
or members of the respective corporations in the same manner as giving notice of
regular or special meetings under Section 49 of this Code. The notice shall state the
purpose of the meeting and 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 nonstock corporations shall be
necessary for the approval of such plan. Any dissenting stockholder may exercise the
right of appraisal in accordance with this Code: Provided, That if after the approval by
the stockholders of such plan, the board of directors decides to abandon the plan, the
right of appraisal shall be extinguished.
Any amendment to the plan of merger or consolidation may be made: Provided, That
such amendment is approved by a majority vote of the respective boards of directors
or trustees of all the constituent corporations and ratified by the affirmative vote of
stockholders representing at least two-thirds (2/3) of the outstanding capital stock or
of two-thirds (2/3) of the members of each of the constituent corporations. Such plan,
together with any amendment, shall be considered as the agreement of merger or
consolidation.
SECTION 77. 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:
(a) The plan of the merger or the plan of consolidation;
(b) As to stock corporations, the number of shares outstanding, or in the case of
nonstock corporations, the number of members;
(c) As to each corporation, the number of shares or members voting for or against
such plan, respectively;
(d) The carrying amounts and fair values of the assets and liabilities of the
respective companies as of the agreed cut-off date;
(e) The method to be used in the merger or consolidation of accounts of the
companies;
(f) The provisional or pro forma values, as merged or consolidated, using the
accounting method; and
(g) Such other information as may be prescribed by the Commission.
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SECTION 78. Effectivity of Merger or Consolidation. — The articles of merger or of
consolidation, signed and certified as required by this Code, shall be submitted to the
Commission for its approval: Provided, That in the case of merger or consolidation of
banks or banking institutions, 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 consistent with the provisions
of this Code and existing laws, it shall issue a certificate approving the articles and
plan of merger or of consolidation, at which time the merger or consolidation shall be
effective.
If, upon investigation, the 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.
SECTION 79. Effects of Merger or Consolidation. — The merger or consolidation
shall have the following effects:
(a) 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;
(b) The separate existence of the constituent corporations shall cease, except that
of the surviving or the consolidated corporation;
(c) 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;
(d) The surviving or the consolidated corporation shall possess all the rights,
privileges, immunities and franchises of each constituent corporation; and all
real or personal property, all receivables due on whatever account, including
subscriptions to shares and other choses in action, and every other interest of,
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
(e) The surviving or consolidated corporation shall be responsible for all the
liabilities and obligations of each constituent corporation as though such
surviving or consolidated corporation had itself incurred such liabilities or
obligations; and any pending claim, action or proceeding brought by or
against any constituent corporation may be prosecuted by or against the
surviving or consolidated corporation. The rights of creditors or liens upon
the property of such constituent corporations shall not be impaired by the
merger or consolidation.

TITLE X
Appraisal Right
SECTION 80. When the Right of Appraisal May Be Exercised. — Any stockholder
of a corporation shall have the right to dissent and demand payment of the fair value
of the shares in the following instances:
(a) In case an 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;
(b) 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 this Code;
(c) In case of merger or consolidation; and
(d) In case of investment of corporate funds for any purpose other than the
primary purpose of the corporation.
SECTION 81. How Right is Exercised. — The dissenting stockholder who votes
against a proposed corporate action may exercise the right of appraisal by making a
written demand on the corporation for the payment of the fair value of shares held
within thirty (30) days from the date on which the vote was taken: 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, the corporation shall
pay the stockholder, upon surrender of the certificate or certificates of stock
representing the stockholder's shares, the fair value thereof as of the day before the
vote was taken, excluding any appreciation or depreciation in anticipation of such
corporate action.
If, within sixty (60) days from the approval of the corporate action by the stockholders,
the withdrawing stockholder and the corporation cannot agree on the fair value of the
shares, it shall be determined and appraised by three (3) disinterested persons, one of
whom shall be named by the stockholder, another by the corporation, and the third by
the two (2) 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: Provided, further, That upon payment by the corporation of the agreed or
awarded price, the stockholder shall forthwith transfer the shares to the corporation.
SECTION 82. 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
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dissenting stockholder is not paid the value of the said shares within thirty (30) days
after the award, the voting and dividend rights shall immediately be restored.
SECTION 83. 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 Commission where such approval is necessary, or if the Commission determines
that such stockholder is not entitled to the appraisal right, then the right of the
stockholder to be paid the fair value of the shares shall cease, the status as the
stockholder shall be restored, and all dividend distributions which would have accrued
on the shares shall be paid to the stockholder.
SECTION 84. 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 cost and expenses shall be assessed against the
corporation, unless the refusal of the stockholder to receive payment was unjustified.
SECTION 85. Notation on Certificates; Rights of Transferee. — Within ten (10) days
after demanding payment for shares held, a dissenting stockholder shall submit the
certificates of stock representing the shares to the corporation for notation that such
shares are dissenting shares. Failure to do so shall, at the option of the corporation,
terminate the rights under this Title. If shares represented by the certificates bearing
such notation are transferred, and the certificates consequently cancelled, the rights of
the transferor as a dissenting stockholder under this Title shall cease and the transferee
shall have all the rights of a regular stockholder; and all dividend distributions which
would have accrued on such shares shall be paid to the transferee.
TITLE XI
Nonstock Corporation
SECTION 86. Definition. — For purposes of this Code and subject to its provisions
on dissolution, a nonstock corporation is one where no part of its income is
distributable as dividends to its members, trustees, or officers: Provided, That any
profit which a nonstock corporation may obtain incidental 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 corporations, when pertinent, shall be applicable to
nonstock corporations, except as may be covered by specific provisions of this Title.
SECTION 87. Purposes. — Nonstock 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 nonstock corporations.
CHAPTER I
MEMBERS
SECTION 88. 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 bylaws. Unless so limited, broadened, or denied, each member,
regardless of class, shall be entitled to one (1) vote.
Unless otherwise provided in the articles of incorporation or the bylaws, a member
may vote by proxy, in accordance with the provisions of this Code. The bylaws may
likewise authorize voting through remote communication and/or in absentia.
SECTION 89. Nontransferability of Membership. — Membership in a nonstock
corporation and all rights arising therefrom are personal and nontransferable, unless
the articles of incorporation or the bylaws otherwise provide.
SECTION 90. Termination of Membership. — Membership shall be terminated in the
manner and for the causes provided in the articles of incorporation or the bylaws.
Termination of membership shall extinguish all rights of a member in the corporation
or in its property, unless otherwise provided in the articles of incorporation or the
bylaws.
CHAPTER II
TRUSTEES AND OFFICERS
SECTION 91. Election and Term of Trustees. — The number of trustees shall be fixed
in the articles of incorporation or bylaws which may or may not be more than fifteen
(15). They shall hold office for not more than three (3) years until their successors are
elected and qualified. Trustees elected to fill vacancies occurring before the expiration
of a particular term shall hold office only for the unexpired period.
Except with respect to independent trustees of nonstock corporations vested with
public interest, only a member of the corporation shall be elected as trustee.
Unless otherwise provided in the articles of incorporation or the bylaws, the members
may directly elect officers of a nonstock corporation.
SECTION 92. List of Members and Proxies, Place of Meetings. — The corporation
shall, at all times, keep a list of its members and their proxies in the form the
Commission may require. The list shall be updated to reflect the members and proxies
of record twenty (20) days prior to any scheduled election. The bylaws may provide
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that the members of a nonstock 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: Provided, further, That the place of meeting shall be within
Philippine territory.
CHAPTER III
DISTRIBUTION OF ASSETS IN NONSTOCK CORPORATIONS
SECTION 93. Rules of Distribution. — The assets of a nonstock corporation
undergoing the process of dissolution for reasons other than those set forth in Section
139 of this Code shall be applied and distributed as follows:
(a) All liabilities and obligations of the corporation shall be paid, satisfied and
discharged, or adequate provision shall be made therefor;
(b) 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;
(c) 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 (1) 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;
(d) 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 bylaws, to the extent that the articles of incorporation or
the bylaws determine the distributive rights of members, or any class or
classes of members, or provide for distribution; and
(e) 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.
SECTION 94. Plan of Distribution of Assets. — A plan providing for the distribution
of assets, consistent with the provisions of this Title, may be adopted by a nonstock
corporation in the process of dissolution in the following manner:
(a) 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;
(b) Each member entitled to vote shall be given a written notice setting forth the
proposed plan of distribution or a summary thereof and the date, time and
place of such meeting within the time and in the manner provided in this Code
for the giving of notice of meetings; and
 (c) 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.
TITLE XII
Close Corporations
SECTION 95. Definition and Applicability of Title. — A close corporation, within the
meaning of this Code, is one whose articles of incorporation provides that: (a) 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); (b)
all the issued stock of all classes shall be subject to one (1) or more specified
restrictions on transfer permitted by this Title; and (c) the corporation shall not list in
any stock exchange or make any public offering of its stocks 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
other Titles in this Code shall apply suppletorily, except as otherwise provided under
this Title.
SECTION 96. Articles of Incorporation. — The articles of incorporation of a close
corporation may provide for:
(a) A classification of shares or rights, the qualifications for owning or holding
the same, and restrictions on their transfers, subject to the provisions of the
following section;
(b) A classification of directors into one (1) or more classes, each of whom may
be voted for and elected solely by a particular class of stock; and
(c) 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, no meeting of
stockholders need be called to elect directors: Provided, That the stockholders of the
corporation shall be deemed to be directors for the purpose of applying the provisions
of this Code, unless the context clearly requires otherwise: Provided, further, That the
stockholders of the corporation shall be subject to all liabilities of directors.
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The articles of incorporation may likewise provide that all officers or employees or
that specified officers or employees shall be elected or appointed by the stockholders,
instead of by the board of directors.
SECTION 97. Validity of Restrictions on Transfer of Shares. — Restrictions on the
right to transfer shares must appear in the articles of incorporation, in the bylaws, as
well as in the certificate of stock; otherwise, the same shall not be binding on any
purchaser 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. 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 their shares to
any third person.
SECTION 98. Effects of Issuance or Transfer of Stock in Breach of Qualifying
Conditions. —
(a) If a stock of a close corporation is issued or transferred to any person who is
not eligible to be a holder thereof under any provision of the articles of
incorporation, 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 the ineligibility
to be a stockholder.
(b) If the articles of incorporation of a close corporation states the number of
persons, not exceeding twenty (20), who are entitled to be stockholders of
record, and if the certificate for such stock conspicuously states such number,
and 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.
(c) If a stock certificate of a close corporation conspicuously shows a restriction
on transfer of the corporation's stock and the transferee acquires the stock in
violation of such restriction, the transferee is conclusively presumed to have
notice of the fact that the stock was acquired in violation of the restriction.
(d) Whenever a person to whom stock of a close corporation has been issued or
transferred has or is conclusively presumed under this section to have notice
of: (1) the person's ineligibility to be a stockholder of the corporation; or (2)
that the transfer of stock would cause the stock of the corporation to be held
by more than the number of persons permitted under its articles of
incorporation; or (3) that the transfer violates a restriction on transfer of stock,
the corporation may, at its option, refuse to register the transfer in the name
of the transferee.
(e) The provisions of subsection (d) shall not be applicable if the transfer of
stock, though contrary to subsections (a), (b) or (c), 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.
 (f) The term "transfer," as used in this section, is not limited to a transfer for
value.
(g) The provisions of this section shall not impair any right which the transferee
may have to either rescind the transfer or recover the stock under any express
or implied warranty.
SECTION 99. Agreements by Stockholders. —
(a) Agreements duly signed and executed by and among all stockholders before
the formation and organization of a close corporation shall survive the
incorporation and shall continue to be valid and binding between such
stockholders, if such be their intent, to the extent that such agreements are
consistent 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.
(b) A written agreement signed by two (2) or more stockholders may provide that
in exercising any voting right, the shares held by them shall be voted as
provided or as agreed, or in accordance with a procedure agreed upon by
them.
(c) No provision in a written agreement signed by the stockholders, relating to
any phase of corporate affairs, shall be invalidated between the parties on the
ground that its effect is to make them partners among themselves.
(d) A written agreement among some or all of the stockholders in a close
corporation shall not be invalidated on the ground that it 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 on directors by this Code.
(e) Stockholders actively engaged in the management or operation of the
business and affairs of a close corporation shall be held to strict fiduciary
duties to each other and among themselves. The stockholders shall be
personally liable for corporate torts unless the corporation has obtained
reasonably adequate liability insurance.
SECTION 100. When a Board Meeting is Unnecessary or Improperly Held. —
Unless the bylaws provide otherwise, any action taken by the directors of a close
corporation without a meeting called properly and with due notice shall nevertheless
be deemed valid if:
(a) Before or after such action is taken, a written consent thereto is signed by all
the directors; or
(b) All the stockholders have actual or implied knowledge of the action and make
no prompt objection in writing; or
(c) The directors are accustomed to take informal action with the express or
implied acquiescence of all the stockholders; or
(d) All the directors have express or implied knowledge of the action in question
and none of them makes a prompt objection in writing.
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An action within the corporate powers taken at a meeting held without proper call or
notice is deemed ratified by a director who failed to attend, unless after having
knowledge thereof, the director promptly files his written objection with the secretary
of the corporation.
SECTION 101. Preemptive Right in Close Corporations. — The preemptive right of
stockholders in close corporations shall extend to all stock to be issued, including
reissuance of treasury shares, whether for money, property or personal services, or in
payment of corporate debts, unless the articles of incorporation provide otherwise.
SECTION 102. Amendment of Articles of Incorporation. — Any amendment to the
articles of incorporation which seeks to delete or remove any provision required by
this Title or to reduce a quorum or voting requirement stated in said articles of
incorporation shall require the affirmative vote of at least two-thirds (2/3) of the
outstanding capital stock, whether with or without voting rights, or of such greater
proportion of shares as may be specifically provided in the articles of incorporation
for amending, deleting or removing any of the aforesaid provisions, at a meeting duly
called for the purpose.
SECTION 103. Deadlocks. — Notwithstanding any contrary provision in the close
corporation's articles of incorporation, bylaws, or stockholders' agreement, if the
directors or stockholders are so divided on the management of the corporation's
business and affairs that the votes required for a 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 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 appropriate
orders, such as: (a) cancelling or altering any provision contained in the articles of
incorporation, bylaws, or any stockholders' agreement; (b) cancelling, altering or
enjoining a resolution or act of the corporation or its board of directors, stockholders,
or officers; (c) directing or prohibiting any act of the corporation or its board of
directors, stockholders, officers, or other persons party to the action; (d) 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; (e) appointing a provisional director; (f) dissolving the corporation;
or (g) 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 any of its subsidiaries or affiliates, 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, including the right to be notified of and to vote at meetings of directors until
removed by order of the Commission or by all the stockholders. The compensation of
the provisional director shall be determined by agreement between such director and
the corporation, subject to approval of the Commission, which may fix the
compensation absent an agreement or in the event of disagreement between the
provisional director and the corporation.
SECTION 104. Withdrawal of Stockholder or Dissolution of Corporation. — In
addition and without prejudice to other rights and remedies available under this Title,
any stockholder of a close corporation may, for any reason, compel the corporation to
purchase shares held at fair value, which shall not be less than the 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 Commission, compel the dissolution of such corporation
whenever any acts of the directors, officers, or those in control of the corporation are
illegal, fraudulent, dishonest, oppressive or unfairly prejudicial to the corporation or
any stockholder, or whenever corporate assets are being misapplied or wasted.
TITLE XIII
Special Corporations
CHAPTER I
EDUCATIONAL CORPORATIONS
SECTION 105. Incorporation. — Educational corporations shall be governed by
special laws and by the general provisions of this Code.
SECTION 106. Board of Trustees. — Trustees of educational institutions organized
as nonstock corporations shall not be less than five (5) nor more than fifteen
(15): Provided, That the number of trustees shall be in multiples of five (5).
Unless otherwise provided in the articles of incorporation or bylaws, 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 bylaws.
For institutions organized as stock corporations, the number and term of directors shall
be governed by the provisions on stock corporations.
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CHAPTER II
RELIGIOUS CORPORATIONS
SECTION 107. Classes of Religious Corporations. — Religious corporations may be
incorporated by one (1) 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 nonstock corporations insofar as applicable.
SECTION 108. 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.
SECTION 109. 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 Commission articles of incorporation
setting forth the following:
(a) That the applicant chief archbishop, bishop, priest, minister, rabbi, or
presiding elder represents the religious denomination, sect or church which
desires to become a corporation sole;
(b) That the rules, regulations and discipline of the religious denomination, sect
or church are consistent with becoming a corporation sole and do not forbid
it;
(c) That such chief archbishop, bishop, priest, minister, rabbi, or presiding elder
is charged with the administration of the temporalities and the management
of the affairs, estate and properties of the religious denomination, sect or
church within the territorial jurisdiction, so described succinctly in the articles
of incorporation;
(d) The manner by which any vacancy occurring in the office of chief archbishop,
bishop, priest, minister, rabbi, or presiding elder is required to be filled,
according to the rules, regulations or discipline of the religious denomination,
sect or church; and
(e) The place where the principal office of the corporation sole is to be
established and located, which place must be within the territory of the
Philippines.
(a) The articles of incorporation may include any other provision not contrary to
law for the regulation of the affairs of the corporation.
SECTION 110. Submission of the Articles of Incorporation. — The articles of
incorporation must be verified, 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 filing with the 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 as such chief archbishop, bishop, priest, minister, rabbi, or presiding elder
shall be personally held in trust as a corporation sole, for the use, purpose, exclusive
benefit and on behalf of the religious denomination, sect or church, including hospitals,
schools, colleges, orphan asylums, parsonages, and cemeteries thereof.
SECTION 111. Acquisition and Alienation of Property. — A 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 Regional Trial Court of the province where the
property is situated upon proof that the notice of the application for leave to sell or
mortgage has been made through publication or as directed by the Court, and that it is
in the interest of the corporation that leave to sell or mortgage 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 govern, and the intervention of
the courts shall not be necessary.
SECTION 112. 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 upon filing a copy of their commission, certificate of election,
or letters of appointment, duly certified by any notary public with the Commission.
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 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 shall exercise all the powers and authority of the corporation sole
during such vacancy.
157
SECTION 113. Dissolution. — A corporation sole may be dissolved and its affairs
settled voluntarily by submitting to the Commission a verified declaration of
dissolution, setting forth:
(a) The name of the corporation;
(b) The reason for dissolution and winding up;
(c) The authorization for the dissolution of the corporation by the particular
religious denomination, sect or church; and
(d) 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 Commission, the corporation
shall cease to carry on its operations except for the purpose of winding up its affairs.
SECTION 114. Religious Societies. — Unless forbidden by competent authority,
the Constitution, pertinent rules, regulations, or discipline of the religious
denomination, sect or church of which it is a part, any religious society, religious order,
diocese, or synod, or district organization of any religious denomination, sect or
church, 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 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:
(a) That the religious society or religious order, or diocese, synod, or district
organization is a religious organization of a religious denomination, sect or
church;
(b) That at least two-thirds (2/3) of its membership has given written consent or
has voted to incorporate, at a duly convened meeting of the body;
(c) That the incorporation of the religious society or religious order, or diocese,
synod, or district organization 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 part;
(d) 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;
(e) The place within the Philippines where the principal office of the corporation
is to be established and located; and
(f) The names, nationalities, and residence addresses of the trustees, not less than
five (5) nor more than fifteen (15), 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.
CHAPTER III
 ONE PERSON CORPORATIONS
SECTION 115. Applicability of Provisions to One Person Corporations. — The
provisions of this Title shall primarily apply to One Person Corporations. Other
provisions of this Code apply suppletorily, except as otherwise provided in this Title.
SECTION 116. One Person Corporation. — A One Person Corporation is a
corporation with a single stockholder: Provided, That only a natural person, trust, or
an estate may form a One Person Corporation.
Banks and quasi-banks, preneed, trust, insurance, public and publicly-listed
companies, and non-chartered government-owned and -controlled corporations may
not incorporate as One Person Corporations: Provided, further, That a natural person
who is licensed to exercise a profession may not organize as a One Person Corporation
for the purpose of exercising such profession except as otherwise provided under
special laws.
SECTION 117. Minimum Capital Stock Not Required for One Person Corporation.
— A One Person Corporation shall not be required to have a minimum authorized
capital stock except as otherwise provided by special law.
SECTION 118. Articles of Incorporation. — A One Person Corporation shall file
articles of incorporation in accordance with the requirements under Section 14 of this
Code. It shall likewise substantially contain the following:
(a) If the single stockholder is a trust or an estate, the name, nationality, and
residence of the trustee, administrator, executor, guardian, conservator,
custodian, or other person exercising fiduciary duties together with the proof
of such authority to act on behalf of the trust or estate; and
(b) Name, nationality, residence of the nominee and alternate nominee, and the
extent, coverage and limitation of the authority.
SECTION 119. Bylaws. — The One Person Corporation is not required to submit and
file corporate bylaws.
SECTION 120. Display of Corporate Name. — A One Person Corporation shall
indicate the letters "OPC" either below or at the end of its corporate name.
SECTION 121. Single Stockholder as Director, President. — The single stockholder
shall be the sole director and president of the One Person Corporation.
SECTION 122. Treasurer, Corporate Secretary, and Other Officers. — Within
fifteen (15) days from the issuance of its certificate of incorporation, the One Person
Corporation shall appoint a treasurer, corporate secretary, and other officers as it may
deem necessary, and notify the Commission thereof within five (5) days from
appointment.
The single stockholder may not be appointed as the corporate secretary.
158
A single stockholder who is likewise the self-appointed treasurer of the corporation
shall give a bond to the Commission in such a sum as may be required: Provided, That
the said stockholder/treasurer shall undertake in writing to faithfully administer the
One Person Corporation's funds to be received as treasurer, and to disburse and invest
the same according to the articles of incorporation as approved by the Commission.
The bond shall be renewed every two (2) years or as often as may be required.
SECTION 123. Special Functions of the Corporate Secretary. — In addition to the
functions designated by the One Person Corporation, the corporate secretary shall:
(a) Be responsible for maintaining the minutes book and/or records of the
corporation;
(b) Notify the nominee or alternate nominee of the death or incapacity of the
single stockholder, which notice shall be given no later than five (5) days
from such occurrence;
(c) Notify the Commission of the death of the single stockholder within five (5)
days from such occurrence and stating in such notice the names, residence
addresses, and contact details of all known legal heirs; and
(d) Call the nominee or alternate nominee and the known legal heirs to a meeting
and advise the legal heirs with regard to, among others, the election of a new
director, amendment of the articles of incorporation, and other ancillary
and/or consequential matters.
SECTION 124. Nominee and Alternate Nominee. — The single stockholder shall
designate a nominee and an alternate nominee who shall, in the event of the single
stockholder's death or incapacity, take the place of the single stockholder as director
and shall manage the corporation's affairs.
The articles of incorporation shall state the names, residence addresses and contact
details of the nominee and alternate nominee, as well as the extent and limitations of
their authority in managing the affairs of the One Person Corporation.
The written consent of the nominee and alternate nominee shall be attached to the
application for incorporation. Such consent may be withdrawn in writing any time
before the death or incapacity of the single stockholder.
SECTION 125. Term of Nominee and Alternate Nominee. — When the incapacity of
the single stockholder is temporary, the nominee shall sit as director and manage the
affairs of the One Person Corporation until the stockholder, by self determination,
regains the capacity to assume such duties.
In case of death or permanent incapacity of the single stockholder, the nominee shall
sit as director and manage the affairs of the One Person Corporation until the legal
heirs of the single stockholder have been lawfully determined, and the heirs have
designated one of them or have agreed that the estate shall be the single stockholder
of the One Person Corporation.
The alternate nominee shall sit as director and manage the One Person Corporation in
case of the nominee's inability, incapacity, death, or refusal to discharge the functions
as director and manager of the corporation, and only for the same term and under the
same conditions applicable to the nominee.
SECTION 126. Change of Nominee or Alternate Nominee. — The single stockholder
may, at any time, change its nominee and alternate nominee by submitting to the
Commission the names of the new nominees and their corresponding written consent.
For this purpose, the articles of incorporation need not be amended.
SECTION 127. Minutes Book. — A One Person Corporation shall maintain a minutes
book which shall contain all actions, decisions, and resolutions taken by the One
Person Corporation.
SECTION 128. Records in Lieu of Meetings. — When action is needed on any matter,
it shall be sufficient to prepare a written resolution, signed and dated by the single
stockholder, and recorded in the minutes book of the One Person Corporation. The
date of recording in the minutes book shall be deemed to be the date of the meeting
for all purposes under this Code.
SECTION 129. Reportorial Requirements. — The One Person Corporation shall
submit the following within such period as the Commission may prescribe:
(a) Annual financial statements audited by an independent certified public
accountant: Provided, That if the total assets or total liabilities of the
corporation are less than Six hundred thousand pesos (P600,000.00), the
financial statements shall be certified under oath by the corporation's
treasurer and president;
(b) A report containing explanations or comments by the president on every
qualification, reservation, or adverse remark or disclaimer made by the
auditor in the latter's report;
(c) A disclosure of all self-dealings and related party transactions entered into
between the One Person Corporation and the single stockholder; and
(d) Other reports as the Commission may require.
For purposes of this provision, the fiscal year of a One Person Corporation shall be
that set forth in its articles of incorporation or, in the absence thereof, the calendar
year.
The Commission may place the corporation under delinquent status should the
corporation fail to submit the reportorial requirements three (3) times, consecutively
or intermittently, within a period of five (5) years.
159
SECTION 130. Liability of Single Shareholder. — A sole shareholder claiming
limited liability has the burden of affirmatively showing that the corporation was
adequately financed.
Where the single stockholder cannot prove that the property of the One Person
Corporation is independent of the stockholder's personal property, the stockholder
shall be jointly and severally liable for the debts and other liabilities of the One Person
Corporation.
The principles of piercing the corporate veil applies with equal force to One Person
Corporations as with other corporations.
SECTION 131. Conversion from an Ordinary Corporation to a One Person
Corporation. — When a single stockholder acquires all the stocks of an ordinary stock
corporation, the latter may apply for conversion into a One Person Corporation, subject
to the submission of such documents as the Commission may require. If the application
for conversion is approved, the Commission shall issue a certificate of filing of
amended articles of incorporation reflecting the conversion. The One Person
Corporation converted from an ordinary stock corporation shall succeed the latter and
be legally responsible for all the latter's outstanding liabilities as of the date of
conversion.
SECTION 132. Conversion from a One Person Corporation to an Ordinary Stock
Corporation. — A One Person Corporation may be converted into an ordinary stock
corporation after due notice to the Commission of such fact and of the circumstances
leading to the conversion, and after compliance with all other requirements for stock
corporations under this Code and applicable rules. Such notice shall be filed with the
Commission within sixty (60) days from the occurrence of the circumstances leading
to the conversion into an ordinary stock corporation. If all requirements have been
complied with, the Commission shall issue a certificate of filing of amended articles
of incorporation reflecting the conversion.
In case of death of the single stockholder, the nominee or alternate nominee shall
transfer the shares to the duly designated legal heir or estate within seven (7) days from
receipt of either an affidavit of heirship or self-adjudication executed by a sole heir, or
any other legal document declaring the legal heirs of the single stockholder and notify
the Commission of the transfer. Within sixty (60) days from the transfer of the shares,
the legal heirs shall notify the Commission of their decision to either wind up and
dissolve the One Person Corporation or convert it into an ordinary stock corporation.
The ordinary stock corporation converted from a One Person Corporation shall
succeed the latter and be legally responsible for all the latter's outstanding liabilities as
of the date of conversion.
TITLE XIV
Dissolution

SECTION 133. Methods of Dissolution. — A corporation formed or organized under
the provisions of this Code may be dissolved voluntarily or involuntarily.
SECTION 134. 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 adopted by the affirmative vote of the stockholders
owning at least majority of the outstanding capital stock or majority of the members
of a meeting to be held upon the call of the directors or trustees.
At least twenty (20) days prior to the meeting, notice shall be given to each shareholder
or member of record personally, by registered mail, or by any means authorized under
its bylaws, whether or not entitled to vote at the meeting, in the manner provided in
Section 50 of this Code and shall state that the purpose of the meeting is to vote on the
dissolution of the corporation. Notice of the time, place, and object of the meeting shall
be published once prior to the date of the meeting in a newspaper published in the
place where the principal office of said corporation is located, or if no newspaper is
published in such place, in a newspaper of general circulation in the Philippines.
A verified request for dissolution shall be filed with the Commission stating: (a) the
reason for the dissolution; (b) the form, manner, and time when the notices were given;
(c) names of the stockholders and directors or members and trustees who approved the
dissolution; (d) the date, place, and time of the meeting in which the vote was made;
and (e) details of publication.
The corporation shall submit the following to the Commission: (1) a copy of the
resolution authorizing the dissolution, certified by a majority of the board of directors
or trustees and countersigned by the secretary of the corporation; (2) proof of
publication; and (3) favorable recommendation from the appropriate regulatory
agency, when necessary.
Within fifteen (15) days from receipt of the verified request for dissolution, and in the
absence of any withdrawal within said period, the Commission shall approve the
request and issue the certificate of dissolution. The dissolution shall take effect only
upon the issuance by the Commission of a certificate of dissolution.
No application for dissolution of banks, banking and quasi-banking institutions,
preneed, insurance and trust companies, NSSLAs, pawnshops, and other financial
intermediaries shall be approved by the Commission unless accompanied by a
favorable recommendation of the appropriate government agency.
SECTION 135. Voluntary Dissolution Where Creditors Are Affected; Procedure and
Contents of Petition. — Where the dissolution of a corporation may prejudice the
rights of any creditor, a verified petition for dissolution shall be filed with the
Commission. The petition shall be signed by a majority of the corporation's board of
160
directors or trustees, 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 at least two-thirds (2/3) of the
members at a meeting of its stockholders or members called for that purpose. The
petition shall likewise state: (a) the reason for the dissolution; (b) the form, manner,
and time when the notices were given; and (c) the date, place, and time of the meeting
in which the vote was made. The corporation shall submit to the Commission the
following: (1) a copy of the resolution authorizing the dissolution, certified by a
majority of the board of directors or trustees and countersigned by the secretary of the
corporation; and (2) a list of all its creditors.
If the petition is sufficient in form and substance, the Commission shall, by an order
reciting the purpose of the petition, fix a deadline for filing objections to the petition
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) days' 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 raised in 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.
The dissolution shall take effect only upon the issuance by the Commission of a
certificate of dissolution.
SECTION 136. 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 Commission in accordance with this Code.
Upon the expiration of the shortened term, as stated in the approved amended articles
of incorporation, the corporation shall be deemed dissolved without any further
proceedings, subject to the provisions of this Code on liquidation.
In the case of expiration of corporate term, dissolution shall automatically take effect
on the day following the last day of the corporate term stated in the articles of
incorporation, without the need for the issuance by the Commission of a certificate of
dissolution.
SECTION 137. Withdrawal of Request and Petition for Dissolution. — A withdrawal
of the request for dissolution shall be made in writing, duly verified by any
incorporator, director, trustee, shareholder, or member and signed by the same number
of incorporators, directors, trustees, shareholders, or members necessary to request for
dissolution as set forth in the foregoing sections. The withdrawal shall be submitted
no later than fifteen (15) days from receipt by the Commission of the request for
dissolution. Upon receipt of a withdrawal of request for dissolution, the Commission
shall withhold action on the request for dissolution and shall, after investigation: (a)
make a pronouncement that the request for dissolution is deemed withdrawn; (b) direct
a joint meeting of the board of directors or trustees and the stockholders or members
for the purpose of ascertaining whether to proceed with dissolution; or (c) issue such
other orders as it may deem appropriate.
A withdrawal of the petition for dissolution shall be in the form of a motion and similar
in substance to a withdrawal of request for dissolution but shall be verified and filed
prior to publication of the order setting the deadline for filing objections to the petition.
SECTION 138. Involuntary Dissolution. — A corporation may be dissolved by the
Commission motu proprio or upon filing of a verified complaint by any interested
party. The following may be grounds for dissolution of the corporation:
(a) Non-use of corporate charter as provided under Section 21 of this Code;
(b) Continuous inoperation of a corporation as provided under Section 21 of this
Code;
(c) Upon receipt of a lawful court order dissolving the corporation;
(d) Upon finding by final judgment that the corporation procured its
incorporation through fraud;
(e) Upon finding by final judgment that the corporation:
(1) Was created for the purpose of committing, concealing or aiding the
commission of securities violations, smuggling, tax evasion, money
laundering, or graft and corrupt practices;
(2) Committed or aided in the commission of securities violations,
smuggling, tax evasion, money laundering, or graft and corrupt practices,
and its stockholders knew of the same; and
(3) Repeatedly and knowingly tolerated the commission of graft and corrupt
practices or other fraudulent or illegal acts by its directors, trustees,
officers, or employees.
(f) If the corporation is ordered dissolved by final judgment pursuant to the
grounds set forth in subparagraph (e) hereof, its assets, after payment of
its liabilities, shall, upon petition of the Commission with the appropriate
court, be forfeited in favor of the national government. Such forfeiture
shall be without prejudice to the rights of innocent stockholders and
employees for services rendered, and to the application of other penalty
or sanction under this Code or other laws.
The Commission shall give reasonable notice to, and coordinate with, the appropriate
regulatory agency prior to the involuntary dissolution of companies under their special
regulatory jurisdiction.
161
SECTION 139. Corporate Liquidation. — Except for banks, which shall be covered
by the applicable provisions of Republic Act No. 7653, otherwise known as "The New
Central Bank Act," as amended, and Republic Act No. 3591, otherwise known as
the Philippine Deposit Insurance Corporation Charter, as amended, every corporation
whose charter expires pursuant to its articles of incorporation, is annulled by forfeiture,
or whose corporate existence is terminated in any other manner, shall nevertheless
remain as a body corporate for three (3) years after the effective date of dissolution,
for the purpose of prosecuting and defending suits by or against it and enabling it to
settle and close its affairs, dispose of and convey its property, and 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. 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.
Except as otherwise provided for in Sections 93 and 94 of this Code, upon the winding
up of corporate affairs, any asset distributable to any creditor or stockholder or member
who is unknown or cannot be found shall be escheated in favor of the national
government.
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.
TITLE XV
Foreign Corporations
SECTION 140. Definition and Rights of Foreign Corporations. — For purposes of
this Code, a foreign corporation is one formed, organized or existing under 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 obtaining a license for that purpose in accordance with this Code
and a certificate of authority from the appropriate government agency.
SECTION 141. 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 issued to it shall continue to have such
authority under the terms and conditions of its license, subject to the provisions of this
Code and other special laws.
SECTION 142. Application for a License. — A foreign corporation applying for a
license to transact business in the Philippines shall submit to the 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:
(a) The date and term of incorporation;
(b) The address, including the street number, of the principal office of the
corporation in the country or State of incorporation;
(c) The name and address of its resident agent authorized to accept summons and
process in all legal proceedings and all notices affecting the corporation,
pending the establishment of a local office;
(d) The place in the Philippines where the corporation intends to operate;
(e) 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;
(f) The names and addresses of the present directors and officers of the
corporation;
(g) A statement of its authorized capital stock and the aggregate number of shares
which the corporation has authority to issue, itemized by class, par value of
shares, shares without par value, and series, if any;
(h) A statement of its outstanding capital stock and the aggregate number of shares
which the corporation has issued, itemized by class, par value of shares, shares
without par value, and series, if any;
(i) A statement of the amount actually paid in; and
(j) Such additional information as may be necessary or appropriate in order to
enable the 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 certificate under oath duly executed
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 the certificate is in a foreign language, a translation
thereof in English under oath of the translator shall be attached to the application.
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 Commission and when
appropriate, other governmental agencies that the applicant is solvent and in sound
financial condition, 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.
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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 Commission without previous authority from
the appropriate government agency, whenever required by law.
SECTION 143. Issuance of a License. — If the 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 transact business in the
Philippines to the applicant 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 licensee, except foreign banking or insurance
corporations, shall deposit with the Commission for the benefit of present and future
creditors of the licensee in the Philippines, securities satisfactory to the 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 or debt securities that are
registered under Republic Act No. 8799, otherwise known as "The Securities
Regulation Code," shares of stock in domestic corporations listed in the stock
exchange, shares of stock in domestic insurance companies and banks, any financial
instrument determined suitable by the Commission, or any combination thereof with
an actual market value of at least Five hundred thousand pesos (P500,000.00) or such
other amount that may be set by the Commission: Provided, however, That within six
(6) months after each fiscal year of the licensee, the Commission shall require the
licensee to deposit additional securities or financial instruments equivalent in actual
market value to two percent (2%) of the amount by which the licensee's gross income
for that fiscal year exceeds Ten million pesos (P10,000,000.00). The Commission shall
also require the deposit of additional securities or financial instruments if the actual
market value of the deposited securities or financial instruments has decreased by at
least ten percent (10%) of their actual market value at the time they were deposited.
The Commission may, at its discretion, release part of the additional deposit if the
gross income of the licensee has decreased, or if the actual market value of the total
deposit has increased, by more than ten percent (10%) of their actual market value at
the time they were deposited. The Commission may, from time to time, allow the
licensee to make substitute deposits for those already on deposit as long as the licensee
is solvent. Such licensee shall be entitled to collect the interest or dividends on such
deposits. In the event the licensee ceases to do business in the Philippines, its deposits
shall be returned, upon the licensee's application and upon proof to the satisfaction of
the Commission that the licensee has no liability to Philippine residents, including the
Government of the Republic of the Philippines. For purposes of computing the
securities deposit, the composition of gross income and allowable deductions
therefrom shall be in accordance with the rules of the Commission.
SECTION 144. 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 an individual resident agent must be of
good moral character and of sound financial standing: Provided, further, That in case
of a domestic corporation who will act as a resident agent, it must likewise be of sound
financial standing and must show proof that it is in good standing as certified by the
Commission.
SECTION 145. Resident Agent; Service of Process. — As a condition to the issuance
of the license for a foreign corporation to transact business in the Philippines, such
corporation shall file with the Commission a written power of attorney designating a
person who must be a resident of the Philippines, on whom 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. Such foreign corporation shall likewise execute and file
with the Commission an agreement or stipulation, executed by the proper authorities
of said corporation, in form and substance as follows:
"The (name of foreign corporation) hereby stipulates and agrees, in consideration of
being granted a license to transact business in the Philippines, that if the 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 process may be served, then
service of any summons or other legal process may be made upon the Commission in
any action or proceeding arising out of any business or transaction which occurred in
the Philippines and 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 is made upon the 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 a 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.
It shall be the duty of the resident agent to immediately notify the Commission in
writing of any change in the resident agent's address.
SECTION 146. Law Applicable. — A 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 those which provide for the creation, formation,
organization or dissolution of corporations or those which fix the relations, liabilities,
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responsibilities, or duties of stockholders, members, or officers of corporations to each
other or to the corporation.
SECTION 147. Amendments to Articles of Incorporation or Bylaws of Foreign
Corporations. — Whenever the articles of incorporation or bylaws 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 Commission, and in proper cases, with the appropriate
government agency, a duly authenticated copy of the amended articles of incorporation
or bylaws, indicating clearly in capital letters or underscoring the change or changes
made, duly certified by the authorized official or officials of the country or State of
incorporation. Such filing shall not in itself enlarge or alter the purpose or purposes
for which such corporation is authorized to transact business in the Philippines.
SECTION 148. 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 other or additional purposes in the Philippines,
by submitting an application with the Commission, favorably endorsed by the
appropriate government agency in the proper cases.
SECTION 149. 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 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 authorizing its incorporation, such foreign corporation shall, within sixty (60) days
after the effectivity of such merger or consolidation, file with the 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 whose laws the merger or consolidation was effected: Provided, however,
That if the absorbed corporation is the foreign corporation doing business in the
Philippines, the latter shall at the same time file a petition for withdrawal of its license
in accordance with this Title.
SECTION 150. 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.
SECTION 151. Revocation of License. — Without prejudice to other grounds
provided under special laws, the license of a foreign corporation to transact business
in the Philippines may be revoked or suspended by the Commission upon any of the
following grounds:
(a) Failure to file its annual report or pay any fees as required by this Code;
(b) Failure to appoint and maintain a resident agent in the Philippines as required
by this Title;
(c) Failure, after change of its resident agent or address, to submit to the
Commission a statement of such change as required by this Title;
(d) Failure to submit to the 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;
(e) A misrepresentation of any material matter in any application, report,
affidavit or other document submitted by such corporation pursuant to this
Title;
(f) 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;
(g) Transacting business in the Philippines outside of the purpose or purposes for
which such corporation is authorized under its license;
(h) Transacting business in the Philippines as agent of or acting on behalf of any
foreign corporation or entity not duly licensed to do business in the
Philippines; or
(i) Any other ground as would render it unfit to transact business in the
Philippines.
SECTION 152. Issuance of Certificate of Revocation. — Upon the revocation of the
license to transact business in the Philippines, the Commission shall issue a
corresponding certificate of revocation, furnishing a copy thereof to the appropriate
government agency in the proper cases.
The Commission shall also mail the notice and copy of the certificate of revocation to
the corporation, at its registered office in the Philippines.
SECTION 153. 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 Commission unless all the
following requirements are met:
(a) All claims which have accrued in the Philippines have been paid,
compromised or settled;
(b) 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
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(c) 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
Investigations, Offenses, and Penalties
SECTION 154. Investigation and Prosecution of Offenses. — The Commission may
investigate an alleged violation of this Code, or of a rule, regulation, or order of the
Commission.
The Commission may publish its findings, orders, opinions, advisories, or information
concerning any such violation, as may be relevant to the general public or to the parties
concerned, subject to the provisions of Republic Act No. 10173, otherwise known as
the "Data Privacy Act of 2012," and other pertinent laws.
The Commission shall give reasonable notice to and coordinate with the appropriate
regulatory agency prior to any such publication involving companies under their
regulatory jurisdiction.
SECTION 155. Administration of Oaths, Subpoena of Witnesses and Documents. —
The Commission, through its designated officer, may administer oaths and
affirmations, issue subpoena and subpoena duces tecum, take testimony in any inquiry
or investigation, and may perform other acts necessary to the proceedings or to the
investigation.
SECTION 156. Cease and Desist Orders. — Whenever the Commission has
reasonable basis to believe that a person has violated, or is about to violate this Code,
a rule, regulation, or order of the Commission, it may direct such person to desist from
committing the act constituting the violation.
The Commission may issue a cease and desist order ex parte to enjoin an act or
practice which is fraudulent or can be reasonably expected to cause significant,
imminent, and irreparable danger or injury to public safety or welfare. The ex
parte order shall be valid for a maximum period of twenty (20) days, without prejudice
to the order being made permanent after due notice and hearing.
Thereafter, the Commission may proceed administratively against such person in
accordance with Section 158 of this Code, and/or transmit evidence to the Department
of Justice for preliminary investigation or criminal prosecution and/or initiate criminal
prosecution for any violation of this Code, rule, or regulation.
SECTION 157. Contempt. — Any person who, without justifiable cause, fails or
refuses to comply with any lawful order, decision, or subpoena issued by the
Commission shall, after due notice and hearing, be held in contempt and fined in an
amount not exceeding Thirty thousand pesos (P30,000.00). When the refusal amounts
to clear and open defiance of the Commission's order, decision, or subpoena, the
Commission may impose a daily fine of one thousand pesos (P1,000.00) until the
order, decision, or subpoena is complied with.
SECTION 158. Administrative Sanctions. — If, after due notice and hearing, the
Commission finds that any provision of this Code, rules or regulations, or any of the
Commission's orders has been violated, the Commission may impose any or all of the
following sanctions, taking into consideration the extent of participation, nature,
effects, frequency and seriousness of the violation:
(a) Imposition of a fine ranging from Five thousand pesos (P5,000.00) to Two
million pesos (P2,000,000.00), and not more than One thousand pesos
(P1,000.00) for each day of continuing violation but in no case to exceed Two
million pesos (P2,000,000.00);
(b) Issuance of a permanent cease and desist order;
(c) Suspension or revocation of the certificate of incorporation; and
(d) Dissolution of the corporation and forfeiture of its assets under the conditions
in Title XIV of this Code.
SECTION 159. Unauthorized Use of Corporate Name; Penalties. — The
unauthorized use of a corporate name shall be punished with a fine ranging from Ten
thousand pesos (P10,000.00) to Two hundred thousand pesos (P200,000.00).
SECTION 160. Violation of Disqualification Provision; Penalties. — When, despite
the knowledge of the existence of a ground for disqualification as provided in Section
26 of this Code, a director, trustee or officer willfully holds office, or willfully conceals
such disqualification, such director, trustee or officer shall be punished with a fine
ranging from Ten thousand pesos (P10,000.00) to Two hundred thousand pesos
(P200,000.00) at the discretion of the court, and shall be permanently disqualified from
being a director, trustee or officer of any corporation. When the violation of this
provision is injurious or detrimental to the public, the penalty shall be a fine ranging
from Twenty thousand pesos (P20,000.00) to Four hundred thousand pesos
(P400,000.00).
SECTION 161. Violation of Duty to Maintain Records, to Allow Their Inspection or
Reproduction; Penalties. — The unjustified failure or refusal by the corporation, or by
those responsible for keeping and maintaining corporate records, to comply with
Sections 45, 73, 92, 128, 177 and other pertinent rules and provisions of this Code on
inspection and reproduction of records shall be punished with a fine ranging from Ten
thousand pesos (P10,000.00) to Two hundred thousand pesos (P200,000.00), at the
discretion of the court, taking into consideration the seriousness of the violation and
its implications. When the violation of this provision is injurious or detrimental to the
public, the penalty is a fine ranging from Twenty thousand pesos (P20,000.00) to Four
hundred thousand pesos (P400,000.00).
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The penalties imposed under this section shall be without prejudice to the
Commission's exercise of its contempt powers under Section 157 hereof.
SECTION 162. Willful Certification of Incomplete, Inaccurate, False; or Misleading
Statements or Reports; Penalties. — Any person who willfully certifies a report
required under this Code, knowing that the same contains incomplete, inaccurate,
false, or misleading information or statements, shall be punished with a fine ranging
from Twenty thousand pesos (P20,000.00) to Two hundred thousand pesos
(P200,000.00). When the wrongful certification is injurious or detrimental to the
public, the auditor or the responsible person may also be punished with a fine ranging
from Forty thousand pesos (P40,000.00) to Four hundred thousand pesos
(P400,000.00).
SECTION 163. Independent Auditor Collusion; Penalties. — An independent auditor
who, in collusion with the corporation's directors or representatives, certifies the
corporation's financial statements despite its incompleteness or inaccuracy, its failure
to give a fair and accurate presentation of the corporation's condition, or despite
containing false or misleading statements, shall be punished with a fine ranging from
Eighty thousand pesos (P80,000.00) to Five hundred thousand pesos (P500,000.00).
When the statement or report certified is fraudulent, or has the effect of causing injury
to the general public, the auditor or responsible officer may be punished with a fine
ranging from One hundred thousand pesos (P100,000.00) to Six hundred thousand
pesos (P600,000.00).
SECTION 164. Obtaining Corporate Registration Through Fraud; Penalties. —
Those responsible for the formation of a corporation through fraud, or who assisted
directly or indirectly therein, shall be punished with a fine ranging from Two hundred
thousand pesos (P200,000.00) to Two million pesos (P2,000,000.00). When the
violation of this provision is injurious or detrimental to the public, the penalty is a fine
ranging from Four hundred thousand pesos (P400,000.00) to Five million pesos
(P5,000,000.00).
SECTION 165. Fraudulent Conduct of Business; Penalties. — A corporation that
conducts its business through fraud shall be punished with a fine ranging from Two
hundred thousand pesos (P200,000.00) to Two million pesos (P2,000,000.00). When
the violation of this provision is injurious or detrimental to the public, the penalty is a
fine ranging from Four hundred thousand pesos (P400,000.00) to Five million pesos
(P5,000,000.00).
SECTION 166. Acting as Intermediaries for Graft and Corrupt Practices; Penalties.
— A corporation used for fraud, or for committing or concealing graft and corrupt
practices as defined under pertinent statutes, shall be liable for a fine ranging from One
hundred thousand pesos (P100,000.00) to Five million pesos (P5,000,000.00).
When there is a finding that any of its directors, officers, employees, agents, or
representatives are engaged in graft and corrupt practices, the corporation's failure to
install: (a) safeguards for the transparent and lawful delivery of services; and (b)
policies, code of ethics, and procedures against graft and corruption shall be prima
facie evidence of corporate liability under this section.
SECTION 167. Engaging Intermediaries for Graft and Corrupt Practices; Penalties.
— A corporation that appoints an intermediary who engages in graft and corrupt
practices for the corporation's benefit or interest shall be punished with a fine ranging
from One hundred thousand pesos (P100,000.00) to One million pesos
(P1,000,000.00).
SECTION 168. Tolerating Graft and Corrupt Practices; Penalties. — A director,
trustee, or officer who knowingly fails to sanction, report, or file the appropriate action
with proper agencies, allows or tolerates the graft and corrupt practices or fraudulent
acts committed by a corporation's directors, trustees, officers, or employees shall be
punished with a fine ranging from Five hundred thousand pesos (P500,000.00) to One
million pesos (P1,000,000.00).
SECTION 169. Retaliation against Whistleblowers. — A whistleblower refers to any
person who provides truthful information relating to the commission or possible
commission of any offense or violation under this Code. Any person who, knowingly
and with intent to retaliate, commits acts detrimental to a whistleblower such as
interfering with the lawful employment or livelihood of the whistleblower, shall, at the
discretion of the court, be punished with a fine ranging from One hundred thousand
pesos (P100,000.00) to One million pesos (P1,000,000.00).
SECTION 170. Other Violations of the Code; Separate Liability. — Violations of any
of the other provisions of this Code or its amendments not otherwise specifically
penalized therein shall be punished by a fine of not less than Ten thousand pesos
(P10,000.00) but not more than One million pesos (P1,000,000.00). If the violation is
committed by a corporation, the same may, after notice and hearing, be dissolved in
appropriate proceedings before the 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.
Liability for any of the foregoing offenses shall be separate from any other
administrative, civil, or criminal liability under this Code and other laws.
SECTION 171. Liability of Directors, Trustees, Officers, or Other Employees. — If
the offender is a corporation, the penalty may, at the discretion of the court, be imposed
upon such corporation and/or upon its directors, trustees, stockholders, members,
officers, or employees responsible for the violation or indispensable to its commission.
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SECTION 172. Liability of Aiders and Abettors and Other Secondary Liability. —
Anyone who shall aid, abet, counsel, command, induce, or cause any violation of this
Code, or any rule, regulation, or order of the Commission shall be punished with a fine
not exceeding that imposed on the principal offenders, at the discretion of the court,
after taking into account their participation in the offense.
TITLE XVII
Miscellaneous Provisions
SECTION 173. Outstanding Capital Stock Defined. — The term "outstanding capital
stock," as used in this Code, shall mean the total shares of stock issued under binding
subscription contracts to subscribers or stockholders, whether fully or partially paid,
except treasury shares.
SECTION 174. Designation of Governing Boards. — The provisions of specific
provisions of this Code to the contrary notwithstanding, nonstock or special
corporations may, through their articles of incorporation or their bylaws, designate
their governing boards by any name other than as board of trustees.
SECTION 175. Collection and Use of Registration, Incorporation and Other Fees.
— For a more effective implementation of this Code, the Commission is hereby
authorized to collect, retain, and use fees, fines, and other charges pursuant to this
Code and its rules and regulations. The amount collected shall be deposited and
maintained in a separate account which shall form a fund for its modernization and to
augment its operational expenses such as, but not limited to, capital outlay, increase in
compensation and benefits comparable with prevailing rates in the private sector,
reasonable employee allowance, employee health care services, and other insurance,
employee career advancement and professionalization, legal assistance, seminars, and
other professional fees.
SECTION 176. Stock Ownership in Corporations. — Pursuant to the duties specified
by Article XIV of the Constitution, the National Economic and Development
Authority (NEDA) shall, from time to time, determine if the corporate vehicle has been
used by any corporation, business, or industry to frustrate the provisions of this Code
or applicable laws, and shall submit to Congress, whenever deemed necessary, a report
of its findings, including recommendations for their prevention or correction.
The Congress of the Philippines may set maximum limits for stock ownership of
individuals or groups of individuals related to each other by consanguinity, affinity, or
by close business interests, in corporations declared to be vested with public interest
pursuant to the provisions of this section, or whenever necessary to prevent anti-
competitive practices as provided in Republic Act No. 10667, otherwise known as the
"Philippine Competition Act," or to implement national economic policies designed to
promote general welfare and economic development, as declared in laws, rules and
regulations.
In recommending to the Congress which corporations, businesses and industries will
be declared as vested with public interest, and in formulating proposals for limitations
on stock ownership, the NEDA shall consider the type and nature of the industry, size
of the enterprise, economies of scale, geographic location, extent of Filipino
ownership, labor intensity of the activity, export potential, as well as other factors
which are germane to the realization and promotion of business and industry.
SECTION 177. Reportorial Requirements of Corporations. — Except as otherwise
provided in this Code or in the rules issued by the Commission, every corporation,
domestic or foreign, doing business in the Philippines shall submit to the Commission:
(a) Annual financial statements audited by an independent certified public
accountant: Provided, That if the total assets or total liabilities of the
corporation are less than Six hundred thousand pesos (P600,000.00), the
financial statements shall be certified under oath by the corporation's
treasurer or chief financial officer; and
(b) A general information sheet.
Corporations vested with public interest must also submit the following:
(1) A director or trustee compensation report; and
(2) A director or trustee appraisal or performance report and the standards or
criteria used to assess each director or trustee.
(a) The reportorial requirements shall be submitted annually and within such
period as may be prescribed by the Commission.
The Commission may place the corporation under delinquent status in case of failure
to submit the reportorial requirements three (3) times, consecutively or intermittently,
within a period of five (5) years. The Commission shall give reasonable notice to and
coordinate with the appropriate regulatory agency prior to placing on delinquent status
companies under their special regulatory jurisdiction.
Any person required to file a report with the Commission may redact confidential
information from such required report: Provided, That such confidential information
shall be filed in a supplemental report prominently labelled "confidential," together
with a request for confidential treatment of the report and the specific grounds for the
grant thereof.
SECTION 178. Visitorial Power and Confidential Nature of Examination Results. —
The Commission shall exercise visitorial powers over all corporations, which powers
shall include the examination and inspection of records, regulation and supervision of
activities, enforcement of compliance, and imposition of sanctions in accordance with
this Code.
Should the corporation, without justifiable cause, refuse or obstruct the Commission's
exercise of its visitorial powers, the Commission may revoke its certificate of
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incorporation, without prejudice to the imposition of other penalties and sanctions
under this Code.
All interrogatories propounded by the 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 when the law requires the same
to be made public, when necessary for the Commission to take action to protect the
public or to issue orders in the exercise of its powers under this Code, or where such
interrogatories, answers or results are necessary to be presented as evidence before any
court.
SECTION 179. Powers, Functions, and Jurisdiction of the Commission. — The
Commission shall have the power and authority to:
(a) Exercise supervision and jurisdiction over all corporations and persons acting
on their behalf, except as otherwise provided under this Code;
(b) Pursuant to Presidential Decree No. 902-A, retain jurisdiction over pending
cases involving intra-corporate disputes submitted for final resolution. The
Commission shall retain jurisdiction over pending suspension of
payment/rehabilitation cases filed as of 30 June 2000 until finally disposed;
(c) Impose sanctions for the violation of this Code, its implementing rules and
orders of the Commission;
(d) Promote corporate governance and the protection of minority investors,
through, among others, the issuance of rules and regulations consistent with
international best practices;
(e) Issue opinions to clarify the application of laws, rules and regulations;
(f) Issue cease and desist orders ex parte to prevent imminent fraud or injury to
the public;
(g) Hold corporations in direct and indirect contempt;
(h) Issue subpoena duces tecum and summon witnesses to appear in proceedings
before the Commission;
(i) In appropriate cases, order the examination, search and seizure of documents,
papers, files and records, and books of accounts of any entity or person under
investigation as may be necessary for the proper disposition of the cases,
subject to the provisions of existing laws;
(j) Suspend or revoke the certificate of incorporation after proper notice and
hearing;
(k) Dissolve or impose sanctions on corporations, upon final court order, for
committing, aiding in the commission of, or in any manner furthering
securities violations, smuggling, tax evasion, money laundering, graft and
corrupt practices, or other fraudulent or illegal acts;
(l) Issue writs of execution and attachment to enforce payment of fees,
administrative fines, and other dues collectible under this Code;
(m) Prescribe the number of independent directors and the minimum criteria in
determining the independence of a director;
 (n) Impose or recommend new modes by which a stockholder, member, director,
or trustee may attend meetings or cast their votes, as technology may allow,
taking into account the company's scale, number of shareholders or members,
structure, and other factors consistent with the basic right of corporate
suffrage;
(o) Formulate and enforce standards, guidelines, policies, rules and regulations to
carry out the provisions of this Code; and
(p) Exercise such other powers provided by law or those which may be necessary
or incidental to carrying out the powers expressly granted to the Commission.
In imposing penalties and additional monitoring and supervision requirements, the
Commission shall take into consideration the size, nature of the business, and capacity
of the corporation.
No court below the Court of Appeals shall have jurisdiction to issue a restraining order,
preliminary injunction, or preliminary mandatory injunction in any case, dispute, or
controversy that directly or indirectly interferes with the exercise of the powers, duties
and responsibilities of the Commission that falls exclusively within its jurisdiction.
SECTION 180. Development and Implementation of Electronic Filing and
Monitoring System. — The Commission shall develop and implement an electronic
filing and monitoring system. The Commission shall promulgate rules to facilitate and
expedite, among others, corporate name reservation and registration, incorporation,
submission of reports, notices, and documents required under this Code, and sharing
of pertinent information with other government agencies.
SECTION 181. Arbitration for Corporations. — An arbitration agreement may be
provided in the articles of incorporation or bylaws of a corporation. When such an
agreement is in place, disputes between the corporation, its stockholders or members,
which arise from the implementation of the articles of incorporation or bylaws, or from
intra-corporate relations, shall be referred to arbitration. A dispute shall be
nonarbitrable when it involves criminal offenses and interests of third parties.
The arbitration agreement shall be binding on the corporation, its directors, trustees,
officers, and executives or managers.
To be enforceable, the arbitration agreement should indicate the number of arbitrators
and the procedure for their appointment. The power to appoint the arbitrators forming
the arbitral tribunal shall be granted to a designated independent third party. Should
the third party fail to appoint the arbitrators in the manner and within the period
specified in the arbitration agreement, the parties may request the Commission to
appoint the arbitrators. In any case, arbitrators must be accredited or must belong to
organizations accredited for the purpose of arbitration.
The arbitral tribunal shall have the power to rule on its own jurisdiction and on
questions relating to the validity of the arbitration agreement. When an intra-corporate
168
dispute is filed with a Regional Trial Court, the court shall dismiss the case before the
termination of the pretrial conference, if it determines that an arbitration agreement is
written in the corporation's articles of incorporation, bylaws, or in a separate
agreement.
The arbitral tribunal shall have the power to grant interim measures necessary to ensure
enforcement of the award, prevent a miscarriage of justice, or otherwise protect the
rights of the parties.
A final arbitral award under this section shall be executory after the lapse of fifteen
(15) days from receipt thereof by the parties and shall be stayed only by the filing of a
bond or the issuance by the appellate court of an injunctive writ.
The Commission shall formulate the rules and regulations, which shall govern
arbitration under this section, subject to existing laws on arbitration.
SECTION 182. Jurisdiction Over Party-List Organizations. — The powers,
authorities, and responsibilities of the Commission involving party-list organizations
are transferred to the Commission on Elections (COMELEC).
Within six (6) months after the effectivity of this Act, the monitoring, supervision, and
regulation of such corporations shall be deemed automatically transferred to the
COMELEC.
For this purpose, the COMELEC, in coordination with the Commission, shall
promulgate the corresponding implementing rules for the transfer of jurisdiction over
the abovementioned corporations.
SECTION 183. Applicability of the Code. — Nothing in this Act shall be construed
as amending existing provisions of special laws governing the registration, regulation,
monitoring and supervision of special corporations such as banks, nonbank financial
institutions and insurance companies.
Notwithstanding any provision to the contrary, regulators such as the Bangko Sentral
ng Pilipinas and the Insurance Commission shall exercise primary authority over
special corporations such as banks, nonbank financial institutions, and insurance
companies under their supervision and regulation.
SECTION 184. Effect of Amendment or Repeal of This Code, or the Dissolution of a
Corporation. — 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.
SECTION 185. Applicability to Existing Corporations. — A corporation lawfully
existing and doing business in the Philippines affected by the new requirements of this
Code shall be given a period of not more than two (2) years from the effectivity of this
Act within which to comply.

SECTION 186. Separability Clause. — If any provision of this Act is declared invalid
or unconstitutional, the other provisions hereof which are not affected thereby shall
continue to be in full force and effect.

SECTION 187. Repealing Clause. — Batas Pambansa Blg. 68, otherwise known as
"The Corporation Code of the Philippines," is hereby repealed. Any law, presidential
decree or issuance, executive order, letter of instruction, administrative order, rule or
regulation contrary to or inconsistent with any provision of this Act is hereby repealed
or modified accordingly.

SECTION 188. Effectivity. — This Act shall take effect upon completion of its
publication in the Official Gazette or in at least two (2) newspapers of general
circulation.

169
 FOREIGN INVESTMENTS ACT OF 1991
REPUBLIC ACT No. 7042 AS AMENDED BY REPUBLIC ACT No.
8179
SECTION 1. Title. - This Act shall be known as the “Foreign Investments Act of
1991”.
SECTION 2. Declaration of Policy. — It is the policy of the State to attract, promote
and welcome productive investments from foreign individuals, partnerships,
corporations, and governments, including their political subdivisions, in activities
which significantly contribute to national industrialization and socioeconomic
development to the extent that foreign investment is allowed in such activity by the
Constitution and relevant laws. Foreign investments shall be encouraged in enterprises
that significantly expand livelihood and employment opportunities for Filipinos;
enhance economic value of farm products; promote the welfare of Filipino consumers;
expand the scope, quality and volume of exports and their access to foreign markets;
and/or transfer relevant technologies in agriculture, industry and support services.
Foreign investments shall be welcome as a supplement to Filipino capital and
technology in those enterprises serving mainly the domestic market.
As a general rule, there are no restrictions on extent of foreign ownership of export
enterprises. In domestic market enterprises, foreigners can invest as much as one
hundred percent (100%) equity except in areas included in the negative list. Foreign
owned firms catering mainly to the domestic market shall be encouraged to undertake
measures that will gradually increase Filipino participation in their businesses by
taking in Filipino partners, electing Filipinos to the board of directors, implementing
transfer of technology to Filipinos, generating more employment for the economy and
enhancing skills of Filipino workers.
SECTION 3. Definitions. — as used in this Act:
(a) the term Philippine national shall mean a citizen of the Philippines; or a
domestic partnership or association wholly owned by citizens of the
Philippines; or a corporation organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital stock outstanding and entitled
to vote is owned and held by citizens of the Philippines; or a corporation
organized abroad and registered as doing business in the Philippines under
the Corporation Code of which one hundred percent (100%) of the capital
stock outstanding and entitled to vote is wholly owned by Filipinos or a
trustee of funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine national and at least sixty percent
(60%) of the fund will accrue to the benefit of Philippine nationals: Provided,
That where a corporation and its non-Filipino stockholders own stocks in a
Securities and Exchange Commission (SEC) registered enterprise, at least
sixty percent (60%) of the capital stock outstanding and entitled to vote of
each of both corporations must be owned and held by citizens of the
170
Philippines and at least sixty percent (60%) of the members of the Board of
Directors, in order that the corporation shall be considered a Philippine
national.
(b) The term "investment" shall mean equity participation in any enterprise
organized or existing under the laws of the Philippines;
(c) The term "foreign investment" shall mean as equity investment made by a
non-Philippine national in the form of foreign exchange and/or other assets
actually transferred to the Philippines and duly registered with the Central
Bank which shall assess and appraise the value of such assets other than
foreign exchange;
(d) The phrase "doing business" shall include soliciting orders, service contracts,
opening offices, whether called "liaison" offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods totalling one hundred
eighty (180) days or more; participating in the management, supervision or
control of any domestic business, firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity of commercial
dealings or arrangements, and contemplate to that extent the performance
of acts or works, or the exercise of some of the functions normally incident
to, and in progressive prosecution of, commercial gain or of the purpose and
object of the business organization: Provided, however, That the phrase
"doing business: shall not be deemed to include mere investment as a
shareholder by a foreign entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such investor; nor having a nominee
director or officer to represent its interests in such corporation; nor appointing
a representative or distributor domiciled in the Philippines which transacts
business in its own name and for its own account;
(e) The term "export enterprise" shall mean an enterprise wherein a manufacture,
processor or service (including tourism) enterprise exports sixty per cent
(60%) or more of its output, or wherein a trader purchases products
domestically and exports sixty per cent (60%) or more of such purchases;
(f) The term "domestic market enterprise" shall mean an enterprise which
produces goods for sale, or renders services to the domestic market entirely
or if exporting a portion of its output fails to consistently export at least sixty
percent (60%) thereof; and
(g) The term "Foreign Investments Negative List" or "Negative List" shall mean
a list of areas of economic activity whose foreign ownership is limited to a
maximum of forty percent (40%) of the equity capital of the enterprises
engaged therein.
SECTION 4. Scope. — This Act shall not apply to banking and other financial
institutions which are governed and regulated by the General Banking Act and other
laws under the supervision of the Central Bank.
SECTION 5. Registration of Investments of Non-Philippine Nationals. — Without
need of prior approval, a non-Philippine national, as that term is defined in Section 3
(a), and not otherwise disqualified by law may, upon registration with the Securities
and Exchange Commission (SEC), or with the Bureau of Trade Regulation and
Consumer Protection (BTRCP) of the Department of Trade and Industry in the case of
single proprietorships, do business as defined in Section 3 (d) of this Act or invest in
a domestic enterprise up to one hundred percent (100%) of its capital, unless
participation of non-Philippine nationals in the enterprise is prohibited or limited to a
smaller percentage by existing law and/or under the provisions of this Act. The SEC
or BTRCP, as the case may be, shall not impose any limitations on the extent of foreign
ownership in an enterprise additional to those provided in this Act: Provided, however,
That any enterprise seeking to avail of incentives under the Omnibus Investment Code
of 1987 must apply for registration with the Board of Investments (BOI), which shall
process such application for registration in accordance with the criteria for evaluation
prescribed in said Code: Provided, finally, That a non-Philippine national intending to
engage in the same line of business as an existing joint venture, in which he or his
majority shareholder is a substantial partner, must disclose the fact and the names and
addresses of the partners in the existing joint venture in his application for registration
with SEC. During the transitory period as provided in Section 15 hereof, the SEC shall
disallow registration of the applying non-Philippine national if the existing joint
venture enterprise, particularly the Filipino partners therein, can reasonably prove they
are capable to make the investment needed for the domestic market activities to be
undertaken by the competing applicant. Upon effectivity of this Act, SEC shall effect
registration of any enterprise applying under this Act within fifteen (15) days upon
submission of completed requirements.
SECTION 6. Foreign Investments in Export Enterprises. — Foreign investment in
export enterprises whose products and services do not fall within Lists A and B of the
Foreign Investment Negative List provided under Section 8 hereof is allowed up to
one hundred percent (100%) ownership.
Export enterprises which are non-Philippine nationals shall register with BOI and
submit the reports that may be required to ensure continuing compliance of the export
enterprise with its export requirement. BOI shall advise SEC or BTRCP, as the case
may be, of any export enterprise that fails to meet the export ratio requirement. The
SEC or BTRCP shall thereupon order the non-complying export enterprise to reduce
its sales to the domestic market to not more than forty percent (40%) of its total
production; failure to comply with such SEC or BTRCP order, without justifiable
reason, shall subject the enterprise to cancellation of SEC or BTRCP registration,
and/or the penalties provided in Section 14 hereof.
SECTION 7. Foreign Investments in Domestic Market Enterprises. — Non-
Philippine nationals may own up to one hundred percent (100%) of domestic market
enterprises unless foreign ownership therein is prohibited or limited by the
171
Constitution and existing law or the Foreign Investment Negative List under Section
8 hereof.
SECTION 8. List of Investment Areas Reserved to Philippine Nationals
(Foreign Investment Negative List). — The Foreign Investment Negative List shall
have two (2) component lists: A and B:
(a) List A shall enumerate the areas of activities reserved to Philippine nationals
by mandate of the Constitution and specific laws.
(b) List B shall contain the areas of activities and enterprises regulated pursuant
to law:
(1) which are defense-related activities, requiring prior clearance and
authorization from Department of National Defense (DND) to engage in
such activity, such as the manufacture, repair, storage and/or distribution
of firearms, ammunition, lethal weapons, military ordnance, explosives,
pyrotechnics and similar materials, unless such manufacturing on repair
activity is specifically authorized, with a substantial export component,
to a non-Philippine national by the Secretary of National Defense; or
(2) which have implications on public health and morals, such as the
manufacture and distribution of dangerous drugs, all forms of gambling,
nightclubs, bars, beer houses, dance halls, sauna and steam bathhouses
and massage clinics.
Small and medium-sized domestic market enterprises with paid-in equity capital less
than the equivalent of Two hundred thousand US dollars (US$200,000.00), are
reserved to Philippine nationals: Provided, That if (1) they involve advanced
technology as determined by the Department of Science and Technology, or (2) they
employ at least fifty (50) direct employees, then a minimum paid-in capital of One
hundred thousand US dollars (US$100,000.00) shall be allowed to non-Philippine
nationals.
Amendments to List B may be made upon recommendation of the Secretary of
National Defense, or the Secretary of Health, or the Secretary of Education, Culture
and Sports, indorsed by the NEDA, or upon recommendation motu proprio, of NEDA,
approved by the President, and promulgated by a Presidential Proclamation.
The Transitory Foreign Investment Negative List established in Section 15 hereof
shall be replaced at the end of the transitory period by the first Regular Negative List
to be formulated and recommended by NEDA, following the process and criteria,
provided in Sections 8 and 9 of this Act. The first Regular Negative Lists shall be
published not later than sixty (60) days before the end of the transitory period provided
in said section and shall become immediately effective at the end of the transitory
period. Subsequent Foreign Investment Negative Lists shall become effective fifteen
(15) days after publication in a newspaper of general circulation in the
Philippines: Provided, however, That each Foreign Investment Negative List shall be
prospective in operation and shall in no way affect foreign investment existing on the
date of its publication.
Amendments to List B after promulgation and publication of the first
Regular Foreign Investment Negative List at the end of the transitory period shall not
be made more often than once every two (2) years.
SECTION 9. Investment Rights of Former Natural-born Filipinos. — For purposes
of this Act, former natural born citizens of the Philippines shall have the
same investment rights of a Philippine citizen in Cooperatives under Republic Act No.
6938. Rural Banks under Republic Act No. 7353, Thrift Banks and Private
Development Banks under Republic Act No. 7906, and Financing Companies under
Republic Act No. 5980. These rights shall not extend to activities reserved by the
Constitution, including (1) the exercise of profession, (2) in defense-related activities
under Section 8 (b) hereof, unless specifically authorized by the Secretary of National
Defense, and (3) activities covered by Republic Act No. 1180 (Retail Trade Act),
Republic Act No. 5487 (Security Agency Act). Republic Act No. 7076 (Small Scale
Mining Act). Republic Act No. 3018, as amended (Rice and Corn Industry Act), and
P.D. 449 (Cockpits Operation and Management).
SECTION 10. Other Rights of Natural Born Citizen Pursuant to the Provisions of
Article XII, Section 8 of the Constitution. — Any natural born citizen who has lost his
Philippine citizenship and who has the legal capacity to enter into a contract under
Philippine laws may be a transferee of a private land up to a maximum area of five
thousand (5,000) square meters in the case of urban land or three (3) hectares in the
case of rural land to be used by him for business or other purposes. In the case of
married couples, one of them may avail of the privilege herein granted: Provided, That
if both shall avail of the same, the total area acquired shall not exceed the maximum
herein fixed.
In case the transferee already owns urban or rural land for business or other purposes,
he shall still be entitled to be a transferee of additional urban or rural land for business
or other purposes which when added to those already owned by him shall not exceed
the maximum areas herein authorized.
A transferee under this Act may acquire not more than two (2) lots which should be
situated in different municipalities or cities anywhere in the Philippines: Provided,
That the total land area thereof shall not exceed five thousand (5,000) square meters
in the case of urban land or three (3) hectares in the case of rural land for use by him
for business or other purposes. A transferee who has already acquired urban land shall
be disqualified from acquiring rural land area and vice versa.
SECTION 11. Compliance with Environmental Standards. — All industrial
enterprises regardless of nationality of ownership shall comply with existing rules and
172
regulations to protect and conserve the environment and meet applicable
environmental standards.
SECTION 12. Consistent Government Action. — No agency, instrumentality or
political subdivision of the Government shall take any action on conflict with or which
will nullify the provisions of this Act, or any certificate or authority granted hereunder.
SECTION 13. Implementing Rules and Regulations. — NEDA, in consultation with
BOI, SEC and other government agencies concerned, shall issue the rules and
regulations to implement this Act within one hundred and twenty (120) days after its
effectivity. A copy of such rules and regulations shall be furnished the Congress of
the Republic of the Philippines.
SECTION 14. Administrative Sanctions. — A person who violates any provision of
this Act or of the terms and conditions of registration or of the rules and regulations
issued pursuant thereto, or aids or abets in any manner any violation shall be subject
to a fine not exceeding One hundred thousand pesos (P100,000).
If the offense is committed by a juridical entity, it shall be subject to a fine in an amount
not exceeding ½ of 1% of total paid-in capital but not more than Five million pesos
(P5,000,000). The president and/or officials responsible therefor shall also be subject
to a fine not exceeding Two hundred thousand pesos (P200,000).
In addition to the foregoing, any person, firm or juridical entity involved shall be
subject to forfeiture of all benefits granted under this Act.
SEC shall have the power to impose administrative sanctions as provided herein for
any violation of this Act or its implementing rules and regulations.
SECTION 15. Transitory Provisions. — Prior to effectivity of the implementing rules
and regulations of this Act, the provisions of Book II of Executive Order 226 and its
implementing rules and regulations shall remain in force.
During the initial transitory period of thirty-six (36) months after issuance of the Rules
and Regulations to implement this Act, the Transitory Foreign Investment Negative
List shall consist of the following:
A. List A:
1. All areas of investment in which foreign ownership is limited by mandate
of Constitution and specific laws.
B. List B:
1. Manufacture, repair, storage and/or distribution of firearms, ammunition,
lethal weapons, military ordnance, explosives, pyrotechnics and similar
materials required by law to be licensed by and under the continuing
regulation of the Department of National Defense; unless such
manufacturing or repair activity is specifically authorized, with
 substantial export component, to a non-Philippine national by the
Secretary of National Defense;
2. Manufacture and distribution of dangerous drugs; all forms of gambling;
nightclubs, bars, beerhouses, dance halls; sauna and steam bathhouses,
massage clinics and other like activities regulated by law because of risks
they may pose to public health and morals;
3. Small and medium-sized domestic market enterprises with paid-in equity
capital less than the equivalent of Two-hundred thousand US dollars
(US$200,000.00), reserved to Philippine nationals: Provided, That if: (1)
they involve advanced technology as determined by the Department of
Science and Technology or (2) they employ at least fifty (50) direct
employee, then a minimum paid-in capital of One hundred thousand US
dollars (US$100,000.00) shall be allowed to non-Philippine nationals.

SECTION 16. Repealing Clause. — Articles forty-four (44) to fifty-six (56) of Book
II of Executive Order No. 226 are hereby repealed.

All other laws or parts of laws inconsistent with the provisions of this Act are hereby
repealed or modified accordingly.

SECTION 17. Separability. — If any part or section of this Act is declared

unconstitutional for any reason whatsoever, such declaration shall not in any way
affect the other parts or sections of this Act.

SECTION 18. Effectivity. — This Act shall take effect fifteen (15) days after approval
and publication in two (2) newspapers of general circulation in the Philippines.

173
 INVENTOR’S LEASE ACT
REPUBLIC ACT No. 7652
SECTION 1. Title. — This Act shall be known as the "Investors' Lease Act."
SECTION 2. Declaration of Policy. — It is hereby declared the policy of the
State to encourage foreign investments consistent with the constitutional mandate
to conserve and develop our own patrimony. Towards this end, the State hereby
adopts a flexible and dynamic policy on the granting of long-term lease on private
lands to foreign investors for the establishment of industrial estates, factories,
assembly or processing plants, agro-industrial enterprises, land development for
industrial, or commercial use, tourism, and other similar priority productive
endeavors.
SECTION 3. Definitions. — For purposes of this Act, unless the context indicates
otherwise, the term:
(1) "Investing in the Philippines" shall mean making an equity investment in
the Philippines through actual remittance of foreign exchange or transfer
of assets, whether in the form of capital goods, patents, formulae, or other
technological rights or processes, upon registration with the Securities and
Exchange Commission; and
(2) "Withdrawal of approved investment" shall mean either; (a) the failure to
operate the investment project for any three (3) consecutive years; or (b)
outright abandonment of the investment project at any time during the
approved lease period: Provided, That failure to pay lease rental for three
(3) consecutive months coupled with the failure to operate the investment
project for the same period shall be deemed an outright abandonment of
the project.
SECTION 4. Coverage. — Any foreign investor investing in the Philippines shall
be allowed to lease private lands in accordance with the laws of the Republic of
the Philippines subject to the following conditions: cd
(1) No lease contract shall be for a period exceeding fifty (50) years,
renewable once for a period of not more than twenty- five (25) years;
(2) The leased area shall be used solely for the purpose of the investment
upon the mutual agreement of the parties;
(3) The leased premises shall comprise such area as may reasonably be
required for the purpose of the investment subject however to
the Comprehensive Agrarian Reform Law and the Local Government
Code.
The leasehold right acquired under long-term lease contracts entered into pursuant
to this Act may be sold, transferred, or assigned: Provided, That when the buyer,
transferee, or assignee is a foreigner or a foreign-owned enterprise, the conditions
174
and limitations in respect to the use of the leased property as provided for under
this Act shall continue to apply.
SECTION 5. Limitations. — (1) Foreign individuals, corporations, associations,
or partnerships not otherwise investing in the Philippines as defined herein shall
continue to be covered by Presidential Decree No. 471 and other existing laws in
lease of lands to foreigners.
(2) Withdrawal of the approved investment in the Philippines within the period of
the lease agreement entered into under this Act, or use of the leased area for the
purpose other than that authorized, shall warrant the ipso facto termination of the
lease agreement without prejudice to the right of the lessor to be compensated for
the damages he may have suffered thereby.
(3) Any lease agreement under this Act which is renewable at the option of the
lessee subject to the same terms and conditions of the original contract shall be
interpreted to mean as renewable upon the mutual agreement of the parties.
(4) In addition to the conditions for the renewal of a lease agreement after the
period of fifty (50) years as provided herein, the foreign lease shall show that it
has made social and economic contributions to the country.
(5) In the case of tourism projects, lease of private lands by foreign investors
qualified herein shall be limited to projects with an investment of not less than
five million (5M) US dollars, seventy percent (70%) of which shall be infused in
said project within three years from the signing of the lease contract.
SECTION 6. Termination of Lease Contract. — The Secretary of Trade and
Industry shall terminate any lease contract entered into under the provisions of
this Act, if the investment project is not initiated within three (3) years from the
signing of the lease contract.
SECTION 7. Penal Provision. — Any contract or agreement made or executed
in violation of any of the following prohibited acts shall be null and void ab
initio and both contracting parties shall be punished by a fine of not less than One
Hundred thousand pesos (P100,000) nor more than One million pesos
(P1,000,000), or imprisonment of six (6) months to (6) years, or both, at the
discretion of the court:
(1) Any provision in the lease agreement stipulating a lease period in excess
of that provided in paragraph (1) of Section 4;
(2) Use of the leased premises for the purpose contrary to existing laws of the
land, public order, public policy, morals, or good customs;
(3) Any agreement or agreements resulting is the lease of land in excess of the
area approved by the DTI: Provided, That, where the excess of the totality
of the area leased is due to the acts of the lessee, the lessee shall be held
solely liable therefor: Provided, further, That, in the case of corporations,
 associations, or partnerships, the president, manager, director, trustee, or
officers responsible for the violation hereof shall bear the criminal
liability.
SECTION 8. Separability Clause. — In case any provision of this Act or the
application of such provision is deemed unconstitutional, the remaining
provisions of this Act or the application of such provisions shall not be affected
thereby.

SECTION 9. Repealing Clause. — All acts, rules and regulations contrary to or

inconsistent with this Act are hereby repealed or modified accordingly.

SECTION 10. Effectivity Clause. — this Act shall take effect immediately upon
its approval.

175
 SPECIAL ECONOMIC ZONE ACT OF 1995
REPUBLIC ACT No. 7916 AS AMENDED BY REPUBLIC ACT No.
8748
CHAPTER I
PURPOSES AND OBJECTIVES; ESTABLISHMENT AND NATURE OF
SPECIAL ECONOMIC ZONES; COORDINATION WITH OTHER SIMILAR
SCHEMES
SECTION 1. Title. — This Act shall be known and cited as "The Special Economic
Zone Act of 1995."
SECTION 2. Declaration of Policy. — It is the declared policy of the government to
translate into practical realities the following State policies and mandates in the 1987
Constitution, namely:
(a) "The State recognizes the indispensable role of the private sector, encourages
private enterprise, and provides incentives to needed investments." (Sec. 20,
Art. II)
(b) "The State shall promote the preferential use of Filipino labor, domestic
materials and locally produced goods, and adopt measures that help make
them competitive." (Sec. 12, Art. XII)
In pursuance of these policies, the government shall actively encourage, promote,
induce and accelerate a sound and balanced industrial, economic and social
development of the country in order to provide jobs to the people especially those in
the rural areas, increase their productivity and their individual and family income, and
thereby improve the level and quality of their living condition through the
establishment, among others, of special economic zones in suitable and strategic
locations in the country and through measures that shall effectively attract legitimate
and productive foreign investments.
SECTION 3. Purposes, Intents and Objectives. — It is the purpose, intent and
objective of this Act:
(a) To establish the legal framework and mechanisms for the integration,
coordination, planning and monitoring of special economic zones, industrial
estates/parks, export processing zones and other economic zones;
(b) To transform selected areas in the country into highly developed agro-
industrial, industrial, commercial, tourist, banking, investment, and financial
centers, where highly trained workers and efficient services will be available
to commercial enterprises;
(c) To promote the flow of investors, both foreign and local, into special
economic zones which would generate employment opportunities and
establish backward and forward linkages among industries in and around the
economic zones;
176
(d) To stimulate the repatriation of Filipino capital by providing attractive
climate and incentives for business activity;
(e) To promote financial and industrial cooperation between the Philippines and
industrialized countries through technology-intensive industries that will
modernize the country's industrial sector and improve productivity levels by
utilizing new technological and managerial know-how; and
(f) To vest the special economic zones on certain areas thereof with the status of
a separate customs territory within the framework of the Constitution and the
national sovereignty and territorial integrity of the Philippines.
SECTION 4. Definition of Terms. — For purposes of this Act, the following
definitions shall apply to the following terms:
(a) "Special economic zones (SEZ)" — hereinafter referred to as the
ECOZONES, are selected areas with highly developed or which have the
potential to be developed into agro-industrial, industrial, tourist/recreational,
commercial, banking, investment and financial centers. An ECOZONE may
contain any or all of the following: industrial estates (IEs), export processing
zones (EPZs), free trade zones, and tourist/recreational centers.
(b) "Industrial estate (IE)" — refers to a tract of land subdivided and developed
according to a comprehensive plan under a unified continuous management
and with provisions for basic infrastructure and utilities, with or without pre-
built standard factory buildings and community facilities for the use of the
community of industries.
(c) "Export processing zone (EPZ)" — a specialized industrial estate located
physically and/or administratively outside customs territory, predominantly
oriented to export production. Enterprises located in export processing zones
are allowed to import capital equipment and raw materials free from duties,
taxes and other import restrictions.
(d) "Free trade zone" — an isolated policed area adjacent to a port of entry (as a
seaport) and/or airport where imported goods may be unloaded for immediate
transshipment or stored, repacked, sorted, mixed, or otherwise manipulated
without being subject to import duties. However, movement of these
imported goods from the free-trade area to a non-free-trade area in the country
shall be subject to import duties.
Enterprises within the zone are granted preferential tax treatment and immigration
laws are more lenient.
SECTION 5. Establishment of ECOZONES. — To ensure the viability and
geographic dispersal of ECOZONES through a system of prioritization, the following
areas are initially identified as ECOZONES, subject to the criteria specified in Section
6:
(a) So much as may be necessary of that portion of Morong, Hermosa,
Dinalupihan, Orani, Samal, and Abucay in the Province of Bataan;
(b) So much as may be necessary of that portion of the municipalities of Ibaan,
Rosario, Taysan, San Jose, San Juan, and cities of Lipa and Batangas;
(c) So much as may be necessary of that portion of the City of Cagayan de Oro
in the Province of Misamis Oriental;
(d) So much as may be necessary of that portion of the City of Iligan in the
Province of Lanao del Norte;
(e) So much as may be necessary of that portion of the Province of Saranggani;
(f) So much as may be necessary of that portion of the City of Laoag in the
Province of Ilocos Norte;
(g) So much as may be necessary of that portion of Davao City and Samal Island
in the Province of Davao del Norte;
(h) So much as may be necessary of that portion of Oroquieta City in the Province
of Misamis Occidental;
(i) So much as may be necessary of that portion of Tubalan Cove, Malita in the
Province of Davao del Sur;
(j) So much as may be necessary of that portion of Baler, Dinalungan and
Casiguran including its territorial waters and islets and its immediate environs
in the Province of Aurora;
(k) So much as may be necessary of that portion of cities of Naga and Iriga in the
Province of Camarines Sur, Legaspi and Tabaco in the Province of Albay,
and Sorsogon in the Province of Sorsogon;
(l) So much as may be necessary of that portion of Batan Island in the Province
of Batanes;
(m) So much as may be necessary of that portion of Lapu-lapu in the Island of
Mactan, and the municipalities of Balamban and Pinamungahan and the cities
of Cebu and Toledo and the Province of Cebu, including its territorial waters
and islets and its immediate environs;
(n) So much as may be necessary of that portion of Tacloban City;
(o) So much as may be necessary of that portion of the Municipality of Barugo
in the Province of Leyte;
(p) So much as may be necessary of that portion of the Municipality of
Buenavista in the Province of Guimaras;
(q) So much as may be necessary of that portion of the municipalities of San Jose
de Buenavista, Hamtic, Sibalom, and Culasi in the Province of Antique;
(r) So much as may be necessary of that portion of the municipalities of
Catarman, Bobon and San Jose in the Province of Northern Samar, the Island
of Samar; cda
(s) So much as may be necessary of that portion of the Municipality of Ternate
and its immediate environs in the Province of Cavite;
(t) So much as may be necessary of that portion of Polloc, Parang in the Province
of Maguindanao;
(u) So much as may be necessary of that portion of the Municipality of Boac in
the Province of Marinduque;
(v) So much as may be necessary of that portion of the Municipality of Pitogo in
the Province of Zamboanga del Sur;
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(w) So much as may be necessary of that portion of Dipolog City-Manukan
Corridor in the Province of Zamboanga del Norte;
(x) So much as may be necessary of that portion of Mambajao, Camiguin
Province;
(y) So much as may be necessary of that portion of Infanta, Real, Polillo, Alabat,
Atimonan, Mauban, Tiaong, Pagbilao, Mulanay, Tagkawayan, and Dingalan
Bay in the Province of Quezon;
(z) So much as may be necessary of that portion of Butuan City and the Province
of Agusan del Norte, including its territorial waters and islets and its
immediate environs;
(aa) So much as may be necessary of that portion of Roxas City including its
territorial waters and islets and its immediate environs in the Province of
Capiz;
(bb) So much as may be necessary of that portion of San Jacinto, San Fabian,
Mangaldan, Lingayen, Sual, Dagupan, Alaminos, Manaoag, Binmaley in the
Province of Pangasinan;
(cc) So much as may be necessary of that portion of the autonomous region;
(dd) So much as may be necessary of that portion of Masinloc, Candelaria, and
Sta. Cruz in the Province of Zambales;
(ee) So much as may be necessary of that portion of the Palawan Island;
(ff) So much as may be necessary of that portion of General Santos City in South
Cotabato and its immediate environs;
(gg) So much as may be necessary of that portion of Dumaguete City and Negros
Oriental, including its territorial waters and islets and its immediate environs;
(hh) So much as may be necessary of that portion of the Province of Ilocos Sur;
(ii) (ii) So much as may be necessary of that portion of the Province of La Union;
(jj) So much as may be necessary of that portion of the Province of Laguna,
including its territorial waters and its immediate environs;
(kk) So much as may be necessary of that portion of the Province of Rizal;
(ll) All existing export processing zones and government-owned industrial
estates; and
(mm) Any private industrial estate which shall voluntarily apply for
conversion into an ECOZONE.
These areas shall be developed through any of the following schemes:
i. Private initiative;
ii. Local government initiative with the assistance of the national
government; and
iii. National government initiative.
iv.
The metes and bounds of each ECOZONE are to be delineated and more particularly
described in a proclamation to be issued by the President of the Philippines, upon the
recommendation of the Philippine Economic Zone Authority (PEZA), which shall be
established under this Act, in coordination with the municipal and/or city council,
National Land Use Coordinating Committee and/or the Regional Land Use
Committee.
SECTION 6. Criteria for the Establishment of Other ECOZONES. — In addition to
the ECOZONES identified in Section 5 of this Act, other areas may be established as
ECOZONES in a proclamation to be issued by the President of the Philippines subject
to the evaluation and recommendation of the PEZA, based on a detailed feasibility and
engineering study which must conform to the following criteria:
(a) The proposed area must be identified as a regional growth center in the
Medium-Term Philippine Development Plan or by the Regional
Development Council;
(b) The existence of required infrastructure in the proposed ECOZONE, such as
roads, railways, telephones, ports, airports, etc., and the suitability and
capacity of the proposed site to absorb such improvements;
(c) The availability of water source and electric power supply for use of the
ECOZONE;
(d) The extent of vacant lands available for industrial and commercial
development and future expansion of the ECOZONE as well as of lands
adjacent to the ECOZONE available for development of residential areas for
the ECOZONE workers;
(e) The availability of skilled, semi-skilled and non-skilled trainable labor force
in and around the ECOZONE;
(f) The area must have a significant incremental advantage over the existing
economic zones and its potential profitability can be established;
(g) The area must be strategically located; and
(h) The area must be situated where controls can easily be established to curtail
smuggling activities.
Other areas which do not meet the foregoing criteria may be established as
ECOZONES: Provided, That the said area shall be developed only through local
government and/or private sector initiative under any of the schemes allowed
in Republic Act No. 6957 (the build-operate-transfer law), and without any financial
exposure on the part of the national government: Provided, further, That the area can
be easily secured to curtail smuggling activities: Provided, finally, That after five (5)
years the area must have attained a substantial degree of development, the indicators
of which shall be formulated by the PEZA.
SECTION 7. ECOZONE to be a Decentralized Agro-Industrial, Industrial,
Commercial/Trading, Tourist, Investment and Financial Community. — Within the
framework of the Constitution, the interest of national sovereignty and territorial
integrity of the Republic, the ECOZONE shall be developed, as much as possible, into
a decentralized, self-reliant and self-sustaining industrial, commercial/trading, agro-
industrial, tourist, banking, financial and investment center with minimum government
intervention. Each ECOZONE shall be provided with transportation,
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telecommunications, and other facilities needed to generate linkage with industries and
employment opportunities for its own inhabitants and those of nearby towns and cities.
The ECOZONE shall administer itself on economic, financial, industrial, tourism
development and such other matters within the exclusive competence of the national
government.
The ECOZONE may establish mutually beneficial economic relations with other
entities within the country, or, subject to the administrative guidance of the
Department of Foreign Affairs and/or the Department of Trade and Industry, with
foreign entities or enterprises.
Foreign citizens and companies owned by non-Filipinos in whatever proportion may
set up enterprises in the ECOZONE, either by themselves or in joint venture with
Filipinos in any sector of industry, international trade and commerce within the
ECOZONE. Their assets, profits and other legitimate interests shall be
protected: Provided, That the ECOZONE through the PEZA may require a minimum
investment for any ECOZONE enterprise in freely convertible currencies: Provided,
further, That the new investment shall fall under the priorities, thrusts and limits
provided for in this Act.
SECTION 8. ECOZONE to be Operated and Managed as Separate Customs
Territory. — The ECOZONES shall be managed and operated by the PEZA as
separate customs territory.
The PEZA is hereby vested with the authority to issue certificates of origin for products
manufactured or processed in each ECOZONE in accordance with the prevailing rules
of origin, and the pertinent regulations of the Department of Trade and Industry and/or
the Department of Finance.
SECTION 9. Defense and Security. — The defense of the ECOZONE and the security
of its perimeter fence shall be the responsibility of the national government in
coordination with the PEZA. Military forces sent by the national government for the
purpose of defense shall not interfere in the internal affairs of any of the ECOZONE
and expenditure for these military forces shall be borne by the national government.
The PEZA may provide and establish the ECOZONES' internal security and
firefighting forces.
SECTION 10. Immigration. — Any investor within the ECOZONE whose initial
investment shall not be less than One hundred fifty thousand dollars ($150,000),
his/her spouse and dependent children under twenty-one (21) years of age shall be
granted permanent resident status within the ECOZONE. They shall have freedom of
ingress and egress to and from the ECOZONE without any need of special
authorization from the Bureau of Immigration.
The PEZA shall issue working visas renewable every two (2) years to foreign
executives and other aliens, possessing highly-technical skills which no Filipino
within the ECOZONE possesses, as certified by the Department of Labor and
Employment. The names of aliens granted permanent resident status and working visas
by the PEZA shall be reported to the Bureau of Immigration within thirty (30) days
after issuance thereof.
CHAPTER II
GOVERNING STRUCTURES
SECTION 11. The Philippine Economic Zone Authority (PEZA) Board. — There
is hereby created a body corporate to be known as the Philippine Economic Zone
Authority (PEZA) attached to the Department of Trade and Industry. The Board
shall have a director general with the rank of department undersecretary who shall
be appointed by the President. The director general shall be at least forty (40)
years of age, of proven probity and integrity, and a degree holder in any of the
following fields: economics, business, public administration, law, management or
their equivalent, and with at least ten (10) years relevant working experience
preferably in the field of management or public administration.
The director general, shall be assisted by three (3) deputy directors general each
for policy and planning, administration and operations, who shall be appointed by
the PEZA Board, upon the recommendation of the director general. The deputy
directors general shall be at least thirty-five (35) years old, with proven probity
and integrity and a degree holder in any of the following fields: economics,
business, public administration, law, management or their equivalent.
The Board shall be composed of thirteen (13) members as follows: the Secretary
of the Department of Trade and Industry as Chairman, the Director General of the
Philippine Economic Zone Authority as Vice-chairman, the undersecretaries of
the Department of Finance, the Department of Labor and Employment, the
Department of Interior and Local Government, the Department of Environment
and Natural Resources, the Department of Agriculture, the Department of Public
Works and Highways, the Department of Science and Technology, the
Department of Energy, the Deputy Director General of the National Economic
and Development Authority, one (1) representative from the labor sector, and one
(1) representative from the investors/business sector in the ECOZONE. In case of
the unavailability of the Secretary of the Department of Trade and Industry to
attend a particular board meeting, the Director General of PEZA shall act as
Chairman.
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SECTION 12. Functions and Powers of PEZA Board. — The Philippine
Economic Zone Authority (PEZA) Board shall have the following functions and
powers:
(a) Set the general policies on the establishment and operations of the
ECOZONES, industrial estates, export processing zones, free trade
zones, and the like;
(b) Review proposals for the establishment of ECOZONES based on the set
criteria under Section 6 and endorse to the President the establishment of
the ECOZONES, industrial estates, export processing zones, free trade
zones and the like. Thereafter, it shall facilitate and assist in the
organization of said entities;
(c) Regulate and undertake the establishment, operation and maintenance of
utilities, other services and infrastructure in the ECOZONE, such as heat,
light and power, water supply, telecommunications, transport, toll roads
and bridges, port services, etc., and to fix just, reasonable and
competitive rates, fares, charges and fees therefor;
(d) Approve the annual budget of the PEZA and the ECOZONE
development plans;
(e) Issue rules and regulations to implement the provisions of this Act
insofar as its powers and functions are concerned;
(f) Exercise its powers and functions as provided for in this Act; and
(g) Render annual reports to the President and the Congress.
SECTION 13. General Powers and Functions of the Authority. — The PEZA
shall have the following powers and functions:
(a) To operate, administer, manage and develop the ECOZONE according
to the principles and provisions set forth in this Act;
(b) To register, regulate and supervise the enterprises in the ECOZONE in
an efficient and decentralized manner;
(c) To coordinate with local government units and exercise general
supervision over the development, plans, activities and operations of the
ECOZONES, industrial estates, export processing zones, free trade
zones, and the like;
(d) In coordination with local government units concerned and appropriate
agencies, to construct, acquire, own, lease, operate and maintain on its
own or through contract, franchise, license, bulk purchase from the
private sector and build-operate-transfer scheme or joint venture,
adequate facilities and infrastructure, such as light and power systems,
water supply and distribution systems, telecommunications and
transportation, buildings, structures, warehouses, roads, bridges, ports
and other facilities for the operation and development of the ECOZONE;
(e) To create, operate and/or contract to operate such agencies and
functional units or offices of the authority as it may deem necessary;
 (f) To adopt, alter and use a corporate seal; make contracts, lease, own or
otherwise dispose of personal or real property; sue and be sued; and
otherwise carry out its duties and functions as provided for in this Act;
(g) To coordinate the formulation and preparation of the development plans
of the different entities mentioned above;
(h) To coordinate with the National Economic and Development Authority
(NEDA), the Department of Trade and Industry (DTI), the Department
of Science and Technology (DOST), and the local government units and
appropriate government agencies for policy and program formulation
and implementation; and
(i) To monitor and evaluate the development and requirements of entities in
subsection (a) and recommend to the local government units or other
appropriate authorities the location, incentives, basic services, utilities
and infrastructure required or to be made available for said entities.
SECTION 14. Powers and Functions of the Director General. — The director
general shall be the overall coordinator of the policies, plans and programs of the
ECOZONES. As such, he shall provide overall supervision over and general
direction to the development and operations of these ECOZONES. He shall
determine the structure and the staffing pattern and personnel complement of the
PEZA and establish regional offices, when necessary, subject to the approval of
the PEZA Board.
In addition, he shall have the following specific powers and responsibilities:
(a) To safeguard all the lands, buildings, records, monies, credits and other
properties and rights of the ECOZONE;
(b) To ensure that all revenues of the ECOZONE are collected and applied
in accordance with its budget;
(c) To ensure that the investors/firms and employees of the ECOZONES are
properly discharging their respective duties;
(d) To give such information and recommend such measures to the Board,
as he shall deem advantageous to the ECOZONE;
(e) To submit to the Board, the ongoing and proposed projects, work and
financial program, annual budget of receipts, and expenditures of the
ECOZONE;
(f) To represent the ECOZONE in all its business matters and sign on its
behalf after approval of the Board, all its bonds, borrowings, contracts,
agreements and obligations made in accordance with this Act;
(g) To acquire jurisdiction, as he may deem proper, over the protests,
complaints, and claims of the residents and enterprises in the ECOZONE
concerning administrative matters;
(h) To recommend to the Board the grant, approval, refusal, amendment or
termination of the ECOZONE franchises, licenses, permits, contracts,
and agreements in accordance with the policies set by the Board;
(i) To require owners of houses, buildings or other structures constructed
without the necessary permit whether constructed on public or private
180
lands, to remove or demolish such houses, buildings, structures within
sixty (60) days after notice and upon failure of such owner to remove or
demolish such house, building or structure within said period, the
director general or his authorized representative may summarily cause
its removal or demolition at the expense of the owner, any existing law,
decree, executive order and other issuances or part thereof to the contrary
notwithstanding;
(j) To take such emergency measures as may be necessary to avoid fires,
floods and mitigate the effects of storms and other natural or public
calamities;
(k) To prepare and make out plans for the physical and economic
development of the ECOZONE, including zoning and land subdivision,
and issue such rules and regulations which shall be submitted to the
Board for its approval; and
(l) To perform such other duties and exercise such powers as may be
prescribed by the Board, and to implement the policies, rules and
regulations set by the PEZA.
SECTION 15. Administration of Each ECOZONE. — Except for privately-owned,
managed or operated ECOZONES, each ECOZONE shall be organized, administered,
managed and operated by the ECOZONE executive committee composed of the
following:
(a) The administrator who shall be appointed by the PEZA Board upon
recommendation of the director general; and
(b) One (1) deputy administrator to be appointed by the Board upon
recommendation of the director general.
An ECOZONE advisory body shall be created with the following members:
(1) The president of the association of investors in the
ECOZONE; cdasia
(2) The governor of the province where the ECOZONE is located;
(3) The mayor/s of the municipality/ies or city/ies where the ECOZONE
is located;
(4) The president of an accredited labor union in the ECOZONE;
(5) The representative of the business sector in the periphery of the
ECOZONE; and
(6) The representative of the PEZA.
The ECOZONE advisory shall have the following functions:
i. Advise the ECOZONE management on matters
pertaining to policy initiatives; and
ii. Assist the ECOZONE management in settling problems
arising between labor and any enterprise in the
ECOZONE.

Privately-owned ECOZONES shall retain autonomy and independence but shall be
monitored by the PEZA for the implementation of incentives and operations for
adherence to the law.
SECTION 16. Personnel. — The PEZA Board of Directors shall provide for an
organization and staff of officers and employees of the PEZA, and upon
recommendation of the director general with the approval of the Secretary of the
Department of Trade and Industry, appoint and fix the remunerations and other
emoluments: provided, that the Board shall have exclusive and final authority to
promote, transfer, assign or reassign officers of the PEZA, any provision of existing
law to the contrary notwithstanding: provided, further, that the director general may
carry out removal of such officers and employees.
All positions in the PEZA shall be governed by a compensation, position classification
system and qualification standards approved by the director general with the
concurrence of the Board of Directors based on a comprehensive job analysis and audit
of actual duties and responsibilities. The compensation plan shall be comparable with
the prevailing compensation plans in the Subic Bay Metropolitan Authority (SBMA),
Clark Development Corporation (CDC), Bases Conversion and Development
Authority (BCDA) and the private sector and shall be subject to periodic review by
the Board no more than once every two (2) years without prejudice to yearly merit
reviews or increases based on productivity and profitability. The PEZA shall
thereforee be exempt from existing laws, rules and regulations on compensation,
position classification and qualification standards. It shall however endeavor to make
its system conform as closely as possible with the principles under Republic Act No.
6758.
The PEZA officers and employees including all Members of the Board shall not
engage directly or indirectly in partisan activities or take part in any election, except
to vote.
No officer or employee of the PEZA subject to Civil Service laws and regulations shall
be removed or suspended except for cause, as provided by law.
SECTION 17. Investigation and Inquiries. — Upon a written formal complaint made
under oath, which on its face provides reasonable basis to believe that some anomaly
or irregularity might have been committed, the PEZA or the administrator of the
ECOZONE concerned, shall have the power to inquire into the conduct of firms or
employees of the ECOZONE and to conduct investigations, and for that purpose
may subpoena witnesses, administer oaths, and compel the production of books,
papers, and other evidences: Provided, That to arrive at the truth, the investigator(s)
may grant immunity from prosecution to any person whose testimony or whose
possessions of documents or other evidence is necessary or convenient to determine
181
the truth in any investigation conducted by him or under the authority of the PEZA or
the administrator of the ECOZONE concerned.
SECTION 18. Prohibition Against Holding Any Other Office. — The director
general, deputy directors general, administrators, officials and staff or assistants of the
PEZA shall not hold any other office or employment within or outside the PEZA
during their tenure. They shall not, during their tenure, directly or indirectly, practice
any profession, participate in any business, or be financially interested in any contract
with, or in any franchise, or special privilege granted by the PEZA or national
government, or any subdivision, agency, or instrumentality thereof, including any
government-owned or -controlled corporation, or its subsidiary.
SECTION 19. Disbursement of Funds. — No money shall be paid out of the funds of
any ECOZONE except in pursuance of the budget as formulated and approved by the
PEZA.
SECTION 20. Full Disclosure of Financial and Business Interests. — Every member
of the Board of the PEZA, the director general, the deputy directors general, and their
staff shall, upon assumption of office, make full disclosure of their financial and
business interests.
CHAPTER III
OPERATIONS WITHIN THE ECOZONE
SECTION 21. Development Strategy of the ECOZONE. — The strategy and priority
of development of each ECOZONE established pursuant to this Act shall be
formulated by the PEZA, in coordination with the Department of Trade and Industry
and the National Economic and Development Authority: Provided, That such
development strategy is consistent with the priorities of the national government as
outlined in the medium-term Philippine development plan.
It shall be the policy of the government and the PEZA to encourage and provide
incentives and facilitate private sector participation in the construction and operation
of the public utilities and infrastructure in the ECOZONE, using any of the schemes
allowed in Republic Act No. 6957 (the build-operate-transfer law).
SECTION 22. Survey of Resources. — The PEZA shall, in coordination with
appropriate authorities and neighboring cities and municipalities, immediately conduct
a survey of the physical, natural assets and potentialities of the ECOZONE areas under
its jurisdiction.
SECTION 23. Fiscal Incentives. — Business establishments operating within the
ECOZONES shall be entitled to the fiscal incentives as provided for under Presidential
Decree No. 66, the law creating the Export Processing Zone Authority, or those
provided under Book VI of Executive Order No. 226, otherwise known as
the Omnibus Investment Code of 1987.

Furthermore, tax credits for exporters using local materials as inputs shall enjoy the
same benefits provided for in the Export Development Act of 1994.
SECTION 24. Exemption from National and Local Taxes. — Except for real property
taxes on land owned by developers, no taxes, local and national, shall be imposed on
business establishments operating within the ECOZONE. In lieu thereof, five percent
(5%) of the gross income earned by all business enterprises within the ECOZONE
shall be paid and remitted as follows:
(a) Three percent (3%) to the National Government;
(b) Two percent (2%) which shall be directly remitted by the business
establishments to the treasurer's office of the municipality or city where the
enterprise is located.
SECTION 25. Applicable National and Local Taxes. — All persons and service
establishments in the ECOZONE shall be subject to national and local taxes under the
National Internal Revenue Code and the Local Government Code.
SECTION 26. Domestic Sales. — Goods manufactured by an ECOZONE enterprise
shall be made available for immediate retail sales in the domestic market, subject to
payment of corresponding taxes on the raw materials and other regulations that may
be adopted by the Board of the PEZA.
However, in order to protect the domestic industry, there shall be a negative list of
industries that will be drawn up by the PEZA. Enterprises engaged in the industries
included in the negative list shall not be allowed to sell their products locally. Said
negative list shall be regularly updated by the PEZA.
The PEZA, in coordination with the Department of Trade and Industry and the Bureau
of Customs, shall jointly issue the necessary implementing rules and guidelines for the
effective implementation of this section.
SECTION 27. Applicability of Banking Laws and Regulations. — Existing banking
laws and Bangko Sentral ng Pilipinas (BSP) rules and regulations shall apply to banks
and financial institutions to be established in the ECOZONE and to other ECOZONE-
registered enterprises. Among other pertinent regulations, these include those
governing foreign exchange and other current account transactions (trade and non-
trade), local and foreign borrowings, foreign investments, establishment and operation
of local and foreign banks, foreign currency deposit units, offshore banking units and
other financial institutions under the supervision of the BSP.
SECTION 28. After Tax Profits. — Without prior Bangko Sentral approval, after tax
profits and other earnings of foreign investments in enterprises in the ECOZONE may
be remitted outward in the equivalent foreign exchange through any of the banks
licensed by the Bangko Sentral ng Pilipinas in the ECOZONE: Provided, however,
182
That such foreign investments in said enterprises have been previously registered with
the Bangko Sentral.
SECTION 29. Eminent Domain. — The areas comprising an ECOZONE may be
expanded or reduced when necessary. For this purpose, the government shall have the
power to acquire, either by purchase, negotiation or condemnation proceedings, any
private lands within or adjacent to the ECOZONE:
If in the establishment of a publicly-owned ECOZONE, any person or group of
persons who has been occupying a parcel of land within the Zone has to be evicted,
the PEZA shall provide the person or group of persons concerned with proper
disturbance compensation: provided, however, that in the case of displaced agrarian
reform beneficiaries, they shall be entitled to the benefits under the Comprehensive
Agrarian Reform Law, including but not limited to Section 36 of Republic Act No.
3844, in addition to a homelot in the relocation site, and preferential employment in
the project being undertaken
SECTION 30. Leases of Lands and Buildings. — Lands and buildings in each
ECOZONE may be leased to foreign investors for a period not exceeding fifty (50)
years, renewable once for a period of not more than twenty-five (25) years, as provided
for under Republic Act No. 7652, otherwise known as the Investors' Lease Act. The
leasehold right acquired under long-term contracts may be sold, transferred or
assigned, subject to the conditions set forth under Republic Act No. 7652.
SECTION 31. Land Conversion. — Agricultural lands may be converted for
residential, commercial, industrial and other non-agricultural purposes, subject to the
conditions set forth under Republic Act No. 6657 and other existing laws.
SECTION 32. Shipping and Shipping Register. — Private shipping and related
business including private container terminals may operate freely in the ECOZONE,
subject only to such minimum reasonable regulations of local application which the
PEZA may prescribe.
The PEZA shall, in coordination with the Department of Transportation and
Communications, maintain a shipping register for each ECOZONE as a business
register of convenience for ocean-going vessels and issue related certification.
Ships of all sizes, descriptions and nationalities shall enjoy access to the ports of the
ECOZONE, subject only to such reasonable requirements as may be prescribed by the
PEZA in coordination with the appropriate agencies of the national government.
SECTION 33. Protection of Environment. — The PEZA, in coordination with the
appropriate agencies, shall take concrete and appropriate steps and enact the proper
measures for the protection of the local environment.
SECTION 34. Termination of Business. — Investors in the ECOZONE who desire to
terminate business or operations shall comply with such requirements and procedures
which the PEZA shall set, particularly those relating to the clearing of debts. The assets
of the closed enterprises can be transferred and the funds can be remitted out of the
ECOZONE subject to the rules, guidelines and procedures prescribed jointly by
the Bangko Sentral ng Pilipinas, the Department of Finance and the PEZA.
SECTION 35. Registration of Business Enterprises. — Business enterprises within a
designated ECOZONE shall register with the PEZA to avail of all incentives and
benefits provided for in this Act.
SECTION 36. One Stop Shop Center. — The PEZA shall establish a one stop shop
center for the purpose of facilitating the registration of new enterprises in the
ECOZONE. Thus, all appropriate government agencies that are involved in
registering, licensing or issuing permits to investors shall assign their representatives
to the ECOZONE to attend to investors' requirements.
CHAPTER IV
INDUSTRIAL HARMONY IN THE ECOZONES
SECTION 37. Labor and Management Relations. — Except as otherwise provided in
this Act, labor and management relations in the ECOZONE shall be governed by the
existing Labor Code of the Philippines. Employees and personnel in the ECOZONE
enterprises shall receive salaries and benefits and shall enjoy working conditions not
less than those provided under the Philippine Labor Code and other relevant laws,
issuances, rules and regulations of the Philippine government and the Department of
Labor and Employment.
SECTION 38. Promotion of Industrial Peace. — In the pursuit of industrial harmony
in the ECOZONE, a tripartite body composed of one (1) representative each from the
Department of Labor and Employment, labor sector and business and industry sectors
shall be created in order to formulate a mechanism under a social pact for the
enhancement and preservation of industrial peace in the ECOZONE within thirty (30)
days after the effectivity of this Act.
SECTION 39. Master Employment Contracts. — The PEZA, in coordination with the
Department of Labor and Employment, shall prescribe a master employment contract
for all ECOZONE enterprise staff members and workers, the terms of which provide
salaries and benefits not less than those provided under this Act, the Philippine Labor
Code, as amended, and other relevant issuances of the national government.
183
SECTION 40. Percentage of Foreign Nationals. — Employment of foreign nationals
hired by ECOZONE enterprises in a supervisory, technical or advisory capacity shall
not exceed five percent (5%) of its workforce without the express authorization of the
Secretary of Labor and Employment.
SECTION 41. Migrant Worker. — The PEZA, in coordination with the Department
of Labor and Employment, shall promulgate appropriate measures and programs
leading to the expansion of the services of the ECOZONE to help the local
governments of nearby areas meet the needs of the migrant workers.
SECTION 42. Incentive Scheme. — An additional deduction equivalent to one-half
(1/2) of the value of training expenses incurred in developing skilled or unskilled labor
or for managerial or other management development programs incurred by enterprises
in the ECOZONE can be deducted from the national government's share of three
percent (3%) as provided in Section 24.
The PEZA, the Department of Labor and Employment, and the Department of Finance
shall jointly make a review of the incentive scheme provided in this section every two
(2) years or when circumstances so warrant.
CHAPTER V
NATIONAL GOVERNMENT AND OTHER ENTITIES
SECTION 43. Relationship with the Regional Development Council. — The PEZA
shall determine the development goals for the ECOZONE within the framework of
national development plans, policies and goals, and the administrator shall, upon
approval by the PEZA Board, submit the ECOZONE plans, programs and projects to
the regional development council for inclusion in and as inputs to the overall regional
development plan.
SECTION 44. Relationship with the Local Government Units. — Except as herein
provided, the local government units comprising the ECOZONE shall retain their basic
autonomy and identity. The cities shall be governed by their respective charters and
the municipalities shall operate and function in accordance with Republic Act No.
7160, otherwise known as the Local Government Code of 1991.
SECTION 45. Relationship of PEZA to Privately-Owned Industrial Estates. —
Privately-owned industrial estates shall retain their autonomy and independence and
shall be monitored by the PEZA for the implementation of incentives.
SECTION 46. Transfer of Resources. — The relevant functions of the Board of
Investments over industrial estates and agri-export processing estates shall be
transferred to the PEZA. The resources of government-owned industrial estates and
similar bodies, except the Bases Conversion Development Authority and those areas
identified under Republic Act No. 7227, are hereby transferred to the PEZA as the
holding agency. They are hereby detached from their mother agencies and attached to
the PEZA for policy, program and operational supervision.
The Boards of the affected government-owned industrial estates shall be phased out
and only the management level and an appropriate number of personnel shall be
retained.
Government personnel whose services are not retained by the PEZA or any
government office within the ECOZONE shall be entitled to separation pay and such
retirement and other benefits they are entitled to under the laws then in force at the
time of their separation: Provided, That in no case shall the separation pay be less than
one and one-fourth (1 1/4) month of every year of service.
CHAPTER VI
MISCELLANEOUS PROVISIONS
SECTION 47. Appropriation. — Upon the effectivity of this Act, all funds of the
former Export Processing Zone Authority (EPZA) shall be transferred to the newly-
created Philippine Economic Zone Authority. Thereafter, any sum as may be necessary
to augment its capital outlay shall be included in the General Appropriations Act to be
treated as an equity of the national government.
Additional funding shall come from the following:
(a) The annual subsidies, appropriations and/or other assets of the exports
processing zone, and the industrial estates and other economic areas that have
been absorbed/transferred to the PEZA as mandated in this Act;
(b) The proceeds from the rent of lands, buildings, and other properties of the
ECOZONES concerned;
(c) The proceeds from fees, charges and other revenue-generating instruments
which the PEZA is authorized to impose and collect under this Act;
(d) The proceeds from bonds which the PEZA is authorized to float both
domestic and abroad; and
(e) The advance rentals, license fees, and other charges which the PEZA is
authorized to impose under this Act and which an investor is willing to
advance payment for.
SECTION 48. Applicability of National Laws. — National laws shall prevail vis-a-
vis ECOZONE rules, regulations and standards, unless there is a clear intent in this
Act or other Acts of Congress to vest the ECOZONE specific powers and privileges
not otherwise allowed under existing laws.
SECTION 49. Authority of the President to Advance Initial Funding. — Subject to
existing laws, the President of the Philippines is hereby authorized to advance out of
the savings of the Office of the President such funds as may be necessary to effect the
184
organization of an ECOZONE which shall be reimbursed by the PEZA at reasonable
terms and conditions.
SECTION 50. Non-Applicability on Areas Covered by Republic Act No. 7227. — This
Act shall not be applicable to economic zones and areas already created or to be created
under Republic Act No. 7227 or other special laws, and governed by authorities
constituted pursuant thereto.
SECTION 51. Ipso-Facto Clause. — All privileges, benefits, advantages or
exemptions granted to special economic zones under Republic Act No. 7227,
shall ipso facto be accorded to special economic zones already created or to be created
under this Act. The free port status shall not be vested upon the new special economic
zones.
SECTION 52. Separability Clause. — The provisions of this Act are hereby declared
separable, and in the event one or more of such provisions or part thereof are declared
unconstitutional, such declaration of unconstitutionality shall not affect the validity of
the other provisions thereof.
SECTION 53. Interpretation/Construction. — The powers, authorities and functions
that are vested in the Philippine Economic Zone Authority (PEZA) and the
ECOZONES concerned are intended to establish decentralization of governmental
functions and authority as well as an efficient and effective working relationship
between the ECOZONE, the central government and the local government units.
SECTION 54. Repealing Clause. — All laws, acts, presidential decrees, executive
orders, proclamations and/or administrative regulations which are inconsistent with
the provisions of this Act, are hereby amended, modified, superseded or repealed
accordingly.
SECTION 55. Implementing Rules and Regulations. — The Department of Trade and
Industry, the National Economic and Development Authority, the Department of
Finance, the Bureau of Customs, the Department of Agrarian Reform, the Department
of the Interior and Local Government, the Philippine Economic Zone Authority, and
the representatives from the technical staff of the Committee on Economic Affairs of
both Houses of Congress shall formulate the implementing rules and regulations of
this Act within ninety (90) days after its approval. Such rules and regulations shall take
effect fifteen (15) days after their publication in a newspaper of general circulation in
the Philippines.
SECTION 56. Transitory Provision. — Prior to the effectivity of the implementing
rules and regulations of this Act, the provisions of Presidential Decree No. 66,
amended, and its implementing rules and regulations shall remain in force.
SECTION 57. Effectivity. — This Act shall take effect upon its approval.
185
ELEVENTH REGULAR FOREIGN INVESTMENT NEGATIVE
LIST
EXECUTIVE ORDER NO. 65
SECTION 1. Eleventh Regular Foreign Investment Negative List. — Only
the investment areas and/or activities listed in the
attached Eleventh Regular Foreign Investment Negative List shall be reserved for
Philippine nationals, subject to the exceptions and conditions indicated therein.
SECTION 2. Amendments. — Amendments to List A may be made at any time to
reflect changes instituted in specific laws, while amendments to List B shall not be
made more often than once every two years, pursuant to Section 8 of RA No. 7042, as
amended, and its revised implementing rules and regulations.
SECTION 3. Repeal. — All issuances, orders, rules and regulations or parts thereof,
which are inconsistent with this Order are hereby repealed, amended or modified
accordingly.
SECTION 4. Separability. — If any provision of this Order is declared invalid or
unconstitutional, the other provisions not affected thereby shall remain valid and
subsisting.
SECTION 5. Effectivity. — This Order shall take effect fifteen (15) days after its
publication in a newspaper of general circulation.
ELEVENTH REGULAR FOREIGN INVESTMENT NEGATIVE LIST
List A: Foreign Ownership Is Limited By Mandate Of The Constitution And
Specific Laws
No Foreign Equity
1. Mass media, except recording (Art. XVI, Sec. 11 of the 1987 Constitution;
Presidential Memorandum dated 05 May 1994) and internet business (DOJ
Opinion No. 40, s. 1998)
2. Practice of professions (Art. XII, Sec. 14 of the Constitution, Sec. 1 of RA
No. 5181, Sec. 7 [j] of RA No. 8981), including Radiologic and x-ray
technology (RA No. 7431), Criminology (RA No. 6506), Law (Art. VIII,
Section 5 of the Constitution; Rule 138, Sec. 2 of the Rules of Court of the
Philippines), and Marine deck officers and marine engine officers (RA No.
10635), subject to the Annex on Professions attached herewith and forming an
integral part of this document, indicating the professions where (a) foreigners
are allowed to practice in the Philippines subject to reciprocity; and (b) where
corporate practice is allowed. Foreigners may teach at higher education levels
(RA No. 8292), provided the subject being taught is not a professional subject
(i.e., included in a government board or bar examination).
186
3. Retail trade enterprises with paid-up capital of less than US$2,500,000 (Sec.
5 of RA No. 8762)
4. Cooperatives (Ch. III, Art. 26 of RA No. 6938, as amended by Ch. II, Art. 10
of RA No. 9520)
5. Organization and operation of private detective, watchmen or security guards
agencies (Sec. 4 of RA No. 5487)
6. Small-scale mining (Sec. 3 of RA No. 7076)
7. Utilization of marine resources in archipelagic waters, territorial sea and
exclusive economic zone as well as small-scale utilization of natural resources
in rivers, lakes, bays and lagoons (Art. XII, Sec. 2 of the Constitution)
8. Ownership, operation and management of cockpits (Sec. 5 of PD No. 449)
9. Manufacture, repair, stockpiling and/or distribution of nuclear weapons (Art.
II, Sec. 8 of the Constitution)
10. Manufacture, repair, stockpiling and/or distribution of biological, chemical
and radiological weapons and anti-personnel mines (various treaties to which
the Philippines is a signatory and conventions supported by the Philippines)
11. Manufacture of firecrackers and other pyrotechnic devices (Sec. 5 of RA No.
7183)
Up to Twenty-Five Percent (25%) Foreign Equity
12. Private recruitment, whether for local or overseas employment (Art. 27 of PD
No. 442)
13. Contracts for the construction of defense-related structures (Sec. 1 of
Commonwealth Act No. 541)
Up to Thirty Percent (30%) Foreign Equity
14. Advertising (Art. XVI, Sec. 11 of the Constitution)
Up to Forty Percent (40%) Foreign Equity
15. Subject to applicable regulatory frameworks, contracts for the construction
and repair of locally-funded public works (Sec. 1 of CA No. 541, Letter of
Instruction No. 630), except:
a. Infrastructure/development projects covered in RA No. 7718; and
b. Projects which are foreign-funded or assisted and required to undergo
international competitive bidding (Sec. 21 [a] of RA No. 7718)
16. Exploration, development and utilization of natural resources (Art. XII, Sec. 2
of the Constitution)
17. Ownership of private lands (Art. XII, Sec. 7 of the Constitution; Sec. 22 of CA
No. 141; Sec. 4 of RA No. 9182)
18. Operation of public utilities (Art. XII, Sec. 11 of the Constitution; Sec. 16 of
CA No. 146; Sec. 2 (a) of RA No. 7718), except power generation and the
supply of electricity to the contestable market (Sec. 6 and Sec. 29,
respectively, of RA No. 9136) and such other like businesses or services not
covered by the definition of public utilities
 19. Educational institutions other than those established by religious groups and However, the manufacture or repair of these items may be authorized by the Chief of
mission boards, for foreign diplomatic personnel and their dependents, and the PNP to non-Philippine nationals; Provided that a substantial percentage of output,
other foreign temporary residents (Art. XIV, Sec. 4 of the Constitution), or as determined by the said agency, is exported. Provided further that the extent
for short-term high-level skills development that do not form part of the formal of foreign equity ownership allowed shall be specified in the said authority/clearance
education system as defined in Sec. 20 of Batas Pambansa No. 232 (1982) (RA No. 7042 as amended by RA No. 8179).
20. Culture, production, milling, processing, trading except retailing, of rice and 2. Manufacture, repair, storage and/or distribution of products requiring
corn and acquiring, by barter, purchase or otherwise, rice and corn and the by- Department of National Defense (DND) clearance:
products thereof (Sec. 5 of PD No. 194) a. Guns and ammunition for warfare;
21. Contracts for the supply of materials, goods and commodities to government- b. Military ordnance and parts thereof (e.g., torpedoes, depth charges,
owned or controlled corporation, company, agency or municipal corporation bombs, grenades, missiles);
(Sec. 1 of RA No. 5183) c. Gunnery, bombing and fire control systems and components;
22. Operation of deep sea commercial fishing vessels (Sec. 27 of RA No. 8550, as d. Guided missiles/missile systems and components;
amended by RA No. 10654) e. Tactical aircraft (fixed and rotary-winged), parts and components
23. Ownership of condominium units (Sec. 5 of RA No. 4726) thereof;
24. Private radio communications network (Art. XII, Sec. 11 of the Constitution, f. Space vehicles and component systems;
NTC Memorandum Circular No. 10-8-91) g. Combat vessels (air, land and naval) and auxiliaries;
h. Weapons repair and maintenance equipment;
List B: Foreign Ownership Is Limited For Reasons Of Security, Defense, Risk To i. Military communications equipment;
Health And Morals And Protection Of Small And Medium Scale Enterprises j. Night vision equipment;
k. Stimulated coherent radiation devices, components and accessories;
Up to Forty Percent (40%) Foreign Equity l. Armament training devices; and
1. Manufacture, repair, storage, and/or distribution of products and/or m. Others as may be determined by the Secretary of the DND.
ingredients requiring Philippine National Police (PNP) clearance:
a. Firearms (handguns to shotguns), parts of firearms and ammunition However, the manufacture or repair of these items may be authorized by the Secretary
therefor, instruments or implements used or intended to be used in the of National Defense to non-Philippine nationals; Provided that a substantial percentage
manufacture of firearms; of output, as determined by the said agency, is exported. Provided further that the
b. Gunpowder; extent of foreign equity ownership allowed shall be specified in the said
c. Dynamite; authority/clearance (RA No. 7042 as amended by RA No. 8179).
d. Blasting supplies;
e. Ingredients used in making explosives: 3. Manufacture and distribution of dangerous drugs (RA No. 7042 as amended
i. Chlorates of potassium and sodium; by RA No. 8179)
ii. Nitrates of ammonium, potassium, sodium barium, copper (11), 4. Sauna and steam bathhouses, massage clinics and other like activities
lead (11), calcium and cuprite; regulated by law because of risks posed to public health and morals, except
iii. Nitric acid; wellness centers (RA No. 7042 as amended by RA No. 8179)
iv. Nitrocellulose; 5. All forms of gambling (RA No. 7042 as amended by RA No. 8179) except
v. Perchlorates of ammonium, potassium and sodium; those covered by investment agreements with PAGCOR (PD No. 1869, as
vi. Dinitrocellulose; amended by RA No. 9487)
vii. Glycerol; 6. Domestic market enterprises with paid-in equity capital of less than the
viii. Amorphous phosphorus; CAIHTE equivalent of US$200,000 (RA No. 7042, as amended by RA No. 8179)
ix. Hydrogen peroxide; 7. Domestic market enterprises which involve advanced technology or employ
x. Strontium nitrate powder; at least fifty (50) direct employees with paid-in equity capital of less than the
xi. Toluene; and equivalent of US$100,000 (RA No. 7042, as amended by RA No. 8179)
f. Telescopic sights, sniper scope and other similar devices.
ANNEX ON PROFESSIONS

187
A. Foreigners are allowed to practice the following professions in the Philippines o Teaching at elementary and secondary levels (Sections 15 and 24, RA No.
provided that their home country allows Filipinos to be admitted to the practice 7836, as amended)
of these professions: o Veterinary medicine (Sections 15 and 31, RA No. 9268)
o Accountancy (Sec. 34, RA No. 9298) o Other professions as may be provided by law or by treaty where the
o Aeronautical engineering (Section 14, PD No. 1570) Philippines is a party
o Agricultural and biosystems engineering (Sections 15 and 31, RA No. 10915)
o Agriculture (Section 27, PRC Resolution No. 2000-663) B. Corporate practice is allowed in the following professions, subject to the
o Architecture (Sections 13 and 27, RA No. 9266) requirements and conditions under the pertinent professional regulatory law:
o Chemical engineering (Section 30, RA No. 9297) o Aeronautical engineering (Section 28, PD No. 1570)
o Chemistry (Sections 16, 18 and 34, RA No. 10657) o Agricultural and biosystems engineering (Section 29, RA No. 10915)
o Civil engineering (Section 25, RA No. 544, as amended) o Architecture (Section 37, RA No. 9266)
o Customs brokers (Section 25, RA No. 9280) o Chemistry (Section 35, RA No. 10657)
o Dentistry (Secs. 14 and 31, RA No. 9484) o Electronics engineering (Section 28, RA No. 9292)
o Electrical engineering (Section 38, RA No. 7920) o Environmental planning (Section 25, RA No. 10587)
o Electronics engineering (Sections 13 and 33, RA No. 9292) o Forestry (Section 25, RA No. 10690)
o Electronics technician (Sections 13 and 33, RA No. 9292) o Guidance and counseling (Section 27, RA No. 9258)
o Environmental planning (Sections 18 and 28, RA No. 10587) o Interior design (Section 26, RA No. 10350)
o Fisheries (Section 27, PRC Resolution No. 2000-664) o Landscape architecture (Section 26, RA No. 9053)
o Forestry (Sections 14 and 27, RA No. 10690) o Naval architecture (Section 30 [g], RA No. 10698)
o Geodetic engineering (Section 26, RA No. 8560) o Psychology (Section 33, RA No. 10029)
o Geology (Sections 17 and 33, RA No. 10166) o Real estate service (real estate consultant, real estate appraiser, real estate
o Guidance and counseling (Sections 13 and 29, RA No. 9258) assessor, real estate broker and real estate salesperson) (Section 32, RA No.
o Interior design (Sections 15 and 29, RA No. 10350) 9646)
o Landscape architecture (Sections 13 and 29, RA No. 9053) o Sanitary engineering (Section 30, RA No. 1364)
o Librarianship (Sections 15 and 28, RA No. 9246) o Social work (Section 1 [c], RA No. 4373, as amended)
o Master plumbing (Section 21, RA No. 1378)
o Mechanical engineering (Section 39, RA No. 8495)
o Medical technology (Section 27, RA No. 5527, as amended)
o Medicine (Section 9, RA No. 2382, as amended)
o Metallurgical engineering (Sections 17 and 34, RA No. 10688)
o Midwifery (Section 22, RA No. 7392)
o Mining engineering (Sections 15, 16 and 28, RA No. 4274)
o Naval architecture (Sections 13 and 31, RA No. 10698)
o Nursing (Sections 13 and 20, RA No. 9173)
o Nutrition and dietetics (Sections 15 and 31, RA No. 10862)
o Optometry (Section 34, RA No. 8050)
o Pharmacy (Sections 14 and 21, RA No. 10918)
o Physical and occupational therapy (Sections 15 and 21, RA No. 5680)
o Psychology (Sections 12, 13 and 24, RA No. 10029)
o Real estate service (real estate consultant, real estate appraiser, real estate
assessor, real estate broker and real estate salesperson) (Section 24, RA No.
9646)
o Respiratory therapy (Sections 13 and 34, RA No. 10024)
o Sanitary engineering (Section 32, RA No. 1364)
o Social work (Section 18, RA No. 4373, as amended)

188
 SECURITIES REGULATION CODE
REPUBLIC ACT No. 8799
CHAPTER I
TITLE AND DEFINITIONS
SECTION 1. Title. — This shall be known as "The Securities Regulation Code".
SECTION 2. Declaration of State Policy. — The State shall establish a socially
conscious, free market that regulates itself, encourage the widest participation of
ownership in enterprises, enhance the democratization of wealth, promote the
development of the capital market, protect investors, ensure full and fair disclosure
about securities, minimize if not totally eliminate insider trading and other fraudulent
or manipulative devices and practices which create distortions in the free market.
To achieve these ends, this Securities Regulation Code is hereby enacted.
SECTION 3. Definition of Terms. — 3.1. "Securities" are shares, participation or
interests in a corporation or in a commercial enterprise or profit-making venture and
evidenced by a certificate, contract, 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; DHEACI
(e) Certificates of assignments, certificates of participation, trust certificates,
voting trust certificates or similar instruments;
(f) Proprietary or nonproprietary membership certificates in corporations; and
(g) Other instruments as may in the future be determined by the Commission.
3.2. "Issuer" is the originator, maker, obligor, or creator of the security.
3.3. "Broker" is a person engaged in the business of buying and selling securities for
the account of others.
3.4. "Dealer" means 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.
189
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.
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
SECTION 4. Administrative Agency. — 4.1. This Code shall be administered by the
Securities and Exchange Commission (hereinafter referred to as 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 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.
SECTION 5. Powers and Functions of the Commission. — 5.1. The Commission
shall act with transparency and shall have the powers and functions provided by this
Code, Presidential Decree No. 902-A, the Corporation Code, the Investment Houses
190
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;
(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 Commission's jurisdiction over all cases enumerated under Section 5 of
Presidential Decree No. 902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court
in the exercise of its authority may designate the Regional Trial Court branches that
shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction
over pending cases involving intra-corporate disputes submitted for final resolution
which should be resolved within one (1) year from the enactment of this Code. The
Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.
SECTION 6. Indemnification and Responsibilities of Commissioners. — 6.1. The
Commission shall indemnify each Commissioner and other officials of the
Commission, including personnel performing supervision and examination functions
for all 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 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,
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or to be published under the provisions of this Code shall not be considered
confidential.
SECTION 7. Reorganization. — 7.1. To achieve the goals of this Code, consistent
with 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
SECTION 8. Requirement of Registration of Securities. — 8.1. Securities shall not
be sold or offered for sale or distribution within the Philippines, without a registration
statement duly filed with and approved by the Commission. Prior to such sale,
information on the securities, in such form and with such substance as the Commission
may prescribe, shall be made available to each prospective purchaser. DCTSEA
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.
SECTION 9. Exempt Securities. — 9.1. The requirement of registration under
Subsection 8.1 shall not as a general rule apply to any of the following classes of
securities:
(a) Any security issued or guaranteed by the Government of the Philippines, or
by any political subdivision or agency thereof, or by any person controlled or
supervised by, and acting as an instrumentality of said Government.
(b) Any security issued or guaranteed by the government of any country with
which the Philippines maintains diplomatic relations, or by any state, province
or political subdivision thereof on the basis of reciprocity: Provided, That the
Commission may require compliance with the form and content of disclosures
the Commission may prescribe.
(c) Certificates issued by a receiver or by a trustee in bankruptcy duly approved
by the proper adjudicatory body.
(d) Any security or its derivatives the sale or transfer of which, by law, is under
the supervision and regulation of the Office of the Insurance Commission,
Housing and Land Use Regulatory Board, or the Bureau of Internal Revenue.
(e) Any security issued by a bank except its own shares of stock.
9.2. The Commission may, by rule or regulation after public hearing, add to the
foregoing any class of securities if it finds that the enforcement of this Code with
respect to such securities is not necessary in the public interest and for the protection
of investors.
SECTION 10. Exempt Transactions. — 10.1. The requirement of registration under
Subsection 8.1 shall not apply to the sale of any security in any of the following
transactions:
(a) At any judicial sale, or sale by an executor, administrator, guardian or
receiver or trustee in insolvency or bankruptcy.
(b) By or for the account of a pledge holder, or mortgagee or any 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
owner's 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.
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(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) Broker's transactions, executed upon customer's 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.
(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.
SECTION 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.
SECTION 12. Procedure for Registration of Securities. — 12.1. All securities
required to be registered under Subsection 8.1 shall be registered through the filing by
the issuer in the main office of the Commission, of a sworn registration statement with
respect to such securities, in such form and containing such information and
documents as the Commission shall prescribe. The registration statement shall include
any prospectus required or permitted to be delivered under Subsections 8.2, 8.3 and
8.4.
12.2. In promulgating rules governing the content of any registration statement
(including any prospectus made a part thereof or annexed thereto), the Commission
may require the registration statement to contain such information or documents as it
may, by rule, prescribe. It may dispense with any such requirement, or may require
additional information or documents, including written information from an expert,
depending on the necessity thereof or their applicability to the class of securities sought
to be registered.
12.3. The information required for the registration of any kind, and all securities, shall
include, among others, the effect of the securities issue on ownership, on the mix of
ownership, especially foreign and local ownership.
12.4. The registration statement shall be signed by the issuer's executive officer, its
principal operating officer, its principal financial officer, its comptroller, its principal
accounting officer, its corporate secretary or persons performing similar functions
accompanied by a duly verified resolution of the board of directors of the issuer
corporation. The written consent of the expert named as having certified any part of
the registration statement or any document used in connection therewith shall also be
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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 the value
of the aggregate price of the offering.
(b) Notice of the filing of the registration statement shall be immediately published
by the issuer, at its own expense, in two (2) newspapers of general circulation in the
Philippines, once a week for two (2) consecutive weeks, or in such other manner as
the Commission by rule shall prescribe, reciting that a registration statement for the
sale of such security has been filed, and that the aforesaid registration statement, as
well as the papers attached thereto are open to inspection at the Commission during
business hours, and copies thereof, photostatic or otherwise, shall be furnished to
interested parties at such reasonable charge as the Commission may prescribe.
12.6. Within forty-five (45) days after the date of filing of the registration statement,
or by such later date to which the issuer has consented, the Commission shall declare
the registration statement effective or rejected, unless the applicant is allowed to
amend the registration statement as provided in Section 14 hereof. The Commission
shall enter an order declaring the registration statement to be effective if it finds that
the registration statement together with all the other papers and documents attached
thereto, is on its face complete and that the requirements have been complied with.
The Commission may impose such terms and conditions as may be necessary or
appropriate for the protection of the investors.
12.7. Upon effectivity of the registration statement, the issuer shall state under oath in
every prospectus that all registration requirements have been met and that all
information are true and correct as represented by the issuer or the one making the
statement. Any untrue statement of fact or omission to state a material fact required to
be stated therein or necessary to make the statement therein not misleading shall
constitute fraud.
SECTION 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 the registration statement has
been filed;
(iii) Has been or is engaged or is about to engage in fraudulent
transactions; HcDSaT
(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 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.
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13.6. A registration statement may be withdrawn by the issuer only with the consent
of the Commission.
SECTION 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) days 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.
SECTION 15. Suspension of Registration. — 15.1. If, at any time, the information
contained in the registration statement filed is or has become misleading, incorrect,
inadequate or incomplete in any material respect, or the sale or offering for sale of the
security registered thereunder may work or tend to work a fraud, the Commission may
require from the issuer such further information as may in its 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.
CHAPTER IV
REGULATION OF PRE-NEED PLANS
SECTION 16. Pre-Need Plans. — No person shall sell or offer for sale to the public
any pre-need plan except in accordance with rules and regulations which the
Commission shall prescribe. Such rules shall regulate the sale of pre-need plans by,
among other things, requiring the registration of pre-need plans, licensing persons
involved in the sale of pre-need plans, requiring disclosures to prospective plan
holders, prescribing advertising guidelines, providing for uniform accounting system,
reports and 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.
CHAPTER V
REPORTORIAL REQUIREMENTS
SECTION 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 issuer's fiscal
year, or such other time as the Commission may prescribe, an annual report
which shall include, among others, a balance sheet, profit and loss statement
and statement of cash flows, for such last fiscal year, certified 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.
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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; cTACIa
(b) An issuer with a class of securities listed for trading on an Exchange; and
(c) An issuer with assets of at least Fifty million pesos (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.
SECTION 18. Reports by Five per centum (5%) Holders of Equity Securities. —
18.1. In every case in which an issuer satisfies the requirements of Subsection 17.2
hereof, any person who acquires directly or indirectly the beneficial ownership of more
than five 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
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
SECTION 19. Tender Offers. — 19.1. (a) Any person or group of persons acting in
concert who intends to acquire at least fifteen percent (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 percent (30%) of such equity over a period of twelve (12)
months shall make a tender offer to stockholders by filing with the Commission a
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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. cEaTHD
(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 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.

SECTION 20. Proxy Solicitations. — 20.1. Proxies must be issued and proxy
solicitation must be made in accordance with rules and regulations to be issued by the
Commission.
20.2. Proxies must be in writing, signed by the stockholder or his duly authorized
representative and 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.
SECTION 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.
SECTION 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
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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.
SECTION 23. Transactions of Directors, Officers and Principal Stockholders. —
23.1. Every person who is directly or indirectly the beneficial owner of more than
ten per centum (10%) of any class of any equity security which satisfies the
requirements of Subsection 17.2, or who is a director or an officer of the issuer of such
security, shall file, at the time either such requirement is first satisfied or 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
SECTION 24. Manipulation of Security Prices; Devices and Practices. — 24.1 It
shall be unlawful for any person acting for himself or through a dealer or broker,
directly or indirectly:
(a) To create a false or misleading appearance of active trading in any listed
security traded in an Exchange 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 (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.
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(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.
SECTION 25. Regulation of Option Trading. — No member of an Exchange shall,
directly or indirectly endorse or guarantee the performance of any put, call, straddle,
option or privilege in relation to any security registered on a securities exchange.
The terms "put", "call", "straddle", "option", or "privilege" shall not include any
registered warrant, right or convertible security.
SECTION 26. Fraudulent Transactions. — It shall be unlawful for any person,
directly or indirectly, in connection with the purchase or sale of any securities to:
26.1. Employ any device, scheme, or artifice to defraud;
26.2. Obtain money or property by means of any untrue statement of a material fact
or any omission to state a material fact necessary in order to make the statements made,
in the light of the circumstances under which they were made, not misleading; or
26.3. Engage in any act, transaction, practice or course of business which operates or
would operate as a fraud or deceit upon any person.
SECTION 27. Insider's Duty to Disclose When Trading. — 27.1. It shall be unlawful
for an insider to sell or buy a security of the issuer, while in possession of material
information with respect to the issuer or the security that is not generally available to
the public, unless: (a) The insider proves that the information was not gained from
such relationship; or (b) If the other party selling to or buying from the insider (or his
agent) is identified, the insider proves: (i) that he disclosed the information to the other
party, or (ii) that he had reason to believe that the other party otherwise is also in
possession of the information. A purchase or sale of a security of the issuer made by
an insider defined in Subsection 3.8, or such insider's spouse or relatives by affinity or
consanguinity within the second degree, legitimate or common-law, shall be presumed
to have been effected while in possession of material nonpublic information if
transacted after such information came into existence but prior to dissemination of
such information to the public and the lapse of a reasonable time for 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
nonpublic information at the time of the purchase or sale.
27.2. For purposes of this Section, information is "material nonpublic" if: (a) It has
not been generally disclosed to the public and would likely affect the market price of
the security after being disseminated to the public and the lapse of a reasonable time
for the market to absorb the information; or (b) would be considered by a reasonable
person important under the circumstances in determining his course of action whether
to buy, sell or hold a security.
27.3. It shall be unlawful for any insider to communicate material nonpublic
information about the issuer or the security to any person who, by virtue of the
communication, becomes an insider as defined in Subsection 3.8, where the insider
communicating the information knows or has reason to believe that such person will
likely buy or sell a security of the issuer 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
nonpublic information relating to such tender offer, to buy or sell the
securities of the issuer that are sought or to be sought by such tender offer
if such person knows or has reason to believe that the information is
nonpublic and has been acquired directly or indirectly from the tender
offeror, those acting on its behalf, the issuer of the securities sought or to
be sought by such tender offer, or any insider of such issuer; and
ii. Any tender offeror, those acting on its behalf, the issuer of the securities
sought or to be sought by such tender offer, and any insider of such issuer
to communicate material nonpublic information relating to the tender
offer to any other person where such communication is likely to result in
a violation of Subsection 27.4 (a)(i).
(b) For purposes of this subsection the term "securities of the issuer sought or to be
sought by such tender offer" shall include any securities convertible or exchangeable
into such securities or any options or rights in any of the foregoing securities.
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CHAPTER VIII
REGULATION OF SECURITIES MARKET PROFESSIONALS
SECTION 28. Registration of Brokers, Dealers, Salesmen and Associated Persons.
— 28.1. No person shall engage in the business of buying or selling securities in the
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 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.
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.
SECTION 29. Revocation, Refusal or Suspension of Registration of
Brokers, Dealers, Salesmen and Associated Persons. — 29.1. Registration under
Section 28 of this Code may be refused, or any registration granted thereunder may be
revoked, suspended, or limitations placed thereon, by the Commission if, after due
notice and hearing, the Commission determines the 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;
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(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; ACIESH
(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.
(j) 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 broker's, dealer's, associated person's or salesman's registration: Provided,
That such order shall state the cause for such suspension. Until the entry of a final
order, the suspension of such registration, though binding upon the persons notified
thereof, shall be deemed confidential, and shall not be published, unless it shall appear
that the order of suspension has been violated after notice.
29.3. The 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
dealer's 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.
SECTION 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.
SECTION 31. Development of Securities Market Professionals. — The Commission,
in joint undertaking with self regulatory organizations, organizations and associations
of finance professionals as well as private educational and research 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
SECTION 32. Prohibition on Use of Unregistered Exchange; Regulation of Over-
the-Counter Markets. — 32.1. No broker, dealer, salesman, associated person of a
broker or dealer, or Exchange, directly or indirectly, shall make use of any facility of
an Exchange in the Philippines to effect any transaction in a security, or to report such
transaction, unless such Exchange is registered as such under Section 33 of this Code.
32.2. (a) No broker, dealer, salesman or associated person of a broker or dealer, singly
or in concert with any other person, shall make, create or operate, or enable another to
make, create or operate, any trading market, otherwise than on a registered Exchange,
for the buying and selling of any security, except in accordance with rules and
regulations the Commission may prescribe.
201
(b) The Commission may promulgate rules and regulations governing transactions by
brokers, dealers, salesmen or associated persons of a broker or dealer, over any
facilities of such trading market and may require such market to be administered by a
self-regulatory organization determined by the Commission as capable of insuring the
protection of investors comparable to that provided in the case of a registered
Exchange. Such self-regulatory organization must provide a centralized marketplace
for trading and must satisfy requirements comparable to those prescribed for
registration of Exchanges in Section 33 of this Code.
SECTION 33. Registration of Exchanges. — 33.1. Any Exchange may be registered
as such with the Commission under the terms and conditions hereinafter provided in
this Section and Section 40 hereof, by filing an application for registration in such
form and containing such information and supporting documents as the Commission
by rule shall prescribe, including the following:
(a) An undertaking to comply and enforce 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 member firm
has so deteriorated that it cannot readily meet the demands of its customers
for the delivery of securities and/or payment of sales proceeds, the Exchange
shall, upon order of the Commission, take over the operation of the insolvent
member firm and immediately proceed to settle the member firm's liabilities
to its customers.
33.2. 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 exchange's ability
to effectively operate in the public interest.
(d) The expulsion, suspension, or disciplining of a member and persons
associated with a member for conduct or proceeding inconsistent with just
and equitable principles of fair trade, and for violations of provisions of this
Code, or any other Act administered by the Commission, the rules,
regulations and orders thereunder, or the rules of the Exchange;
(e) A fair procedure for the disciplining of members and persons associated with
members, the denial of membership to any person seeking to be a member,
the barring of any person from association with a member, and the prohibition
or limitation of any person from 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;
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(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.
33.4. Within ninety (90) days after the filing of the application the Commission may
issue an order either granting or denying registration as an Exchange, unless the
Exchange applying for registration shall withdraw its application or shall consent to
the Commission's deferring action on its application for a stated longer period after the
date of filing. The filing with the Commission of an application for registration by an
Exchange shall be deemed to have taken place upon the receipt thereof. Amendments
to an application may be made upon such terms as the Commission may prescribe.
33.5. Upon the registration of an Exchange, it 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.
SECTION 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.
SECTION 35. Additional Fees of Exchanges. — In addition to the registration fee
prescribed in Section 33 of this Code, every Exchange shall pay to the Commission,
on a semestral basis on or before the tenth day of the end of every semester of the
calendar year, a fee in such an amount as the Commission shall prescribe, but not more
than one-hundredth of one per centum (1%) of the aggregate amount of the sales of
securities transacted on such Exchange during the preceding calendar year, for the
privilege of doing business, during the preceding calendar year or any part thereof.
SECTION 36. Powers with Respect to Exchanges and Other Trading Market. —
36.1. The Commission is authorized, if in its opinion such action is necessary or
appropriate for the protection of investors and the public interest so requires,
summarily to suspend trading in any listed security on any Exchange or other trading
market for a period not exceeding thirty (30) days 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 (2) or more Exchanges or other trading markets exist, the
Commission may require and enforce uniformity of trading regulations in and/or
between or among said Exchanges or other trading markets.
36.3. In addition to the existing Philippine Stock Exchange, the Commission shall
have the authority to determine the number, size and location of stock Exchanges,
other trading markets and commodity Exchanges and other similar organizations in
the light of national or regional requirements for such activities with the view to
promote, enhance, protect, conserve or rationalize investment.
36.4. The Commission, having due regard to the public interest, the protection of
investors, the safeguarding of securities and funds, and maintenance of fair
competition among brokers, dealers, clearing agencies, and transfer agents, shall
promulgate rules and regulations for the prompt and accurate clearance and settlement
of securities transactions.
36.5. (a) The Commission may establish or facilitate the establishment of trust funds
which shall be contributed by Exchanges, brokers, dealers, underwriters, transfer
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agents, salesmen and other persons transacting in securities, as the Commission may
require, for the purpose of compensating investors for the extraordinary losses or
damage they may suffer due to business failure or fraud or mismanagement of the
persons with whom they transact, under such rules and regulations as the Commission
may from time to time prescribe or approve in the public interest.
(b) The Commission may, having due regard to the public interest or the protection of
investors, regulate, supervise, examine, suspend or otherwise discontinue such and
other similar funds under such rules and regulations which the Commission may
promulgate, and which may include taking custody and management of the fund itself
as well as investments in and disbursements from the funds under such forms of control
and supervision by the Commission as it may from time to time require. The authority
granted to the Commission under this subsection shall also apply to all funds
established for the protection of investors, whether established by the Commission or
otherwise.
SECTION 37. Registration of Innovative and Other Trading Markets. — The
Commission, having due regard for national economic development, shall encourage
competitiveness in the market by promulgating within six (6) months upon the
enactment of this Code, rules for the registration and licensing of innovative and other
trading markets or Exchanges covering, but not limited to, the issuance and trading of
innovative securities, securities of small, medium, growth and venture enterprises, and
technology-based ventures pursuant to Section 33 of this Code.
SECTION 38. Independent Directors. — Any corporation with a class of equity
securities listed for trading on an Exchange or with assets in excess of Fifty million
pesos (P50,000,000.00) and having two hundred (200) or more holders, at least of two
hundred (200) of which are holding at least one hundred (100) shares of a class of its
equity securities or which has sold a class of equity securities to the public pursuant to
an effective registration statement in compliance with Section 12 hereof shall have at
least two (2) independent directors or such independent directors shall constitute at
least twenty percent (20%) of the members of such board, whichever is the lesser. For
this purpose, an "independent director" shall mean a person other than an officer or
employee of the corporation, its parent or subsidiaries, or any other individual having
a relationship with the corporation, which would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director.
CHAPTER X
REGISTRATION, RESPONSIBILITIES AND OVERSIGHT OF SELF-
REGULATORY ORGANIZATIONS
SECTION 39. Associations of Securities Brokers, and Dealers, and Other Securities
Related Organizations. — 39.1. The Commission shall have the power to register as a
self-regulatory organization, or otherwise grant licenses, and to regulate, supervise,
examine, suspend or otherwise discontinue, as a condition for the operation of
organizations whose operations are related to or connected with the securities market
such as but not limited to associations of brokers and dealers, transfer agents,
custodians, fiscal and paying agents, computer services, news disseminating services,
proxy solicitors, statistical agencies, securities rating agencies, and securities
information 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 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;
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(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.
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.
SECTION 40. Powers with Respect to Self-Regulatory Organizations. — 40.1. Upon
the filing of an application for registration as an Exchange under Section 33, a
registered securities association under Section 39, a registered clearing agency under
Section 42, or other self-regulatory organization under this Section, the Commission
shall have ninety (90) days within which to either grant registration 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. CHDAaS
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.
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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 self-regulatory organization in so far as necessary or appropriate to effect
such changes in respect of such matters as:
(a) Safeguards in respect of the financial responsibility of members and adequate
provision against the evasion of financial responsibility through the use of
corporate forms or special partnerships;
(b) The supervision of trading practices;
(c) The listing or striking from listing of any security;
(d) Hours of trading;
(e) The manner, 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;
(l) Minimum deposits on margin accounts; and
(m) The supervision, auditing and disciplining of members or participants.
40.5. The Commission, after due notice and hearing, is authorized, in the public
interest and to protect investors:
(a) To suspend for a period not exceeding twelve (12) months or to revoke the
registration of a self-regulatory organization, or to censure or impose
limitations on the activities, functions, and operations of such self-regulatory
organization, if the Commission finds that such a self-regulatory organization
has willfully violated or is unable to comply with any provision of this Code
or of the rules and regulations thereunder, or its own rules, or has failed to
enforce compliance therewith by a member of, person associated with a
member, or a participant in such self-regulatory organization;
(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 self-regulatory
organization if it finds that such officer or director has violated any provision
of this Code, any other law administered by the Commission, the rules or
regulations thereunder, or the rules of such self-regulatory organization,
abused his authority, 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
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conclusion of which, after due notice and hearing (which may consist solely of review
of the record before the self-regulatory organization), the Commission shall affirm,
modify or set aside the sanction. In such proceeding the Commission shall determine
whether the aggrieved person has engaged or omitted to engage in the acts and
practices as found by the self-regulatory organization, whether such acts and practices
constitute willful violations of this Code, any other law administered by the
Commission, the rules or regulations thereunder, or the rules of the self-regulatory
organization as specified by such organization, whether such provisions were applied
in a manner consistent with the purposes of this Code, and whether, with due regard
for the public interest and the protection of investors the sanction is excessive or
oppressive.
40.8. The powers of the Commission under this section shall apply to organized
exchanges and registered clearing agencies.
CHAPTER XI
ACQUISITION AND TRANSFER OF SECURITIES AND SETTLEMENT OF
TRANSACTIONS IN SECURITIES
SECTION 41. Prohibition on Use of Unregistered Clearing Agency. — It shall be
unlawful for any broker, dealer, salesman, associated person of a broker or dealer, or
clearing agency, directly or indirectly, to make use of any facility of a clearing agency
in 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.
SECTION 42. Registration of Clearing Agencies. — 42.1. Any clearing agency may
be registered as such with the Commission under the terms and conditions hereinafter
provided in this Section, by filing an application for registration in such form and
containing such information and supporting documents as the Commission by rule
shall prescribe, including the following:
(a) An undertaking to comply and enforce compliance by its participants with
the provisions of this Code, and any amendment thereto, and the
implementing rules or regulations made or to be made thereunder, and the
clearing agency's rules;
(b) The organizational charts of the Exchange, its rules of procedure, and a list
of its officers and participants;
 (c) Copies of the clearing agency's rules.
42.2. No registration of a clearing agency shall be granted unless the rules of the
clearing agency include provision for:
(a) The 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 agency's rules;
(b) A fair procedure for the disciplining of participants, the denial of participation
rights to any person seeking to be a participant, and the prohibition or
limitation of any person from access to services offered by the clearing
agency;
(c) The equitable allocation of reasonable dues, fees, and other charges among
participants;
(d) Prevention of fraudulent and manipulative acts and practices, promotion of
just and equitable principles of trade, and, in general, protection of investors
and the public interest;
(e) The transparent, prompt and accurate clearance and settlement of transactions
in securities handled by the clearing agency; and
(f) The establishment and oversight of a fund to guarantee the prompt and
accurate clearance and settlement of 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 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.
SECTION 43. Uncertificated Securities. — Notwithstanding Section 63 of
the Corporation Code of the Philippines: 43.1. A corporation whose securities are
registered pursuant to this Code or listed on 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
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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.
SECTION 44. Evidentiary Value of Clearing Agency Record. — The official records
and book entries of a clearing agency shall constitute the best evidence of such
transactions between clearing agency 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 book-entry security holdings of the participants or
members held on behalf of the clients. However, the corporation shall not be bound by
the foregoing transactions unless the corporate secretary is duly notified in such
manner as the Commission may provide.
SECTION 45. Pledging a Security or Interest Therein. — In addition to other
methods recognized by law, a pledge of, 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 agency's rules. However, the corporation shall not be bound by the foregoing
transactions unless the corporate secretary is duly notified in such manner as the
Commission may provide.
SECTION 46. Issuer's Responsibility for Wrongful Transfer to Registered Clearing
Agency. — The registration of a transfer of a security into the name of and by a
registered clearing agency or its 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.
SECTION 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;
47.3. Establish which records constitute the best evidence of a person's interests in a
security and the effect of any errors in electronic records of ownership;
47.4. Codify the rights of investors who choose to hold their securities indirectly
through a registered clearing agency and/or other securities intermediaries;
47.5. Codify the duties of securities intermediaries (including clearing agencies) who
hold securities on behalf of investors; and
47.6. Give first priority to any claims of a registered clearing agency against a
participant arising from a failure by the participant to meet its obligations under the
clearing agency's rules in respect of the clearing and settlement of transactions in
securities, in a dissolution of the participant, and any such rules and 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
SECTION 48. Margin Requirements. — 48.1. For the purpose of preventing the
excessive use of credit for the purchase or carrying of securities, the Commission, in
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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:
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; and
(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 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.
SECTION 49. Restrictions on Borrowings by Members, Brokers, and Dealers. — It
shall be unlawful for any registered broker or dealer, or member of an Exchange,
directly or indirectly:
49.1. To permit in the ordinary course of business as a broker or dealer his aggregate
indebtedness including customers' credit balances, to exceed such percentage of the
net capital (exclusive of fixed assets and value of Exchange membership) employed
in the business, but not exceeding in any case two thousand percentum (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.
SECTION 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 non-margin transactions to pay the price
of the security purchased for his account within such period as the Commission may
prescribe, which shall in no case exceed the prescribed settlement date. Otherwise, the
broker shall sell the security purchased starting on the next trading day but not beyond
ten (10) trading days following the last day for the customer to pay such purchase
price, unless such sale cannot be effected within said period for justifiable reasons.
The sale shall be without prejudice to the right of the broker or dealer to recover any
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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
SECTION 51. Liabilities of Controlling Persons, Aider and Abettor and Other
Secondary Liability. — 51.1. Every person who, by or through stock ownership,
agency, or otherwise, or in connection with an agreement or understanding with one
or more other persons, controls any person liable under this Code or the rules or
regulations of the Commission thereunder, shall also be liable jointly and severally
with and to the same extent as such controlled persons to any person to whom such
controlled person is liable, unless the controlling person proves that, despite the
exercise of due diligence on his part, he has no knowledge of the existence of the facts
by reason of which the liability of the controlled person is alleged to exist.
51.2. It shall be unlawful for any person, directly or indirectly, to do any act or thing
which it would be unlawful for such person to do under the provisions of this Code or
any rule or regulation thereunder.
51.3. 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.
SECTION 52. Accounts and Records, Reports, Examination of
Exchanges, Members, and Others. — 52.1. Every registered Exchange, broker or
dealer, transfer agent, clearing agency, securities association, and other self-regulatory
organization, and every other person required to register under this Code, shall make,
keep and preserve for such periods, records, furnish such copies thereof, and make
such reports, as the Commission by its rules and regulations may prescribe. Such
accounts, correspondence, memoranda, papers, books, and other records shall be
subject at any time to such reasonable periodic, special or other examinations by
representatives of the Commission as the Commission may deem necessary or
appropriate in the public interest 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.
SECTION 53. Investigations, Injunctions and Prosecution of Offenses. — 53.1. The
Commission may, in its discretion, make such investigations as it deems necessary to
determine whether any person has violated or is about to violate any provision of this
Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered
securities association, clearing agency, other self-regulatory organization, and may
require or permit any person to file with it a statement in writing, under oath or
otherwise, as the Commission shall determine, as to all facts and circumstances
concerning the matter to be investigated. The Commission may publish information
concerning any such violations, and to investigate any fact, condition, practice or
matter which it may deem necessary or proper to aid in the enforcement of the
provisions of this Code, in the prescribing of rules and regulations thereunder, or in
securing information to serve as a basis for recommending further legislation
concerning the matters to which this Code relates: Provided, however, That any person
requested or subpoenaed to produce documents or testify in any investigation shall
simultaneously be notified in writing of the purpose of such
investigation: Provided, further, That all criminal complaints for violations of this
Code, and the implementing rules and regulations enforced or administered by the
Commission shall be referred to the Department of Justice for preliminary
investigation and prosecution before the proper court: Provided, furthermore, That in
instances where the law allows independent civil or criminal proceedings of violations
arising from the same act, the Commission shall take appropriate action to implement
the same: Provided, finally, That the investigation, prosecution, and trial of such cases
shall be given priority.
53.2. For the purpose of any such investigation, or any other proceeding under this
Code, the Commission or any officer designated by it is empowered to administer
oaths and affirmations, subpoena witnesses, compel attendance, take evidence, require
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the production of any book, paper, correspondence, memorandum, or other record
which the Commission deems relevant or material to the inquiry, and to perform such
other acts necessary in the conduct of such investigation or proceedings.
53.3. Whenever it shall appear to the Commission that any person has engaged or is
about to engage in any act or practice constituting a violation of any provision of this
Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered
securities association, clearing agency or other self-regulatory organization, it may
issue an order to such person to desist from committing such act or
practice: Provided, however, That the Commission shall not charge any person with
violation of the rules of an Exchange or other self-regulatory organization unless it
appears to the Commission that such Exchange or other self-regulatory organization
is unable or unwilling to take action against such person. After finding that such person
has engaged in any such act or practice and that there is a reasonable likelihood of
continuing, further or future violations by such person, the Commission may issue ex-
parte a cease and desist order for a maximum period of ten (10) days, enjoining the
violation and compelling compliance with such provision. The Commission may
transmit such evidence as may be available concerning any violation of any provision
of this Code, or any rule, regulation or order thereunder, to the Department of Justice,
which may institute the appropriate criminal proceedings under this Code.
53.4. Any person who, within his power but without cause, fails or refuses to comply
with any lawful order, decision or subpoena issued by the Commission under
Subsection 53.2 or Subsection 53.3 or Section 64 of this Code, shall after due notice
and hearing, be guilty of contempt of the Commission. Such person shall be fined in
such reasonable amount as the Commission may determine, or when such failure or
refusal is a clear and open defiance of the Commission's order, decision or subpoena,
shall be detained under an arrest order issued by the Commission, until such order,
decision or subpoena is complied with.
SECTION 54. Administrative Sanctions. — 54.1. If, after due notice and hearing, the
Commission finds that: (a) There is a violation of this Code, its 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.
SECTION 55. Settlement Offers. — 55.1. At any time, during an investigation or
proceeding under this Code, parties being investigated and/or charged may propose in
writing an offer of settlement with the Commission.
55.2. Upon receipt of such offer of settlement, the Commission may consider the offer
based on timing, the nature of the investigation or proceeding, and the public interest.
55.3. The Commission may only agree to a settlement offer based on its findings that
such settlement is in the public interest. Any agreement to settle shall have no legal
effect until publicly disclosed. Such decision may be made without a determination of
guilt on the part of the person making the offer.
55.4. The Commission shall adopt rules and procedures governing the filing, review,
withdrawal, form of rejection and acceptance of such offers.
SECTION 56. Civil Liabilities on Account of False Registration Statement. — 56.1.
Any person acquiring a security, the registration statement of which or any part thereof
contains on its effectivity an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make such statements not
misleading, and who suffers damage, may sue and recover damages from the following
enumerated persons, unless it is proved that at the time of such acquisition he knew of
such untrue statement or omission:
(a) The issuer and every person who signed the registration statement;
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(b) Every person who was a director of, or any other person performing similar
functions, or a partner in, the issuer at the time of the filing of the registration
statement or any part, supplement or amendment thereof with respect to
which his liability is asserted;
(c) Every person who is named in the registration statement as being or about to
become a director of, or a person performing similar functions, or a partner
in, the issuer and whose written consent thereto is filed with the registration
statement;
(d) Every auditor or auditing firm named as having certified any financial
statements used in connection with the registration statement or prospectus.
(e) Every person who, with his written consent, which shall be filed with the
registration statement, has been named as having prepared or certified any
part of the registration statement, or as having prepared or certified any report
or valuation which is used in connection with the registration statement, with
respect to the statement, report, or valuation, which purports to have been
prepared or certified by him.
(f) Every selling shareholder who contributed to and certified as to the accuracy
of a portion of the registration statement, with respect to that portion of the
registration statement which purports to have been contributed by him.
(g) Every underwriter with respect to such security.
56.2. If the person who acquired the security did so after the issuer has made generally
available to its security holders an income statement covering a period of at least
twelve (12) months beginning from the effective date of the registration statement,
then the right of recovery under this subsection shall be conditioned on proof that such
person acquired the security relying upon such untrue statement in the registration
statement or relying upon the registration statement and not knowing of such income
statement, but such reliance may be established without proof of the reading of the
registration statement by such person.
SECTION 57. Civil Liabilities Arising in Connection with
Prospectus, Communications and Reports. — 57.1. Any person who:
(a) Offers to sell or sells a security in violation of Chapter III, or
(b) Offers to sell or sells a security, whether or not exempted by the provisions
of this Code, by the use of any means or instruments of transportation or
communication, by means of a prospectus or other written or oral
communication, which includes an untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements, in the
light of the circumstances under which they were made, not misleading (the
purchaser not knowing of such untruth or omission), and who shall fail in the
burden of proof that he did not know, and in the exercise of reasonable care
could not have known, of such untruth or omission, shall be liable to the
person purchasing such security from him, who may sue to recover the
consideration paid for such security with interest thereon, less the amount of
 any income received thereon, upon the tender of such security, or for damages
if he no longer owns the security.
57.2. Any person who shall make or cause to be made any statement in any report, or
document filed pursuant to this Code or any rule or regulation thereunder, which
statement 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.
SECTION 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.
SECTION 59. Civil Liability for Manipulation of Security Prices. — Any person who
willfully participates in any act or transaction in violation of Section 24 shall be liable
to any person who shall purchase or sell any security at a price which was affected by
such act or transaction, and the person so injured may sue to recover the damages
sustained as a result of such act or transaction.
SECTION 60. Civil Liability with Respect to Commodity Futures Contracts and Pre-
need Plans. — 60.1. Any person who engages in any act or 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.
SECTION 61. Civil Liability on Account of Insider Trading. — 61.1. Any insider
who violates Subsection 27.1 and any person in the case of a tender offer who violates
Subsection 27.4 (a)(i), or any rule or regulation thereunder, by purchasing or selling a
security while in possession of material information not generally available to the
public, shall be liable in a suit brought by any investor who, contemporaneously with
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the purchase or sale of securities that is the subject of the violation, purchased or sold
securities of the same class unless such insider, or such person in the case of a tender
offer, proves that such investor knew the information or would have purchased or sold
at the same price regardless of disclosure of the information to him.
61.2. An insider who violates Subsection 27.3 or any person in the case of a tender
offer who violates Subsection 27.4 (a), or any rule or regulation thereunder, by
communicating material nonpublic information, shall be jointly and severally liable
under Subsection 61.1 with, and to the same extent as, the insider, or person in the case
of a tender offer, to whom the communication was directed and who is liable under
Subsection 61.1 by reason of his purchase or sale of a security.
SECTION 62. Limitation of Actions. — 62.1. No action shall be maintained to enforce
any liability created under Section 56 or 57 of this Code unless brought within two (2)
years after the discovery of the untrue statement or the omission, or, if the action is to
enforce a liability created under Subsection 57.1 (a), unless brought within two (2)
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.
SECTION 63. Amount of Damages to be Awarded. — 63.1. All suits to recover
damages pursuant to Sections 56, 57, 58, 59, 60 and 61 shall be brought before the
Regional Trial Court, which shall have exclusive jurisdiction to hear and decide such
suits. The Court is hereby authorized to award damages in an amount not exceeding
triple the amount of the transaction plus actual damages.
Exemplary damages may also be awarded in cases of bad faith, fraud, malevolence or
wantonness in the violation of this Code or the rules and regulations promulgated
thereunder.
The Court is also authorized to award attorney's fees not exceeding
thirty percentum (30%) of the award.
63.2. The persons specified in Sections 56, 57, 58, 59, 60 and 61 hereof shall be jointly
and severally liable for the payment of damages. However, any person who becomes
liable for the payment of such damages may recover contribution from any other
person who, if sued separately, would have been liable to make the same payment,
unless the former was guilty of fraudulent representation and the latter was not.
63.3. Notwithstanding any provision of law to the contrary, all persons, including the
issuer, held liable under the provisions of Sections 56, 57, 58, 59, 60 and 61 shall
contribute equally to the total liability adjudged herein. In no case shall the principal
stockholders, directors and other officers of the issuer or persons occupying similar
positions therein, recover their contribution to the liability from the issuer. However,
the right of the issuer to recover from the guilty parties the amount it has contributed
under this Section shall not be prejudiced.
SECTION 64. Cease and Desist Order. — 64.1. The Commission, after proper
investigation or verification, motu proprio, or upon verified complaint by any
aggrieved party, may issue a cease and desist order without the necessity of a prior
hearing if in its judgment the act or practice, unless restrained, will operate as a fraud
on investors or is otherwise likely to cause grave or irreparable injury or prejudice to
the investing public.
64.2. Until the Commission 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.
SECTION 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.
SECTION 66. Revelation of Information Filed with the Commission. — 66.1. All
information filed with the Commission in compliance with the requirements of this
Code shall be made available to any member of the general public, upon request, in
the premises and during regular office hours of the Commission, except as set forth in
this Section.
66.2. Nothing in this Code shall be construed to require, or to authorize the
Commission to require, the revealing of trade secrets or processes in any application,
report, or document filed with the Commission.
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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 enforces. Such assistance may be provided without
regard to whether the facts stated in the request would also constitute a violation of
law of the Philippines.
SECTION 67. Effect of Action of Commission and Unlawful Representations with
Respect Thereto. — 67.1. No action or failure to act by the Commission in the
administration of this Code shall be construed to mean that the Commission has in any
way passed upon the merits of or given approval to any security or any 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.
SECTION 68. Special Accounting Rules. — The Commission shall have the
authority to make, amend, and rescind such accounting rules and regulations as may
be necessary to carry out the provisions of this Code, including rules and regulations
governing registration statements and prospectuses for various classes of securities and
issuers, and defining accounting, technical and trade terms used in this Code. Among
other things, the Commission may prescribe the form or forms in which required
information shall be set forth, the items or details to be shown in the balance sheet and
income statement, and the methods to be followed in the preparation of accounts,
appraisal or valuation of assets and liabilities, determination of depreciation and
depletion, differentiation of recurring and non-recurring income, differentiation of
investment and operating income, and in the preparation, where the Commission
deems it necessary or desirable, of consolidated balance sheets or income accounts of
any person directly or indirectly controlling or controlled by the issuer, or any person
under direct or indirect common control with, the issuer.
SECTION 69. Effect on Existing Law. — The rights and remedies provided by this
Code shall be in addition to any and all 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.
SECTION 70. Judicial Review of Commission Orders. — Any person aggrieved by
an order of the Commission may appeal the order to the Court of Appeals by petition
for review in accordance with the pertinent provisions of the Rules of Court.
SECTION 71. Validity of Contracts. — 71.1. Any condition, stipulation, provision
binding any person to waive compliance with any provision of this Code or of any rule
or regulation thereunder, or of any rule of an Exchange required thereby, as well as the
waiver itself, shall be void.
71.2. Every contract made in violation of any provision of this Code or of any rule or
regulation thereunder, and every contract, including any contract for listing a security
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:
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(a) To affect the validity of any loan or extension of credit made or of any lien
created prior or subsequent to the effectivity of this Code, unless at the time
of the making of such loan or extension of credit or the creating of such lien,
the person making such loan or extension of credit or acquiring such lien shall
have actual knowledge of the facts by reason of which the making of such
loan or extension of credit or the acquisition of such lien is a violation of the
provisions of this Code or any rules or regulations thereunder; or
(b) To afford a defense to the collection of any debt, obligation or the
enforcement of any lien by any person who shall have acquired such debt,
obligation or lien in good faith, for value and without actual knowledge of
the violation of any provision of this Code or any rule or regulation
thereunder affecting the legality of such debt, obligation or lien.
SECTION 72. Rules and Regulations; Effectivity. — 72.1. This Code shall be self-
executory. To effect the provisions and purposes of this Code, the Commission may
issue, amend, and rescind such rules and regulations and orders necessary or
appropriate, including rules and regulations defining accounting, technical, and trade
terms used in this Code, and prescribing the form or forms in which information
required in registration statements, applications, and reports to the Commission shall
be set forth. For purposes of its rules or regulations, the Commission may classify
persons, securities, and other matters within its jurisdiction, prescribe different
requirements for different classes of persons, securities, or matters, and by rule or
order, conditionally or unconditionally exempt any person, security, or transaction, or
class or classes of persons, securities or transactions, from any or all provisions of this
Code.
Failure on the part of the Commission to issue rules and regulations shall not in any
manner affect the self-executory nature of this Code.
72.2. The Commission shall promulgate rules and regulations providing for reporting,
disclosure and the prevention of fraudulent, deceptive or manipulative practices in
connection with the purchase by an issuer, by tender offer or otherwise, of and equity
security of a class issued by it that satisfies the requirements of Subsection 17.2. Such
rules and regulations may require such issuer to provide holders of equity securities of
such dates with such information relating to the reasons for such purchase, the source
of funds, the number of shares to be purchased, the price to be paid for such securities,
the method of purchase and such additional information as the Commission deems
necessary or appropriate in the public interest or for the protection of investors, or
which the Commission deems to be material to a determination by holders whether
such security should be sold.
72.3. For the purpose of Subsection 72.2, a purchase by or for the issuer or any person
controlling, controlled by, or under common control with the issuer, or a purchase
subject to the control of the issuer or any such person, shall be deemed to be a
purchased by the issuer. The Commission shall have the power to make rules and
regulations implementing this subsection, including exemptive rules and regulations All employees of the Commission who voluntarily retire or are separated from the
covering situations in which the Commission deems it unnecessary or inappropriate service with the Commission and whose retirement or separation has been approved
that a purchase of the type described in this subsection shall be deemed to be a purchase by the Commission, shall be paid retirement or separation benefits and other
by the issuer for the purpose of some or all of the provisions of Subsection 72.2. entitlements granted under existing laws.

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.
SECTION 73. Penalties. — Any person who violates any of the provisions of this
Code, or the rules and regulations promulgated by the Commission under authority
thereof, or any person who, in a registration statement filed under this Code, makes
any untrue statement of a material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein not misleading, shall,
upon conviction, suffer a fine of not less than Fifty thousand pesos (P50,000.00) nor
more than Five million pesos (P5,000,000.00) or imprisonment of not less than seven
(7) years nor more than twenty-one (21) years, or both in the discretion of the court. If
the offender is a corporation, partnership or association or other juridical entity, the
penalty may in the discretion of the court be imposed upon such juridical entity and
upon the officer or officers of the corporation, partnership, association or entity
responsible for the violation, and if such officer is an alien, he shall in addition to the
penalties prescribed, be deported without further proceedings after service of
sentence.
SECTION 75. Partial Use of Income. — To carry out the purposes of this Code, the
Commission is hereby authorized, in addition to its annual budget, to retain and utilize
an amount equal to One hundred million pesos (P100,000,000.00) from its income.
The use of such additional amount shall be subject to the auditing requirements,
standards and procedures under existing laws.
SECTION 76. Repealing Clause. — The Revised Securities Act (Batas Pambansa
Blg. 178), as amended, 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.
SECTION 77. Separability Clause. — If any portion or provision of this Code is
declared unconstitutional or invalid, the other portions or provisions hereof, which are
not affected thereby shall continue in full force and effect.
SECTION 78. Effectivity. — This Code shall take effect fifteen (15) days after its
publication in the Official Gazette or in two (2) newspapers of general circulation.

SECTION 74. Transitory Provisions. — The Commission, as organized under

existing laws, shall continue to exist and exercise its powers, functions and duties
under such laws and this Code: Provided, That until otherwise mandated by a
subsequent law, the Commission shall continue to regulate and supervise commodity
futures contracts as provided in Section 11 and pre-need plans and the pre-need
industry as provided in Section 16 of this Code.

All further requirements herein shall be complied with upon approval of this
Code: Provided, however, That compliance may be deferred for such reasonable time
as the Commission may determine but not to exceed one (1) year from approval of this
Code: Provided, further, That securities which are being offered at the time of
effectivity of this Code pursuant to an effective registration and permit, may continue
to be offered and sold in accordance with the provisions of the Revised Securities
Act in effect immediately prior to approval of this Code.

All unexpended funds for the calendar year, properties, equipment and records of the
Securities and Exchange Commission are hereby retained by the Commission as
reorganized under this Code and the amount of Two hundred million pesos
(P200,000,000.00) or such amount necessary to carry out the reorganization provided
in this Code is hereby appropriated.

215
 LAW ON SECRECY OF BANK DEPOSITS
REPUBLIC ACT No. 1405
SECTION 1. It is hereby declared to be the policy of the Government to give
encouragement to the people to deposit their money in banking institutions and to
discourage private hoarding so that the same may be properly utilized by banks in
authorized loans to assist in the economic development of the country.

SECTION 2. All deposits of whatever nature with banks or banking institutions in the
Philippines including investments in bonds issued by the Government of the
Philippines, its political subdivisions and its instrumentalities, are hereby considered
as of an absolutely confidential nature and may not be examined, inquired or looked
into by any person, government official, bureau or office, except upon written
permission of the depositor, or in cases of impeachment, or upon order of a competent
court in cases of bribery or dereliction of duty of public officials, or in cases where the
money deposited or invested is the subject matter of the litigation.

SECTION 3. It shall be unlawful for any official or employee of a banking institution

to disclose to any person other than those mentioned in Section two hereof any
information concerning said deposits.

SECTION 4. All Acts or parts of Acts, Special Charters, Executive Orders, Rules and
Regulations which are inconsistent with the provisions of this Act are hereby repealed.
SECTION 5. Any violation of this law will subject offender upon conviction, to an
imprisonment of not more than five years or a fine of not more than twenty thousand
pesos or both, in the discretion of the court.

SECTION 6. This Act shall take effect upon its approval.

216
 PHILIPPINE DEPOSIT INSURANCE CORPORATION ACT
REPUBLIC ACT No. 3591
SECTION 1. There is hereby created a Philippine Deposit Insurance Corporation
hereinafter referred to as the "Corporation" which shall insure, as herein provided, the
deposits of all banks which are entitled to the benefits of insurance under this Act, and
which shall have the powers hereinafter granted.
SECTION 2. The powers and functions of the Corporation shall be vested in a board
of directors consisting of three (3) members one of whom shall be the Governor of the
Central Bank of the Philippines and two of whom shall be citizens of the Republic of
the Philippines to be appointed by the President of the Philippines with the advice and
consent of the Commission on Appointments. One of the appointive members shall be
the Chairman of the Board of Directors of the Corporation who shall be appointed on
a full time basis for a term of six (6) years at an annual salary of twenty-four thousand
pesos (P24,000.00). The other appointive member, who shall be appointed for a term
of four (4) years and the Governor of the Central Bank shall each receive a per diem of
not exceeding fifty pesos (P50.00) for each day of meeting actually attended by them
but in no case shall each of them receive more than five hundred pesos (P500.00) a
month. In the event of a vacancy in the Office of the Governor of the Central Bank of
the Philippines, and pending the appointment of his successor or during the absence of
the Governor, the Acting Governor of the Central Bank of the Philippines shall act as
member of the Board of Directors. In the event of a vacancy in the Office of the
Chairman of the Board of Directors and pending the appointment of his successor, the
Governor of the Central Bank of the Philippines shall act as Chairman. The members
of the Board of Directors shall be ineligible during the time they are in office and for
a period of two years thereafter to hold any office, position or employment in any
insured bank, except that this restriction shall not apply to any member who has served
the full term for which he was appointed. No member of the Board of Directors shall
be an officer or director of any insured bank; and before entering upon his duties as
member of the Board of Directors he shall certify under oath that he has complied with
this requirement and such certification shall be filed with the Secretary of the Board
of Directors. Any vacancy in the Board created by the death, resignation, or removal
of an appointive member shall be filled by the appointment of new member to
complete the unexpired period of the term of the member concerned.
The Board of Directors shall have the authority:
1. To prepare and issue rules and regulations as it considers necessary for the
effective discharge of its responsibilities;
2. To direct the management, operations and administration of the Corporation;
3. To appoint, fix the remunerations and remove all officers and employees of
the Corporation, subject to the Civil Service Law; and
4. To authorize such expenditures by the Corporation as are in the interest of the
effective administration and operation of the Corporation.
217
SECTION 3. As used in this Act —
(a) The term "Board of Directors" means the Board of Directors of the
Corporation.
(b) The term "Bank" and "Banking Institution" shall be synonymous and
interchangeable and shall include banks, commercial banks, savings banks,
mortgage banks, rural banks, development banks, cooperative banks, trust
companies, branches and agencies in the Philippines of foreign banks and all
other companies, corporations, partnership performing banking functions in
the Philippines.
(c) The term "receiver" includes a receiver, liquidating agent, conservator,
commission, person, or other agency charged by law with the duty of winding
up the affairs of a bank. cd i
(d) The term "insured bank" means any bank the deposit of which are insured in
accordance with the provision of this Act;
(e) The term "non-insured bank" means any bank the deposit of which are not
insured.
(f) The term "deposit" means the unpaid balance of money or its equivalent
received by a bank in the usual course of business and for which it has given
or is obliged to give credit to a commercial, checking, savings, time or thrift
account or which is evidenced by its certificate of deposit, and trust funds
held by such bank whether retained or deposited in any department of such
bank or deposited in another bank, together with such other obligations of a
bank as the Board of Directors shall find and shall prescribe by regulations to
be deposit liabilities of the Bank: Provided, That any obligation of a bank
which is payable at the office of the bank located outside of the Philippines
shall not be a deposit for any of the purposes of this Act or included as part
of the total deposits or of the insured deposit: Provided, further, That any
insured bank which is incorporated under the laws of the Philippines which
maintains a branch outside the Philippines may elect to include for insurance
its deposit obligation payable only at such branch.
(g) The term "insured deposit" means the net amount due to any depositor for
deposits in an insured bank (after deducting offsets) less any part thereof
which is in excess of P10,000. Such net amount shall be determined
according to such regulations as the Board of Directors may prescribe and in
determining the amount due to any depositor there shall be added together all
deposits in the bank maintained in the same capacity and the same right for
his benefit or in his own name or in the names of others.
(h) The term "transfer deposit" means a deposit in an insured bank made
available to a depositor by the Corporation as payment of insured deposit of
such depositor in a closed bank and assumed by another insured bank.
(i) The term "trust funds" means funds held by an insured bank in a fiduciary
capacity and includes without being limited to, funds held as trustee,
executor, administrator, guardian, or agent.
SECTION 4. Any bank or banking institution which is engaged in the business of
receiving deposits as herein defined on the effective date of this Act, or which
thereafter may engage in the business of receiving deposits, may insure its deposit
liabilities with the Corporation. Before approving the application of such bank to
become an insured bank, the Board of Directors shall give consideration to the factors
enumerated in Section 5 and shall determine upon the basis of a thorough examination
of such bank, that its assets in excess of its capital requirements are adequate to enable
it to meet all its liabilities to depositors and other creditors as shown by the books of
the bank.
SECTION 5. The factors to be considered by the Board of Directors under the
preceding section shall be the following: the financial history and condition of the
Bank, the adequacy of its capital structure, its future earning prospects, the general
character of its management, the convenience and needs of the community to be served
by the Bank and whether or not its corporate powers are consistent with the purposes
of this Act.
SECTION 6. (a) The assessment rate shall be determined by the Board of
Directors: Provided, That the assessment rate shall not exceed one-twelfth of one per
centum per annum. The semiannual assessment for each insured bank shall be in the
amount of the product of one-half (1/2) the assessment rate multiplied by the
assessment base. The assessment base shall be the amount of the liability of the bank
for deposits, according to the definition of the term "deposit" in and pursuant to
subsection (f) of Section 3 without any deduction for indebtedness of
depositors: Provided, further, That the bank —
(1) may deduct (i) from the deposit balance due to an insured bank the deposit
balance due from such insured bank (other than trust funds deposited by it in
such bank) which is subject to an immediate withdrawal; and (ii) cash items
as determined by either of the following methods, at the option of the bank:
(aa) by multiplying by 2 the total of the cash items forwarded for collection on
the assessment base days (being the days on which the average deposits are
computed) and cash items held for clearings at the close of business on said
days, which are in the process of collection and which the bank has paid in the
regular course of business or credited to deposit accounts; or (bb) by deducting
the total of cash items forwarded for collection on the assessment base days
and cash items held for clearings at the close of business on said days, which
are in the process of collection and which the bank has paid in the regular
course of business or credited to deposit accounts, plus such uncollected items
paid or credited on preceding days which are in the process of
collection: Provided, That the Board of Directors may define the terms "cash
items", "process of collection", and "uncollected items" and shall fix the
maximum period for which any such item may be deducted; and
(2) may exclude from its assessment base (i) drafts drawn by it on deposit
accounts in other banks which are issued in the regular course of business; and
the amount of devices or authorizations issued by it for cash letters received,
218
directing that its deposit account in the sending bank be charged with the
amount thereof; and (ii) cash funds which are received and held solely for the
purpose of securing a liability to the bank but not in an amount in excess of
such liability, and which are not subject to withdrawal by the obligor and are
carried in a special non-interest bearing account designated to properly show
their purpose.
Each insured bank, as a condition to the right to make any such deduction or exclusion
in determining its assessment base, shall maintain such records as will readily permit
verification of the correctness thereof. The semiannual assessment base for one semi-
annual period shall be the average of the assessment base of the bank as of the close
of business on March thirty-one and June thirty, and the semi-annual assessment base
for the other semi-annual period shall be the average of the assessment base of the
bank as of the close of business on September thirty and December thirty-
one: Provided, That when any of said days is a nonbusiness day or a legal holiday,
either National or Provincial, the preceding business day shall be used. The certified
statements required to be filed with the Corporation under subsections (b) and (c) of
this section shall be in such form and set forth such supporting information as the
Board of Directors shall prescribe. The assessment payments required from insured
banks under subsections (b) and (c) of this section shall be made in such manner and
at such time or times as the Board of Directors shall prescribe, provided the time or
times so prescribed shall not be later than sixty days after filing the certified statement
setting forth the amount of assessment.
(b) On or before the 15th of July of each year, each insured bank shall file with the
Corporation a certified statement showing for the six months ending on the preceding
June thirty the amount of the assessment base and the amount of the semi-annual
assessment due to the Corporation for the period ending on the following December
thirty-one, determined in accordance with subsection (a) of this section, which shall
contain or be verified by a written declaration that it is made under the penalties of
perjury. Each insured bank shall pay to the Corporation the amount of the semi-annual
assessment it is required to certify. On or before the 15th day of January of each year,
each insured bank shall file with the Corporation a similar certified statement for the
six months ending on the preceding December thirty-one and shall pay to the
Corporation the amount of the semi-annual assessment for the period ending on the
following June thirty which it is required to certify.
(c) Each bank which becomes an insured bank shall not be required to file any certified
statement or pay any assessment for the semi-annual period in which it becomes an
insured bank. On the expiration of such period, each such bank shall comply with the
provisions of subsection (b) of this section except that the semi-annual assessment base
for its first certified statement shall be the assessment base of the bank as of the close
of business on the preceding June thirty or December thirty-one, whichever is
applicable, determined in accordance with subsection (a) of this section. If such bank
has assumed the liabilities for deposits of another bank or banks, it shall include such
liabilities in its assessment base. The first certified statement shall show as the amount
of the first semi-annual assessment due to the Corporation, an amount equal to the
product of one-half of the annual assessment rate multiplied by such assessment base.
(d) As of December thirty-one nineteen hundred sixty-four and as of December thirty-
one of each calendar year thereafter, the Corporation shall transfer 40 per centum of
its net assessment income to its capital account and the balance of the net assessment
income shall be credited pro rata to the insured banks based upon the assessment of
each bank becoming due during the said calendar year. Each year such credit shall be
applied by the Corporation toward the payment of the total assessment becoming due
for the semi-annual assessment period beginning the next ensuing July 1 and any
excess credit shall be applied upon the assessment next becoming due. The term "net
assessment income" as used therein means the total assessments which become due
during the calendar year less (1) the operating costs and expenses of the Corporation
for the calendar year; (2) additions to reserve to provide for insurance losses during
the calendar year, except that any adjustment to reserve which result in a reduction of
such reserve shall be added; and (3) the insurance losses sustained in said calendar
year plus losses from any preceding years in excess of such reserves. If the above
deductions exceed in amount the total assessments which become due during the
calendar year, the amount of such excess shall be restored by deduction from total
assessments becoming due in subsequent years.
(e) The Corporation (1) may refund to an insured bank any payment of assessment in
excess of the amount due to the Corporation or (2) may credit such excess toward the
payment of the assessment next becoming due from such bank and upon succeeding
assessments until the credit is exhausted.
(f) Any insured bank which fails to file any certified statement required to be filed by
it in connection with determining the amount of any assessment payable by the bank
to the Corporation may be compelled to file such statement by mandatory injunction
or other appropriate remedy in a suit brought for such purpose by the Corporation
against the bank and any officer or officers thereof in any court of the Philippines of
competent jurisdiction in which such bank is located.
(g) The Corporation, in a suit brought in any court of competent jurisdiction, shall be
entitled to recover from any insured bank the amount of any unpaid assessment
lawfully payable by such insured bank to the Corporation, whether or not such bank
shall have filed any such certified statement and whether or not suit shall have been
brought to compel the bank to file any such statement. No action or proceeding shall
be brought for recovery of any assessment due to the Corporation or for the recovering
of any amount paid to the Corporation in excess of the amount due to it, unless such
action or proceeding shall have been brought within five years after the right accrued
for which the claim is made, except where the insured bank has made or filed with the
Corporation a false or fraudulent certified statement with the intent to evade, in whole
or in part, the payment of assessment, in which case the claim shall not have been
219
deemed to have accrued until the discovery by the Corporation that the certified
statement is false or fraudulent.
(h) Should any insured bank fail or refuse to pay any assessment required to be paid
by such bank under any provision of this Act, and should the bank not correct such
failure or refusal within thirty days after written notice has been given by the
Corporation to an officer of the bank, citing this subsection, and stating that the bank
has failed or refused to pay as required by law the insured status of such bank shall be
terminated by the Board of Directors. The remedies provided in this subsection and in
the two preceding subsections shall not be construed as limiting any other remedies
against an insured bank but shall be in addition thereto.
(i) Trust funds held by an insured bank in a fiduciary capacity whether held in trust or
deposited in any other department or in another bank shall be insured like other forms
of deposits, in an amount not to exceed P10,000 for each trust estate, and when
deposited by the fiduciary bank in another insured bank, such trust funds shall be
similarly insured to the fiduciary bank according to the trust estates represented.
Notwithstanding any other provision of this Act, such insurance shall be separate from
and additional to that covering other deposits of the owners of such trust funds or the
beneficiaries of such trust estates: Provided, That where the fiduciary bank deposits
any of such trust funds in other insured banks, the amount so held by other insured
banks on deposit shall not for the purpose of any certified statement required under
subsections (b) and (c) of this section be considered to be a deposit liability of the
fiduciary bank, but shall be considered to be a deposit liability of the bank in which
such funds are so deposited by such fiduciary bank. The Board of Directors shall have
the power by regulation to prescribe the manner of reporting and of depositing such
trust funds.
SECTION 7. (a) Any insured bank may, upon not less than ninety days, written notice
to the Corporation, and to the Development Bank of the Philippines if it owns or holds
as pledges any preferred stock, capital notes, or debentures of such bank, terminate its
status as an insured bank. Whenever the Board of Directors shall find that an insured
bank or its directors or trustees have continued unsafe or unsound practices in
conducting the business of the bank or which have knowingly or negligently permitted
any of its officers or agents to violate any provisions of any law or regulation to which
the insured bank is subject, the Board of Directors shall first give to the Central Bank
of the Philippines a statement with respect to such practices or violations for the
purpose of securing the correction thereof and shall give a copy thereof to the bank.
Unless such correction shall be made within one hundred twenty days or such shorter
period of time as the Central Bank of the Philippines shall require, the Board of
Directors, if it shall determine to proceed further, shall give to the bank not less than
thirty days' written notice of intention to determine the status of the bank as an insured
bank, and shall fix a time and place for a hearing before the Board of Directors or
before a person designated by it to conduct such hearing, at which evidence may be
produced, and upon such evidence the Board of Directors shall make written findings
which shall be conclusive. Unless the bank shall appear at the hearing by a duly
authorized representative, it shall be deemed to have consented to the termination of
its status as an insured bank. If the Board of Directors shall find that any unsafe or
unsound practice or violation specified in such notice has been established and has not
been corrected within the time above prescribed in which to make such correction, the
Board of Directors may order that the insured status of the bank be terminated on a
date subsequent to such finding and to the expiration of the time specified in such
notice of intention. The Corporation may publish notice of such termination and the
bank shall give notice of such termination to each of the depositors at his last address
of record on the books of the bank, in such a manner and at such a time as the Board
of Directors may find to be necessary and may order for the protection of the
depositors. After the termination of the insured status of any bank under the provisions
of this subsection, the insured deposits of each depositor in the bank on the date of
such termination, less all subsequent withdrawals from any deposits of such depositor,
shall continue for a period of two years to be insured, and the bank shall continue to
pay to the Corporation assessments as in the case of an insured bank during such
period. No additions to any such deposits and no new deposits in such bank made after
the date of such termination shall be insured by the Corporation, and the bank shall
not advertise or hold itself out as having insured deposits unless in the same connection
it shall also state equal prominence that such additions to deposits and new deposits
made after such date are not so insured. Such bank shall, in all other respects, be
subject to the duties and obligations of an insured bank for the period of two years
from the date of such termination, and in the event that such bank shall be closed on
account of insolvency within such period of two years, the Corporation shall have the
same powers and rights with respect to such bank as in case of an insured bank.
(b) Notwithstanding any other provision of law, whenever the Board of Directors shall
determine that an insured banking institution is not engaged in the business of
receiving deposits, the Corporation shall notify the banking institution that its insured
status will terminate at the expiration of the first full semi-annual assessment period
following such notice. A finding by the Board of Directors that a banking institution
is not engaged in the business of receiving deposits shall be conclusive. The Board of
Directors shall prescribe the notice to be given by the banking institution of such
termination and the Corporation may publish notice thereof. Upon the termination of
the insured status of any such banking institution, its deposits shall thereupon cease to
be insured and the banking institution shall thereafter be relieved of all future
obligations to the Corporation, including the obligation to pay future assessments.
(c) Whenever the liabilities of an insured bank for deposits shall have been assumed
by another insured bank or banks, the insured status of the bank whose liabilities are
so assumed shall terminate on the date of receipt by the Corporation of satisfactory
evidence of such assumption with like effect as if its insured status had been terminated
on said date by the Board of Directors after proceedings under subsection (a) of this
section: Provided, That if the bank whose liabilities are so assumed gives to its
depositors notice of such assumption within thirty days after such assumption takes
220
effect, by publication or by any reasonable means, in accordance with regulations to
be prescribed by the Board of Directors, the insurance of its deposits shall terminate
at the end of six months from the date such assumption takes effect. Such bank shall
be subject to the duties and obligations of an insured bank for the period its deposits
are insured: Provided, further, That if the deposits are assumed by a newly insured
bank, the bank whose deposits are assumed shall not be required to pay any assessment
upon the deposits which have been so assumed after the semi-annual period in which
the assumption takes effect.
SECTION 8. The Corporation as a corporate body shall have the power —
First. — To adopt and use a corporate seal.
Second. — To have succession until dissolved by an Act of Congress.
Third. — To make contracts.
Fourth. — To sue and be sued, complain and defend, in any court of law in the
Philippines. All suits of a civil nature to which the corporation shall be a part shall be
deemed to arise under the laws of the Philippines. No attachment or execution shall be
issued against the Corporation or its property before final judgment in any suit, action,
or proceeding in any court. The Board of Directors shall designate an agent upon
whom service of process may be made in any province or city or jurisdiction in which
any insured bank is located.
Fifth. — To appoint by its Board of Directors such officers and employees as are not
otherwise provided for in this Act to define their duties, fix their compensation, require
bonds of them and fix penalty thereof and to dismiss such officers and employees for
cause.
Sixth. — To prescribe, by its Board of Directors, by-laws not inconsistent with law,
regulating the manner in which its general business may be conducted, and the
privileges granted to it by law may be exercised and enjoyed.
Seventh. — To exercise by its Board of Directors, or duly authorized officers or agents,
all powers specifically granted by the provisions of this Act, and such incidental
powers as shall be necessary to carry on the powers so granted.
Eighth. — To make examinations of and to require information and reports from
banks, as provided in this Act.
Ninth. — To act as receiver.
Tenth. — To prescribe by its Board of Directors such rules and regulations as it may
deem necessary to carry out the provisions of this Act.
SECTION 9. (a) The Board of Directors shall administer the affairs of the Corporation
fairly and impartially and without discrimination. The Corporation shall be entitled to
the free use of Philippine mail in the same manner as the other offices of the national
government.
(b) The Board of Directors shall appoint examiners who shall have power, on behalf
of the Corporation to examine any insured bank or any bank making application to
become an insured bank, whenever in the judgment of the Board of Directors an
examination of the bank is necessary. Each such examiner shall have power to make a
thorough examination of all the affairs of the bank and in doing so he shall have power
to administer oaths and to examine and take and preserve the testimony of any of the
officers and agents thereof, and shall make a full and detailed report of the condition
of the bank to the Corporation. The Board of Directors in like manner shall appoint
claim agents who shall have power to investigate and examine all claims for insured
deposits and transferred deposits. Each claim agent shall have power to administer
oaths and to examine under oath and take and preserve the testimony of any person
relating to such claims.
(c) Each insured bank shall make to the Corporation reports of condition in such form
and at such times as the Board of Directors may require such reports to be published
in such manner, not inconsistent with any applicable law, as it may direct. Every such
bank which fails to make or publish any such report within such time, not less than
five days, as the Board of Directors may require, shall be subject to a penalty of not
more than P100 for each day of such failure recoverable by the Corporation for its use.
(d) The Corporation shall have access to reports of examination made by, and reports
of condition made to the Superintendent of Banks or the Governor of the Central Bank
of the Philippines, and the Superintendent of Banks or the Governor of the Central
Bank of the Philippines shall also have access to reports of examination made on behalf
of, and reports of condition made to the Corporation.
(e) The members of the Board of Directors and the officers and employees of the
Corporation are prohibited from revealing any information relating to the condition or
business of any insured bank and any member of the Board of Directors, officer or
employee of the Corporation violating this provision shall be held liable for any loss
or injury suffered by the Corporation.
SECTION 10. (a) A permanent insurance fund in the amount of P5,000,000 to be
appropriated from the General Fund is hereby created to be used by the Corporation
to carry out the purposes of this Act; Provided, That the maximum amount of the
insured deposit of any depositor shall be P10,000.
(b) For the purposes of this Act an insured bank shall be deemed to have been closed
on account of insolvency in any case in which it has been closed for the purpose of
liquidation without adequate provision being made for payment of its depositors.
(c) Whenever an insured bank shall have been closed on account of insolvency,
payment of the insured deposits in such bank shall be made by the Corporation as soon
as possible either (1) by cash or (2) by making available to each depositor a transferred
deposit in another insured bank in an amount equal to the insured deposit of such
depositor: Provided, That the Corporation, in its discretion, may require proof of
claims to be filed before paying the insured deposits, and that in any case where the
Corporation is not satisfied as to the validity of a claim for an insured deposit, it may
221
require the final determination of a court of competent jurisdiction before paying such
claim.
(d) The Corporation, upon the payment of any depositor as provided for in subsection
(c) of this section shall be subrogated to all rights of the depositor against the closed
bank to the extent of such payment. Such subrogation shall include the right on the
part of the Corporation to receive the same dividends from the proceeds of the assets
of such closed bank and recoveries on account of stockholders' liability as would have
been payable to the depositor on a claim for the insured deposits, but such depositor
shall retain his claim for any uninsured portion of his deposit. cdtai
SECTION 11. (a) Payment of an insured deposit to any person by the Corporation
shall discharge the Corporation, and payment of a transferred deposit to any person by
the new bank or by an insured bank in which a transferred deposit has been made
available shall discharge the Corporation and such new bank or other insured bank, to
the same extent that payment to such person by the closed bank would have discharged
it from liability for the insured deposit.
(b) Except as otherwise prescribed by the Board of Directors, neither the Corporation
nor such other insured bank shall be required to recognize as the owner of any portion
of a deposit appearing on the records of the closed bank under a name other than that
of the claimant, any person whose name or interest as such owner is not disclosed on
the records of such closed bank as part owner of said deposit, if such recognition would
increase the aggregate amount of the insured deposits in such closed bank.
(c) The Corporation may withhold payment of such portion of the insured deposit of
any depositor in a closed bank as may be required to provide for the payment of any
liability of such depositor as a stockholder of the closed bank, or of any liability of
such depositor to the closed bank or its receiver, which is not offset against a claim
due from such bank, pending the determination and payment of such liability by such
depositor or any other person liable therefor.
(d) If, after the Corporation shall have given at least three months notice to the
depositor by mailing a copy thereof to his last-known address appearing on the records
of the closed bank, any depositor in the closed bank shall fail to claim his insured
deposit from the Corporation within eighteen months after the Monetary Board of the
Central Bank of the Philippines or the proper court shall have ordered the conversion
of the assets of such closed bank into money, all rights of the depositor against the
Corporation with respect to the insured deposit shall be barred, and all rights of the
depositor against the closed bank and its shareholders or the receivership estate to
which the Corporation may have become subrogated, shall thereupon revert to the
depositor.
SECTION 12. (a) Money of the Corporation not otherwise employed shall be invested
in obligations of the Republic of the Philippines or in obligations guaranteed as to
principal and interest by the Republic of the Philippines: Provided, That the
Corporation shall not sell or purchase any such obligations for its own account and in
its own right and interest, at any one time aggregating in excess of P100,000, without
the approval of the Insurance Commissioner: And Provided, further, That the
Insurance Commissioner may waive the requirement of his approval with respect to
any transaction or classes of transactions subject to the provisions of this subsection
for such period of time and under such conditions as he may determine.
(b) The banking or checking accounts of the Corporation shall be kept with the Central
Bank of the Philippines, with the Philippine National Bank, or with any other bank
designated as depository or fiscal agent of the Philippine Government.
(c) When the Corporation has determined that an insured bank is in danger of closing,
in order to prevent such closing, the Corporation, in the discretion of its Board of
Directors, is authorized to make loans to, or purchase the assets of, or make deposits
in, such insured bank, upon such terms and conditions as the Board of Directors may
prescribe, when in the opinion of the Board of Directors, the continued operation of
such bank is essential to provide adequate banking service in the community. Such
loans and deposits may be in subordination to the rights of depositors and other
creditors.
SECTION 13. The corporation is authorized to borrow from the Central Bank of the
Philippines and the Central Bank is authorized and directed to loan the Corporation on
such terms as may be fixed by the Corporation and the Central Bank, such funds as in
the judgment of the Board of Directors of the Corporation are from time to time
required for insurance purposes not exceeding in the aggregate of one hundred million
pesos outstanding at any one time: Provided, That the rate of interest to be charged in
connection with any loan made pursuant to this section shall not be less than the current
average rate on outstanding marketable and nonmarketable obligations of the Republic
of the Philippines as of the last day of the month preceding the making of such loan.
Any such loan shall be used by the Corporation solely in carrying out its functions
with respect to such insurance.
SECTION 14. All notes, debentures, bonds or such obligations issued by the
Corporation shall be exempt from taxation.
SECTION 15. (a) The Corporation shall annually make a report of its operations to
the Congress as soon as practicable after the 1st day of January in each year.
(b) The financial transactions of the Corporation shall be audited by the General
Auditing Office in accordance with the principles and procedures applicable to
commercial corporate transactions and under such rules and regulations as may be
prescribed by the Auditor General. The audit shall be conducted at the place or places
where accounts of the Corporation are normally kept. The representatives of the
General Auditing Office shall have access to all books, accounts, records, reports, files,
222
and all other papers, things, or property belonging to or in use by the Corporation
pertaining to its financial transactions and necessary to facilitate the audit, and they
shall be afforded full facilities for verifying transactions with the balances or securities
held by depositaries, fiscal agents, and custodians. All such books, accounts, records,
reports, files, papers, and property of the Corporation shall remain in possession and
custody of the Corporation.
(c) A report of the Audit for each fiscal year ending on June 30 shall be made by the
Auditor General to the Congress not later than January 15 following the close of such
fiscal year. On or before December 15 following such fiscal year the Auditor General
shall furnish the Corporation a short form report showing the financial position of the
Corporation at the close of fiscal year. The report to the Congress shall set forth the
scope of the audit and shall include a statement of assets and liabilities and surplus or
deficit; a statement of surplus or deficit analysis; a statement of income and expenses;
a statement of sources and application of funds and such comments and information
as may be deemed necessary to inform Congress of the financial operations and
condition of the Corporation, together with such recommendations with respect thereto
as the Auditor General may deem advisable. The report shall also show specifically
any program, expenditure, or other financial transactions or undertaking observed in
the course of the audit, which in the opinion of the Auditor General, has been carried
on or made without authority of law. A copy of each report shall be furnished to the
President of the Philippines, to the Governor of the Central Bank of the Philippines,
and to the Corporation at the time submitted to the Congress.
SECTION 16. (a) Every insured bank shall display at each place of business
maintained by it a sign or signs, and shall include a statement to the effect that its
deposits are insured by the Corporation in all of its advertisements: Provided, That the
Board of Directors may exempt from this requirement advertisements which do not
relate to deposits or when it is impractical to include such statement therein. The Board
of Directors shall prescribe by regulation the forms of such signs and the manner of
display and the substance of such statements and the manner of use. For each day an
insured bank continues to violate any provisions of this subsection or any lawful
provisions of said regulations, it shall be subject to a penalty of not more than P100,
which the Corporation may recover for its use.
(b) No insured bank shall pay any dividend on its capital stock or interest on its capital
notes or debentures (if such interest is required to be paid only out of net profits) or
distribute any of its capital assets while it remains in default in the payment of any
assessment due to the Corporation; and any director or officer of any insured bank who
participates in the declaration or payment of any such dividend or interest or in any
such distribution shall, upon conviction, be fined not more than P1,000 or imprisoned
not more than one year, or both: Provided, That if such default is due to a dispute
between the insured bank and the Corporation over the amount of such assessment,
this subsection shall not apply, if such bank shall deposit security satisfactory to the
Corporation of payment upon final determination of the issue.
(c) Without prior written consent by the Corporation, no insured bank shall (1) merge
or consolidate with any noninsured bank or institution or convert into a noninsured
bank or institution or (2) assume liability to pay any deposits made in, or similar
liabilities of, any noninsured bank or institution or (3) transfer assets to any noninsured
bank or institution in consideration of the assumption of liabilities for any portion of
the deposits made in such insured bank.

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

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

SECTION 17. Except with the written consent of the Corporation, no person shall
serve as a director, officer, or employee of an insured bank who has been convicted,
or who is hereafter convicted, of any criminal offense involving dishonesty or a breach
of trust. For each willful violation of this prohibition, the bank involved shall be
subject to a penalty of not more than P100 for each day this prohibition is violated,
which the Corporation may recover for its use.

SECTION 18. If any provision or section of this Act or the application thereof to any
person or circumstances is held invalid, the other provisions or sections of this Act, in
the application of such provision or section to other persons or circumstances, shall
not be affected thereby.

SECTION 19. All Acts or parts of Acts and executive orders, administrative orders,
or parts thereof which are inconsistent with the provisions of this Act are hereby
repealed.

SECTION 20. This Act shall take effect upon approval. The Philippine Deposit
Insurance Corporation shall commence business upon organization of the Board of
Directors and certification by the Treasurer of the Philippines that the Permanent
Insurance Fund has been appropriated.

223
 TRUTH IN LENDING ACT
REPUBLIC ACT No. 3765
SECTION 1. This Act shall be known as the "Truth in Lending Act."
SECTION 2. Declaration of Policy. — It is hereby declared to be the policy of the
State to protect its citizens from a lack of awareness of the true cost of credit to the
user by assuring a full disclosure of such cost with a view of preventing the uninformed
use of credit to the detriment of the national economy.
SECTION 3. As used in this Act, the term —
(1) "Board" means the Monetary Board of the Central Bank of the Philippines.
(2) "Credit" means any loan, mortgage, deed of trust, advance, or discount; any
conditional sales contract; any contract to sell, or sale or contract of sale of
property or services, either for present or future delivery, under which part or
all of the price is payable subsequent to the making of such sale or contract;
any rental-purchase contract; any contract or arrangement for the hire,
bailment, or leasing of property; any option, demand, lien, pledge, or other
claim against, or for the delivery of, property or money; any purchase, or other
acquisition of, or any credit upon the security of, any obligation or claim
arising out of any of the foregoing; and any transaction or series of transactions
having a similar purpose or effect.
(3) "Finance charge" includes interest, fees, service charges, discounts, and such
other charges incident to the extension of credit as the Board may by regulation
prescribe.
(4) "Creditor" means any person engaged in the business of extending credit
(including any person who as a regular business practice makes loans or sells
or rents property or services on a time, credit, or installment basis, either as
principal or as agent) who requires as an incident to the extension of credit,
the payment of a finance charge.
(5) "Person" means any individual, corporation, partnership, association, or other
organized group of persons, or the legal successor or representative of the
foregoing, and includes the Philippine Government or any agency thereof, or
any other government, or any of its political subdivisions, or any agency of the
foregoing.
SECTION 4. Any creditor shall furnish to each person to whom credit is extended,
prior to the consummation of the transaction, a clear statement in writing setting forth,
to the extent applicable and in accordance with rules and regulations prescribed by the
Board, the following information:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
224
(4) the charges, individually itemized, which are paid or to be paid by such
person in connection with the transaction but which are not incident to the
extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of the
obligation.
SECTION 5. The Board shall prescribe such rules and regulations as may be
necessary or proper in carrying out the provisions of this Act. Any rule or regulation
prescribed hereunder may contain such classifications and differentiations as in the
judgment of the Board are necessary or proper to effectuate the purposes of this Act
or to prevent circumvention or evasion, or to facilitate the enforcement of this Act, or
any rule or regulation issued thereunder.
SECTION 6. (a) Any creditor who in connection with any credit transaction fails to
disclose to any person any information in violation of this Act or any regulation issued
thereunder shall be liable to such person in the amount of P100 or in an amount equal
to twice the finance charges required by such creditor in connection with such
transaction, whichever is the greater, except that such liability shall not exceed P2,000
on any credit transaction. Action to recover such penalty may be brought by such
person within one year from the date of the occurrence of the violation, in any court
of competent jurisdiction. In any action under this subsection in which any person is
entitled to a recovery, the creditor shall be liable for reasonable attorney's fees and
court costs as determined by the court.
(b) Except as specified in subsection (a) of this section, nothing contained in this Act
or any regulation contained in this Act or any regulation thereunder shall affect the
validity or enforceability of any contract or transaction.
(c) Any person who wilfully violates any provision of this Act or any regulation issued
thereunder shall be fined by not less than P1,000 or more than P5,000 or imprisonment
for not less than 6 months, nor more than one year or both.
(d) No punishment or penalty provided by this Act shall apply to the Philippine
Government or any agency or any political subdivision thereof.
(e) A final judgment hereafter rendered in any criminal proceeding under this Act to
the effect that a defendant has wilfully violated this Act shall be prima facie evidence
against such defendant in an action or proceeding brought by any other party against
such defendant under this Act as to all matters respecting which said judgment would
be an estoppel as between the parties thereto.
SECTION 7. This Act shall become effective upon approval.
225
 THE NEW CENTRAL BANK ACT
REPUBLIC ACT No. 7653 AS AMENDED BY REPUBLIC ACT No.
11211
CHAPTER I
ESTABLISHMENT AND ORGANIZATION OF THE BANGKO SENTRAL
NG PILIPINAS
ARTICLE I
Creation, Responsibilities and Corporate Powers of the Bangko Sentral
SECTION 1. Declaration of Policy.— The State shall maintain a central monetary
authority that shall function and operate as an independent and accountable body
corporate in the discharge of its mandated responsibilities concerning money, banking
and credit. In line with this policy, and considering its unique functions and
responsibilities, the central monetary authority established under this Act, while being
a government-owned corporation, shall enjoy fiscal and administrative autonomy.
SECTION. 2. Creation of the Bangko Sentral. — There is hereby established an
independent central monetary authority, which shall be a body corporate known as
the Bangko Sentral ng Pilipinas, hereafter referred to as the Bangko Sentral.
The capital of the Bangko Sentral shall be Two hundred billion pesos
(P200,000,000,000), to be fully subscribed by the Government of the Republic of the
Philippines, hereafter referred to as the Government: Provided, That the increase in
capitalization shall be funded solely from the declared dividends of the Bangko
Sentral in favor of the National Government. For this purpose, any and all declared
dividends of the Bangko Sentral in favor of the National Government shall be
deposited in a special account in the General Fund, and earmarked for the payment
of Bangko Sentral's increase in capitalization. Such payment shall be released and
disbursed immediately and shall continue until the increase in capitalization has been
fully paid.
SECTION. 3. Responsibility and Primary Objective. — The Bangko Sentral shall
provide policy directions in the areas of money, banking, and credit. It shall have
supervision over the operations of banks and exercise such regulatory and examination
powers as provided in this Act and other pertinent laws over the quasi-banking
operations of non-bank financial institutions. As may be determined by the Monetary
Board, it shall likewise exercise regulatory and examination powers over money
service businesses, credit granting businesses, and payment system operators. The
Monetary Board is hereby empowered to authorize entities or persons to engage in
money service businesses.
226
The primary objective of the Bangko Sentral is to maintain price stability conducive
to a balanced and sustainable growth of the economy and employment. It shall also
promote and maintain monetary stability and the convertibility of the peso.
The Bangko Sentral shall promote financial stability and closely work with the
National Government, including, but not limited to, the Department of Finance,
Securities and Exchange Commission, the Insurance Commission, and the Philippine
Deposit Insurance Corporation.
The Bangko Sentral shall oversee the payment and settlement systems in the
Philippines, including critical financial market infrastructures, in order to promote
sound and prudent practices consistent with the maintenance of financial stability.
In the attainment of its objectives, the Bangko Sentral shall promote broad and
convenient access to high quality financial services and consider the interest of the
general public.
SECTION 4. Place of Business.— The Bangko Sentral shall have its principal place
of business in Metro Manila, but may maintain branches, agencies and correspondents
in such other places as the proper conduct of its business may require.
SECTION 5. Corporate Powers.— The Bangko Sentral is hereby authorized to
adopt, alter, and use a corporate seal which shall be judicially noticed; to enter into
contracts; to lease or own real and personal property, and to sell or otherwise dispose
of the same; to sue and be sued; and otherwise to do and perform any and all things
that may be necessary or proper to carry out the purposes of this Act.
The Bangko Sentral may acquire and hold such assets and incur such liabilities in
connection with its operations authorized by the provisions of this Act, or as are
essential to the proper conduct of such operations.
The Bangko Sentral may compromise, condone or release, in whole or in part, any
claim of or settled liability to the Bangko Sentral,regardless of the amount involved,
under such terms and conditions as may be prescribed by the Monetary Board to
protect the interests of the Bangko Sentral.
ARTICLE II
The Monetary Board
SECTION 6. Composition of the Monetary Board.— The powers and functions of
the Bangko Sentral shall be exercised by the Bangko Sentral Monetary Board,
hereafter referred to as the Monetary Board, composed of seven (7) members
appointed by the President of the Philippines for a term of six (6) years.
The seven (7) members are:
(a) the Governor of the Bangko Sentral,who shall be the Chairman of the
Monetary Board. The Governor of the Bangko Sentral shall be head of a
 department and his appointment shall be subject to confirmation by the
Commission on Appointments. Whenever the Governor is unable to attend a
meeting of the Board, he shall designate a Deputy Governor to act as his
alternate: Provided,That in such event, the Monetary Board shall designate
one of its members as acting Chairman;
(b) a member of the Cabinet to be designated by the President of the Philippines.
Whenever the designated Cabinet Member is unable to attend a meeting of
the Board, he shall designate an Undersecretary in his Department to attend
as his alternate; and
(c) five (5) members who shall come from the private sector, all of whom shall
serve full-time: Provided, however,That of the members first appointed under
the provisions of this subsection, three (3) shall have a term of six (6) years,
and the other two (2),three (3) years.
No member of the Monetary Board may be reappointed more than once.
SECTION 7. Vacancies.— Any vacancy in the Monetary Board created by the death,
resignation, or removal of any member shall be filled by the appointment of a new
member to complete the unexpired period of the term of the member concerned.
SECTION 8. Qualifications.— The members of the Monetary Board must be natural-
born citizens of the Philippines, at least thirty-five (35) years of age, with the exception
of the Governor who should at least be forty (40) years of age, of good moral character,
of unquestionable integrity, of known probity and patriotism, and with recognized
competence in social and economic disciplines.
SECTION 9. Disqualifications. — In addition to the disqualifications imposed
by Republic Act No. 6713, a member of the Monetary Board is disqualified from being
a director, officer, employee, consultant, lawyer, agent or stockholder of any bank,
quasi-bank or any other institution which is subject to supervision or examination by
the Bangko Sentral,in which case such member shall resign from, and divest himself
of any and all interests in such institution before assumption of office as member of
the Monetary Board.
The members of the Monetary Board coming from the private sector shall not hold
any other public office or public employment during their tenure.
No person shall be a member of the Monetary Board if he has been connected directly
with any multilateral banking or financial institution or has a substantial interest in any
private bank in the Philippines, within one (1) year prior to his appointment; likewise,
no member of the Monetary Board shall be employed in any such institution within
two (2) years after the expiration of his term except when he serves as an official
representative of the Philippine Government to such institution.
227
SECTION 10. Removal.— The President may remove any member of the Monetary
Board for any of the following reasons:
(a) If the member is subsequently disqualified under the provisions of Section 8
of this Act; or
(b) If he is physically or mentally incapacitated that he cannot properly discharge
his duties and responsibilities and such incapacity has lasted for more than
six (6) months; or
(c) If the member is guilty of acts or operations which are of fraudulent or illegal
character or which are manifestly opposed to the aims and interests of
the Bangko Sentral;or
(d) If the member no longer possesses the qualifications specified in Section 8 of
this Act.
SEC. 11. Meetings. — The Monetary Board shall meet at least once a week. The Board
may be called to a meeting by the Governor of the Bangko Sentral or by two (2) other
members of the Board.
The presence of four (4) members shall constitute a quorum: Provided, That in all
cases the Governor or his duly designated alternate shall be among the four (4)
members.
Unless otherwise provided in this Act, all decisions of the Monetary Board shall
require the concurrence of at least four (4) members.
The Bangko Sentral shall maintain and preserve a complete record of the proceedings
and deliberations of the Monetary Board, including the tapes and transcripts of the
stenographic notes, either in their original form or in microfilm.
The meetings of the Monetary Board may be conducted through modern technologies
such as, but not limited to, teleconferencing and videoconferencing.
SECTION 12. Attendance of the Deputy Governors.— The Deputy Governors may
attend the meetings of the Monetary Board with the right to be heard.
SECTION 13. Salary.— The salary of the Governor and the members of the Monetary
Board from the private sector shall be fixed by the President of the Philippines at a
sum commensurate to the importance and responsibility attached to the position.
SECTION 14. Withdrawal of Persons Having a Personal Interest. — In addition to
the requirements of Republic Act No. 6713, any member of the Monetary Board with
personal or pecuniary interest in any matter in the agenda of the Monetary Board shall
disclose his interest to the Board and shall retire from the meeting when the matter is
taken up. The decision taken on the matter shall be made public. The minutes shall
reflect the disclosure made and the retirement of the member concerned from the
meeting.

SECTION 15. Exercise of Authority. — In the exercise of its authority, the Monetary
Board shall:
(a) issue rules and regulations it considers necessary for the effective discharge
of the responsibilities and exercise of the powers vested upon the Monetary
Board and the Bangko Sentral.The rules and regulations issued shall be
reported to the President and the Congress within fifteen (15) days from the
date of their issuance;
(b) direct the management, operations, and administration of the Bangko
Sentral,reorganize its personnel, and issue such rules and regulations as it
may deem necessary or convenient for this purpose. The legal units of
the Bangko Sentral shall be under the exclusive supervision and control of
the Monetary Board;
(c) establish a human resource management system which shall govern the
selection, hiring, appointment, transfer, promotion, or dismissal of all
personnel. Such system shall aim to establish professionalism and excellence
at all levels of the Bangko Sentral in accordance with sound principles of
management.
(a) A compensation structure, based on job evaluation studies and wage surveys
and subject to the Board's approval, shall be instituted as an integral
component of the Bangko Sentral's human resource development
program: Provided, That the Monetary Board shall make its own system
conform as closely as possible with the principles provided for
under Republic Act No. 6758: Provided, however, That compensation and
wage structure of employees whose positions fall under salary grade 19 and
below shall be in accordance with the rates prescribed under Republic Act
No. 6758.
(b) On the recommendation of the Governor, appoint, fix the remunerations and
other emoluments, and remove personnel of the Bangko Sentral,subject to
pertinent civil service laws: Provided,That the Monetary Board shall have
exclusive and final authority to promote, transfer, assign, or reassign
personnel of the Bangko Sentral and these personnel actions are deemed
made in the interest of the service and not disciplinary: Provided, further,That
the Monetary Board may delegate such authority to the Governor under such
guidelines as it may determine.
(c) adopt an annual budget for and authorize such expenditures by the Bangko
Sentral as are in the interest of the effective administration and operations of
the Bangko Sentral in accordance with applicable laws and regulations; and
(d) adopt an annual budget for and authorize such expenditures by the Bangko
Sentral as are in the interest of the effective administration and operations of
the Bangko Sentral in accordance with applicable laws and regulations
(e) indemnify its members and other officials of the Bangko Sentral, including
personnel of the departments performing supervision and examination
functions against all costs and expenses reasonably incurred by such persons
in connection with any civil or criminal action, suit or proceedings to which
228
he may be, or is, made a party by reason of the performance of his functions
or duties, unless he is finally adjudged in such action or proceeding to be
liable for willful violation of this Act, performed in evident bad faith or with
gross negligence.
In the event of a settlement or compromise, indemnification shall be provided
only in connection with such matters covered by the settlement as to which
the Bangko Sentral is advised by external counsel that the person to be
indemnified did not commit willful violation of this Act, performed in evident
bad faith or with gross negligence.
The costs and expenses incurred in defending the aforementioned action, suit
or proceeding may be paid by the Bangko Sentral in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of the member, officer, or employee to repay the amount
advanced should it ultimately be determined by the Monetary Board that he
is not entitled to be indemnified as provided in this subsection.
SECTION 16. Responsibility. — The general rule and the exception therefrom on the
liability of public officers as provided in Sections 38 and 39 of Chapter 9, Book 1 of
the Revised Administrative Code of 1987 shall apply to the members of the Monetary
Board and other personnel of the Bangko Sentral.
Similar responsibility shall apply to members of the Monetary Board, and other
personnel of the Bangko Sentral for: (1) the disclosure of any information of a
confidential nature, or any information on the discussions or resolutions of the
Monetary Board, or about the confidential operations of the Bangko Sentral, unless
the disclosure is in connection with the performance of official functions with
the Bangko Sentral, or is with prior authorization of the Monetary Board or the
Governor; or (2) the use of such information for personal gain or to the detriment of
the Government, the Bangko Sentral or third parties: Provided, however, That any
data or information required to be submitted to the President and/or the Congress, or
to be published under the provisions of this Act shall not be considered confidential.
Unless the actions or omissions of the Bangko Sentral, members of the Monetary
Board and its other personnel are finally adjudged to be in willful violation of this Act,
performed in evident bad faith or with gross negligence, they are held free and
harmless to the fullest extent permitted by law from any liability, and they shall be
indemnified for any and all liabilities, losses, claims, demands, damages, deficiencies,
costs and expenses of whatsoever kind and nature that may arise in connection with
the exercise of their powers and performance of their duties and functions.
ARTICLE III
The Governor and Deputy Governors of the Bangko Sentral
SECTION 17. Powers and Duties of the Governor.— The Governor shall be the chief
executive officer of the Bangko Sentral.His powers and duties shall be to:
(a) prepare the agenda for the meetings of the Monetary Board and to submit for
the consideration of the Board the policies and measures which he believes
to be necessary to carry out the purposes and provisions of this Act;
(b) execute and administer the policies and measures approved by the Monetary
Board;
(c) direct and supervise the operations and internal administration of the Bangko
Sentral.The Governor may delegate certain of his administrative
responsibilities to other officers or may assign specific tasks or
responsibilities to any full-time member of the Monetary Board without
additional remuneration or allowance whenever he may deem fit or subject
to such rules and regulations as the Monetary Board may prescribe;
(d) appoint and fix the remunerations and other emoluments of personnel below
the rank of a department head in accordance with the position and
compensation plans approved by the Monetary Board, as well as to impose
disciplinary measures upon personnel of the Bangko Sentral,subject to the
provisions of Section 15(c) of this Act: Provided,That removal of personnel
shall be with the approval of the Monetary Board;
(e) render opinions, decisions, or rulings, which shall be final and executory until
reversed or modified by the Monetary Board, on matters regarding
application or enforcement of laws pertaining to institutions supervised by
the Bangko Sentral and laws pertaining to quasi-banks, as well as regulations,
policies or instructions issued by the Monetary Board, and the
implementation thereof; and
(f) exercise such other powers as may be vested in him by the Monetary Board.
SECTION 18. Representation of the Monetary Board and the Bangko Sentral.— The
Governor of the Bangko Sentral shall be the principal representative of the Monetary
Board and of the Bangko Sentral and, in such capacity and in accordance with the
instructions of the Monetary Board, he shall be empowered to:
(a) represent the Monetary Board and the Bangko Sentral in all dealings with
other offices, agencies and instrumentalities of the Government and all other
persons or entities, public or private, whether domestic, foreign or
international;
(b) sign contracts entered into by the Bangko Sentral,notes and securities issued
by the Bangko Sentral,all reports, balance sheets, profit and loss statements,
correspondence and other documents of the Bangko Sentral.
(a) The signature of the Governor may be in facsimile whenever appropriate;
(b) represent the Bangko Sentral,either personally or through counsel, including
private counsel, as may be authorized by the Monetary Board, in any legal
proceedings, action or specialized legal studies; and
(c) delegate his power to represent the Bangko Sentral,as provided in subsections
(a),(b) and (c) of this section, to other officers upon his own
responsibility: Provided, however,That in order to preserve the integrity and
229
the prestige of his office, the Governor of the Bangko Sentral may choose not
to participate in preliminary discussions with any multilateral banking or
financial institution on any negotiations for the Government within or outside
the Philippines. During the negotiations, he may instead be represented by a
permanent negotiator.
SECTION 19. Authority of the Governor in Emergencies.— In case of emergencies
where time is insufficient to call a meeting of the Monetary Board, the Governor of
the Bangko Sentral,with the concurrence of two (2) other members of the Monetary
Board, may decide any matter or take any action within the authority of the Board. cdt
The Governor shall submit a report to the President and Congress within seventy-two
(72) hours after the action has been taken.
At the soonest possible time, the Governor shall call a meeting of the Monetary Board
to submit his action for ratification.
SECTION 20. Outside Interests of the Governor and the Full-time Members of the
Board.— The Governor of the Bangko Sentral and the full-time members of the Board
shall limit their professional activities to those pertaining directly to their positions
with the Bangko Sentral.Accordingly, they may not accept any other employment,
whether public or private, remunerated or ad honorem,with the exception of positions
in eleemosynary, civic, cultural or religious organizations or whenever, by designation
of the President, the Governor or the full-time member is tasked to represent the
interest of the Government or other government agencies in matters connected with or
affecting the economy or the financial system of the country.
SECTION 21. Deputy Governors. — The Governor of the Bangko Sentral, with the
approval of the Monetary Board, shall appoint not more than five (5) Deputy
Governors who shall perform duties as may be assigned to them by the Governor and
the Board.
In the absence of the Governor, a Deputy Governor designated by the Governor shall
act as chief executive of the Bangko Sentral and shall exercise the powers and perform
the duties of the Governor. Whenever the Governor is unable to attend meetings of
government boards or councils in which he is an ex officio member pursuant to
provisions of special laws, a Deputy Governor as may be designated by the Governor
shall be vested with authority to participate and exercise the right to vote in such
meetings
ARTICLE IV
Operations of the Bangko Sentral
SECTION 22. Research and Statistics.— The Bangko Sentral shall prepare data and
conduct economic research for the guidance of the Monetary Board in the formulation
and implementation of its policies. Such data shall include, among others, forecasts of
the balance of payments of the Philippines, statistics on the monthly movement of the
monetary aggregates and of prices and other statistical series and economic studies
useful for the formulation and analysis of monetary, banking, credit and exchange
policies.
SECTION 23. Authority to Obtain Data and Information. — The Bangko
Sentral shall have the authority to require from any person or entity, including
government offices and instrumentalities, or government-owned or -controlled
corporations, any data, for statistical and policy development purposes in relation to
the proper discharge of its functions and responsibilities: Provided, That disaggregated
data gathered are subject to prevailing confidentiality laws. The Bangko
Sentral through the Governor or in his absence, a duly authorized representative shall
have the power to issue a subpoena for the production of the books and records for the
aforesaid purpose. Those who refuse the subpoena without justifiable cause, or who
refuse to supply the Bangko Sentral with data required, shall be subject to punishment
for contempt in accordance with the provisions of the Rules of Court.
The authority of the Bangko Sentral to require data from banks shall continue to be
exercised pursuant to its supervisory powers set forth in this Act and other applicable
laws.
Data on individuals and firms, other than banks, gathered by the Bangko Sentral shall
not be made available to any person or entity outside of the Bangko Sentral whether
public or private except under order of the court or under such conditions as may be
prescribed by the Monetary Board: Provided, however, That the collective data on
firms may be released to interested persons or entities: Provided, finally, That in the
case of data on banks, the provisions of Section 27 of this Act shall apply.
SECTION 24. Training of Technical Personnel.— The Bangko Sentral shall promote
and sponsor the training of technical personnel in the field of money and banking.
Toward this end, the Bangko Sentral is hereby authorized to defray the costs of study,
at home or abroad, of qualified employees of the Bangko Sentral,of promising
university graduates or of any other qualified persons who shall be determined by
proper competitive examinations. The Monetary Board shall prescribe rules and
regulations to govern the training program of the Bangko Sentral.
SECTION 25. Supervision and Examination. — The Bangko Sentral shall have
supervision over, and conduct regular or special examinations of banking institutions
and quasi-banks, including their subsidiaries and affiliates engaged in allied activities.
For purposes of this section, a subsidiary means a corporation more than fifty percent
(50%) of the voting stock of which is directly or indirectly owned, controlled or held
with power to vote by a bank or quasi-bank and an affiliate means a corporation the
voting stock of which, to the extent of fifty percent (50%) or less, is owned by a bank
or quasi-bank or which is related or linked directly or indirectly to such institution or
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intermediary through common stockholders or such other factors as may be
determined by the Monetary Board.
The Bangko Sentral shall have regulatory authority over, and conduct regular or
special examinations of, entities which under this Act or by special laws are subject to
its jurisdiction.
The Bangko Sentral shall establish a mechanism for issues arising from bank
examinations. It shall be independent and reports directly to the Monetary Board,
without prejudice to the authority of the Bangko Sentral and its Monetary Board to
take enforcement and supervisory actions against supervised entities.
The department heads and the examiners of the supervising and/or examining
departments are hereby authorized to administer oaths to any director, officer, or
employee of any institution under their respective supervision or subject to their
examination, and to compel the presentation of all books, documents, papers or records
necessary in their judgment to ascertain the facts relative to the true condition of any
institution as well as the books and records of persons and entities relative to or in
connection with the operations, activities or transactions of the institution under
examination, subject to the provision of existing laws protecting or safeguarding the
secrecy or confidentiality of bank deposits as well as investments of private persons,
natural or juridical, in debt instruments issued by the Government.
No restraining order or injunction shall be issued by the court enjoining the Bangko
Sentral from examining any institution subject to supervision or examination by
the Bangko Sentral, unless there is convincing proof that the action of the Bangko
Sentral is plainly arbitrary and made in bad faith and the petitioner or plaintiff files
with the clerk or judge of the court in which the action is pending a bond executed in
favor of the Bangko Sentral, in an amount to be fixed by the court. The provisions of
Rule 58 of the New Rules of Court insofar as they are applicable and not inconsistent
with the provisions of this section shall govern the issuance and dissolution of the
restraining order or injunction contemplated in this section."
SECTION 25-A. Authority to Approve Transfer of Shares. — Transfers or
acquisitions, or a series thereof, of at least ten percent (10%) of the voting shares in
banks or quasi-banks shall require the prior approval of the Bangko Sentral. The
selling or conveying stockholder shall submit such transfer or acquisition for approval
by the Bangko Sentral within such period as may be prescribed by the Monetary
Board. In approving such transfers or acquisitions, regard shall be given by the Bangko
Sentral to the fitness of the incoming stockholders as may be indicated in their
integrity, reputation and financial capacity. Without Bangko Sentral approval, no such
transfer or acquisition shall have legal effect nor shall the same be recognized in the
books of the institution or by any government agency, and the transferor-stockholders
shall remain accountable and responsible therefor. Transfer of actual control or
management of the institution to the new stockholders or their representatives prior
to Bangko Sentral approval shall make the transferor, the transferee and any person
responsible therefor liable under Sections 36 and 37 of this Act. Notwithstanding any
provision of law to the contrary, the Bangko Sentral may share with the Philippine
Deposit Insurance Corporation any information that the Bangko Sentral may obtain
pertaining to transfer or acquisition of shares or series of transfers or acquisition of
shares in banks and quasi-banks.
SECTION 26. Bank Deposits and Investments.— Any director, officer or stockholder
who, together with his related interest, contracts a loan or any form of financial
accommodation from: (1) his bank; or (2) from a bank (a) which is a subsidiary of a
bank holding company of which both his bank and the lending bank are subsidiaries
or (b) in which a controlling proportion of the shares is owned by the same interest
that owns a controlling proportion of the shares of his bank, in excess of five percent
(5%) of the capital and surplus of the bank, or in the maximum amount permitted by
law, whichever is lower, shall be required by the lending bank to waive the secrecy of
his deposits of whatever nature in all banks in the Philippines. Any information
obtained from an examination of his deposits shall be held strictly confidential and
may be used by the examiners only in connection with their supervisory and
examination responsibility or by the Bangko Sentral in an appropriate legal action it
has initiated involving the deposit account.
SECTION 27. Prohibitions. — In addition to the prohibitions found in Republic Act
Nos. 3019 and 6713, personnel of the Bangko Sentral are hereby prohibited from:
(a) being an officer, director, lawyer or agent, employee, consultant or
stockholder, directly or indirectly, of any institution subject to supervision or
examination by the Bangko Sentral,except non-stock savings and loan
associations and provident funds organized exclusively for employees of
the Bangko Sentral and except as otherwise provided in this Act; cdasia
(b) directly or indirectly requesting or receiving any gift, present or pecuniary or
material benefit for himself or another, from any institution subject to
supervision or examination by the Bangko Sentral;
(c) revealing in any manner, except under orders of the court, the Congress or
any government office or agency authorized by law, or under such conditions
as may be prescribed by the Monetary Board, information relating to the
condition or business of any such institution. This prohibition shall not be
held to apply to the giving of information to the Monetary Board or the
Governor of the Bangko Sentral,or to any person authorized by either of
them, in writing, to receive such information; and
(d) borrowing from any institution subject to supervision or examination by
the Bangko Sentral unless said borrowing is transacted on an arm's length
basis, fully disclosed to the Monetary Board, and shall be subject to such rules
and regulations as the Monetary Board may prescribe
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SECTION 28. Examination and Fees. — The supervising and examining department
head, personally or by deputy, shall examine the operations of every bank and quasi-
bank, including their subsidiaries and affiliates engaged in allied activities, and other
entities which under this Act or special laws are subject to Bangko Sentral supervision,
in accordance with the guidelines set by the Monetary Board taking into consideration
sound and prudent practices: Provided, That there shall be an interval of at least twelve
(12) months between regular examinations: Provided, further, That the Monetary
Board, by an affirmative vote of at least five (5) members, may authorize a special
examination if the circumstances warrant.
The institution concerned shall afford to the head of the appropriate supervising and
examining departments and to his authorized deputies full opportunity to examine its
books and records, cash and assets and general condition and review its systems and
procedures at any time during business hours when requested to do so by the Bangko
Sentral: Provided, however, That none of the reports and other papers relative to such
examinations shall be open to inspection by the public except insofar as such publicity
is incidental to the proceedings hereinafter authorized or is necessary for the
prosecution of violations in connection with the business of such institutions.
Supervised institutions shall pay to the Bangko Sentral, no later than May 31 of each
year, an annual supervision fee as may be prescribed by the Monetary Board. In
determining the amount of the annual supervision fee, the Monetary Board shall
consider the costs of supervision.
SECTION 28-A. Bangko Sentral Coordination. — The suspension or revocation of
any government license necessary for the operation of Bangko Sentral-supervised
entity must be done only with prior consultation with the Bangko Sentral.
SECTION 29. Appointment of Conservator.— Whenever, on the basis of a report
submitted by the appropriate supervising or examining department, the Monetary
Board finds that a bank or a quasi-bank is in a state of continuing inability or
unwillingness to maintain a condition of liquidity deemed adequate to protect the
interest of depositors and creditors, the Monetary Board may appoint a conservator
with such powers as the Monetary Board shall deem necessary to take charge of the
assets, liabilities, and the management thereof, reorganize the management, collect all
monies and debts due said institution, and exercise all powers necessary to restore its
viability. The conservator shall report and be responsible to the Monetary Board and
shall have the power to overrule or revoke the actions of the previous management and
board of directors of the bank or quasi-bank.
The conservator should be competent and knowledgeable in bank operations and
management. The conservatorship shall not exceed one (1) year.
The conservator shall receive remuneration to be fixed by the Monetary Board in an
amount not to exceed two-thirds (2/3) of the salary of the president of the institution
in one (1) year, payable in twelve (12) equal monthly payments: Provided,That, if at
any time within the one-year period, the conservatorship is terminated on the ground
that the institution can operate on its own, the conservator shall receive the balance of
the remuneration which he would have received up to the end of the year; but if the
conservatorship is terminated on other grounds, the conservator shall not be entitled to
such remaining balance. The Monetary Board may appoint a conservator connected
with the Bangko Sentral,in which case he shall not be entitled to receive any
remuneration or emoluments from the Bangko Sentral during the conservatorship. The
expenses attendant to the conservatorship shall be borne by the bank or quasi-bank
concerned.
The Monetary Board shall terminate the conservatorship when it is satisfied that the
institution can continue to operate on its own and the conservatorship is no longer
necessary. The conservatorship shall likewise be terminated should the Monetary
Board, on the basis of the report of the conservator or of its own findings, determine
that the continuance in business of the institution would involve probable loss to its
depositors or creditors, in which case the provisions of Section 30 shall apply.
SECTION 30. Proceedings in Receivership and Liquidation. — Whenever, upon
report of the head of the supervising or examining department, the Monetary Board
finds that a bank or quasi-bank:
(a) has notified the Bangko Sentral or publicly announced a unilateral closure, or
has been dormant for at least sixty (60) days or in any manner has suspended
the payment of its deposit/deposit substitute liabilities, or is unable to pay its
liabilities as they become due in the ordinary course of business: Provided,
That this shall not include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to
meet its liabilities; or
(c) cannot continue in business without involving probable losses to its
depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 of
this Act that has become final, involving acts or transactions which amount
to fraud or a dissipation of the assets of the institution; in which cases, the
Monetary Board may summarily and without need for prior hearing forbid
the institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation (PDIC) as receiver in the case of
banks and direct the PDIC to proceed with the liquidation of the closed bank
pursuant to this section and the relevant provisions of Republic Act No. 3591,
as amended. The Monetary Board shall notify in writing, through the
receiver, the board of directors of the closed bank of its decision.
The actions of the Monetary Board taken under this section or under Section 29 of
this Act shall be final and executory, and may not be restrained or set aside by the
court except on petition for certiorari on the ground that the action taken was in excess
of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of
232
jurisdiction. The petition for certiorari may only be filed by the stockholders of record
representing the majority of the capital stock within ten (10) days from receipt by the
board of directors of the institution of the order directing receivership, liquidation or
conservatorship. The designation of a conservator under Section 29 of this Act or the
appointment of a receiver under this section shall be vested exclusively with the
Monetary Board. Furthermore, the designation of a conservator is not a precondition
to the designation of a receiver.
The authority of the Monetary Board to summarily and without need for prior hearing
forbid the bank or quasi-bank from doing business in the Philippines as provided above
may also be exercised over non-stock savings and loan associations, based on the same
applicable grounds. For quasi-banks and non-stock savings and loan associations, any
person of recognized competence in banking, credit or finance may be designated by
the Bangko Sentral as a receiver.
SECTION 31. Deleted
SECTION 32. Deleted
SECTION 33. Disposition of Banking Franchise.— The Bangko Sentral may, if
public interest so requires, award to an institution, upon such terms and conditions as
the Monetary Board may approve, the banking franchise of a bank under liquidation
to operate in the area where said bank or its branches were previously
operating: Provided,That whatever proceeds may be realized from such award shall be
subject to the appropriate exclusive disposition of the Monetary Board.
SECTION 34. Refusal to Make Reports or Permit Examination. — Any officer,
owner, agent, manager, director or officer-in-charge of any institution who, being
required in writing by the Monetary Board or by the head of the supervising and
examining department within the purview of this Act and relevant laws willfully
refuses to file the required report or permit any lawful examination into the affairs of
such institution shall be punished by a fine of not less than Fifty thousand pesos
(P50,000) nor more than Two million pesos (P2,000,000) or by imprisonment of not
less than one (1) year nor more than five (5) years, or both, at the discretion of the
court.
This shall also apply to the officer, owner, agent, manager, director or officer-in-
charge of the affiliate company/ies whose transactions are subject to examination
under this Act.
SECTION 35. False Statement. — The willful making of a false or misleading
statement on a material fact to the Monetary Board or to the examiners of the Bangko
Sentral shall be punished by a fine of not less than One hundred thousand pesos
(P100,000) nor more than Two million pesos (P2,000,000), or by imprisonment of not
more than five (5) years, or both, at the discretion of the court.

SECTION 36. Proceedings upon Violation of This Act and Other Banking Laws,
Rules, Regulations, Orders or Instructions. — Whenever a bank, quasi-bank,
including their subsidiaries and affiliates engaged in allied activities or other entity
which under this Act or special laws is subject to Bangko Sentral supervision or
whenever any person or entity willfully violates this Act or other pertinent banking
laws being enforced or implemented by the Bangko Sentral or any order, instruction,
rule or regulation issued by the Monetary Board, the person or persons responsible for
such violation shall unless otherwise provided in this Act be punished by a fine of not
less than Fifty thousand pesos (P50,000) nor more than Two million pesos
(P2,000,000) or by imprisonment of not less than two (2) years nor more than ten (10)
years, or both, at the discretion of the court.
Whenever an entity under Bangko Sentral supervision persists in carrying on its
business in an unlawful or unsafe manner, the Board may, without prejudice to the
penalties provided in the preceding paragraph of this section and the administrative
sanctions provided in Section 37 of this Act, take action under Section 30 of this Act.
The Bangko Sentral may grant informer's reward to any person, except an officer or
employee of the Bangko Sentral or of any intelligence or law enforcement agency,
including the relatives of such officer or employee within the fourth degree of
consanguinity or affinity, who voluntarily give definite information not yet in the
possession of the Bangko Sentral leading to the: (a) arrest of bank directors or officers
and/or BSP personnel for violation of this Act or any banking and other laws
implemented or enforced by the Bangko Sentral, or for violation of other penal laws
committed in connection with their employment or functions; or (b) filing of criminal
charges against any person for violation of Section 50 of this Act.
The Monetary Board is hereby authorized to promulgate the implementing guidelines
for the grant of informer's reward, which in no case shall exceed One million pesos
(P1,000,000). Said guidelines may provide for additional qualifications and
disqualifications of informants as well as the form and minimum content of the
information given.
The cash reward of informers shall be subject to applicable withholding taxes.
SECTION 37. Administrative Sanctions on Supervised Entities. — The imposition of
administrative sanctions shall be fair, consistent and reasonable. Without prejudice to
the criminal sanctions against the culpable persons provided in Sections 34, 35, and
36 of this Act, the Monetary Board may, at its discretion, impose upon any bank, quasi-
bank, including their subsidiaries and affiliates engaged in allied activities, or other
entity which under this Act or special laws are subject to the Bangko
Sentral supervision, and/or their directors, officers or employees, for any willful
violation of its charter or bylaws, willful delay in the submission of reports or
publications thereof as required by law, rules and regulations; any refusal to permit
examination into the affairs of the institution; any willful making of a false or
233
misleading statement to the Board or the appropriate supervising and examining
department or its examiners; any willful failure or refusal to comply with, or violation
of, any banking law or any order, instruction or regulation issued by the Monetary
Board, or any order, instruction or ruling by the Governor; or any commission of
irregularities, and/or conducting business in an unsafe or unsound manner as may be
determined by the Monetary Board, the following administrative sanctions, whenever
applicable:
(a) fines in amounts as may be determined by the Monetary Board to be
appropriate, but in no case to exceed One million pesos (P1,000,000) for each
transactional violation or One hundred thousand pesos (P100,000) per
calendar day for violations of a continuing nature, taking into consideration
the attendant circumstances, such as the nature and gravity of the violation or
irregularity and the size of the institution: Provided, That in case profit is
gained or loss is avoided as a result of the violation, a fine no more than three
(3) times the profit gained or loss avoided may also be imposed;
(b) suspension of rediscounting privileges or access to Bangko Sentral credit
facilities;
(c) suspension of lending or foreign exchange operations or authority to accept
new deposits or make new investments;
(d) suspension of interbank clearing privileges; and/or
(e) suspension or revocation of quasi-banking or other special licenses.
Resignation or termination from office shall not exempt such director, officer or
employee from administrative or criminal sanctions.
The Monetary Board may, whenever warranted by circumstances, preventively
suspend any director, officer or employee of the institution pending an
investigation: Provided, That should the case be not finally decided by the Bangko
Sentral within a period of one hundred twenty (120) days after the date of suspension,
said director, officer or employee shall be reinstated in his position: Provided, further,
That when the delay in the disposition of the case is due to the fault, negligence or
petition of the director or officer, the period of delay shall not be counted in computing
the period of suspension herein provided.
The above administrative sanctions need not be applied in the order of their severity.
Whether or not there is an administrative proceeding, if the institution and/or the
directors, officers or employees concerned continue with or otherwise persist in the
commission of the indicated practice or violation, the Monetary Board may issue an
order requiring the institution and/or the directors, officers or employees concerned to
cease and desist from the indicated practice or violation, and may further order that
immediate action be taken to correct the conditions resulting from such practice or
violation. The cease and desist order shall be immediately effective upon service on
the respondents.
The respondents shall be afforded an opportunity to defend their action in a hearing
before the Monetary Board or any committee chaired by any Monetary Board member
created for the purpose, upon request made by the respondents within five (5) days
from their receipt of the order. If no such hearing is requested within said period, the
order shall be final. If a hearing is conducted, all issues shall be determined on the
basis of records, after which the Monetary Board may either reconsider or make final
its order.
The Governor is hereby authorized, at his discretion, to impose upon banks and quasi-
banks, including their subsidiaries and affiliates engaged in allied activities, and other
entities which under this Act or special laws are subject to Bangko Sentral supervision
for any failure to comply with the requirements of law, Monetary Board regulations
and policies, and/or instructions issued by the Monetary Board or by the Governor,
fines not in excess of One hundred thousand pesos (P100,000) for each transactional
violation or Thirty thousand pesos (P30,000) per calendar day for violations of a
continuing nature, the imposition of which shall be final and executory until reversed,
modified or lifted by the Monetary Board on appeal.
SECTION 38-A. Issuance of Injunctive Relief against Bangko Sentral Actions. — No
court, other than the Court of Appeals and the Supreme Court, shall issue any
temporary restraining order, preliminary injunction or preliminary mandatory
injunction against the Bangko Sentral for any action under this Act.
Any restraining order or injunction issued in violation of this section is void and of no
force and effect.
The provisions of the Rules of Court on injunctions insofar as these are applicable and
not inconsistent with the provisions of this Act shall govern the issuance and
dissolution of restraining orders or injunctions against the Bangko Sentral."
ARTICLE V
Reports and Publications
SECTION 39. Reports and Publications. — The Bangko Sentral shall publish a
general balance sheet showing the volume and composition of its assets and liabilities
as of the last working day of the month within ninety (90) days after the end of each
month, which may be reasonably extended by the Bangko Sentral as warranted.
The Monetary Board shall publish and submit the following reports to the President
and to the Congress:
(a) not later than ninety (90) days after the end of each quarter, an analysis of
economic and financial developments, including the condition of net
international reserves and monetary aggregates;
(b) within ninety (90) days after the end of the year, which may be reasonably
extended by the Bangko Sentral as warranted, the preceding year's budget
234
and profit and loss statement of the Bangko Sentral showing in reasonable
detail the result of its operations;
(c) one hundred twenty (120) days after the end of each semester, a review of the
state of the financial system; and
(d) as soon as practicable, abnormal movements in monetary aggregates and the
general price level, and, not later than seventy-two (72) hours after they are
taken, remedial measures in response to such abnormal movements.
SECTION 40. Annual Report. — Before the end of June of each year, the Bangko
Sentral shall publish and submit to the President and the Congress an annual report on
the condition of the Bangko Sentral including a review of the policies and measures
adopted by the Monetary Board during the past year and an analysis of the economic
and financial circumstances which gave rise to said policies and measures.
The annual report shall also include a statement of the financial condition of
the Bangko Sentral and a statistical appendix which shall present, as a minimum, the
following data:
(a) the monthly movement of monetary aggregates and their components;
(b) the monthly movement of purchases and sales of foreign exchange and of the
international reserves of the Bangko Sentral;
(c) the balance of payments of the Philippines;
(d) monthly indices of consumer prices and of import and export prices;
(e) the monthly movement, in summary form, of exports and imports, by volume
and value;
(f) the monthly movement of the accounts of the Bangko Sentral and of other
banks;
(g) the principal data on government receipts and expenditures and on the status
of the public debt, both domestic and foreign; and
(h) the texts of the major legal and administrative measures adopted by the
Government and the Monetary Board during the year which relate to the
functions or operations of the Bangko Sentral or of the financial system.
The Bangko Sentral shall publish another version of the annual report in terms
understandable to the layman.
SECTION 40. Annual Report.— Before the end of March of each year, the Bangko
Sentral shall publish and submit to the President and the Congress an annual report on
the condition of the Bangko Sentral including a review of the policies and measures
adopted by the Monetary Board during the past year and an analysis of the economic
and financial circumstances which gave rise to said policies and measures.
The annual report shall also include a statement of the financial condition of
the Bangko Sentral and a statistical appendix which shall present, as a minimum, the
following data:
(a) the monthly movement of monetary aggregates and their components;
 (b) the monthly movement of purchases and sales of foreign exchange and of the
international reserves of the Bangko Sentral;
(c) the balance of payments of the Philippines;
(d) monthly indices of consumer prices and of import and export prices;
(e) the monthly movement, in summary form, of exports and imports, by volume
and value; aisa dc
(f) the monthly movement of the accounts of the Bangko Sentral and of other
banks;
(g) the principal data on government receipts and expenditures and on the status
of the public debt, both domestic and foreign; and
(h) the texts of the major legal and administrative measures adopted by the
Government and the Monetary Board during the year which relate to the
functions or operations of the Bangko Sentral or of the financial system.
The Bangko Sentral shall publish another version of the annual report in terms
understandable to the layman.
Failure to comply with the reportorial requirements pursuant to this article without
justifiable reason as may be determined by the Monetary Board shall cause the
withholding of the salary of the personnel concerned until such requirements are
complied with.
SECTION 41. Signatures on Statements.— The balance sheets and other financial
statements of the Bangko Sentral shall be signed by the officers responsible for their
preparation, by the Governor, and by the auditor of the Bangko Sentral.
ARTICLE VI
Profits, Losses, and Special Accounts
SECTION 42. Fiscal Year.— The fiscal year of the Bangko Sentral shall begin on
January first and end on December thirty-first of each year.
SECTION 43. Computation of Profits and Losses. — Within the first sixty (60) days
following the end of each year, the Bangko Sentral shall determine its net profits or
losses. Notwithstanding any provision of law to the contrary, the net profit of
the Bangko Sentral shall be determined after allowing for expenses of operation,
adequate allowances and provisions for bad and doubtful debts, depreciation in assets,
and such allowances and provisions for contingencies or other purposes as the
Monetary Board may determine in accordance with prudent financial management and
effective central banking operations.
SECTION. 43-A. Bangko Sentral Reserve Fund. — The Bangko Sentral shall
establish a reserve fund, whenever it has income or positive surplus, to mitigate future
risks such as, but not limited to, the impacts of foreign exchange and price fluctuations,
and to address other contingencies inherent in carrying out the Bangko Sentral-
mandated functions as central monetary authority. The reserve fund shall consist of
235
fluctuation reserve, contingency reserve and such other reserves as the Monetary
Board deems prudent or necessary.
SECTION 44. Distribution of Net Profits.— Within the first sixty (60) days following
the end of each fiscal year, the Monetary Board shall determine and carry out the
distribution of the net profits, in accordance with the following rule:
Fifty percent (50%) of the net profits shall be carried to surplus and the remaining fifty
percent (50%) shall revert back to the National Treasury, except as otherwise provided
in the transitory provisions of this Act.
SECTION 45. Revaluation Profits and Losses. — Unrealized profits or losses arising
from any revaluation of the Bangko Sentral's assets, liabilities or derivative
instruments denominated in foreign currencies with respect to the movements of prices
and exchange rates from third currencies to Philippine peso shall not be included in
the computation of the annual profits and losses of the Bangko Sentral. Any profits or
losses arising in this manner shall be offset by any amounts which, as a consequence
of such revaluations, are owed by the Philippines to any international or regional
intergovernmental financial institution of which the Philippines is a member or are
owed by these institutions to the Philippines. Any remaining unrealized profit or loss
shall be carried in an account which shall be named 'Revaluation of International
Reserve (RIR),' and the net balance of which shall appear either among the liabilities
or among the assets of the Bangko Sentral, depending on whether the revaluations
have produced net profits or net losses.
The RIR account shall be credited or debited for the periodic revaluation as authorized
in this section and to reflect the corresponding adjustment resulting to reduction in
the Bangko Sentral's net foreign assets, liabilities and foreign currency-denominated
derivative instruments. The RIR shall be adjusted and recognized in the income
statement upon sale of gold and foreign securities, or when the foreign currency is
repatriated to local currency or is used to pay foreign obligations, or upon maturity of
a foreign currency-denominated forward or option contract involving the Philippine
peso.
SECTION 46. Suspense Accounts. — Sections 43 and 43-A of Republic Act No. 265,
as amended, creating the Monetary Adjustment Account (MAA) and the Exchange
Stabilization Adjustment Account (ESAA), respectively, are hereby repealed.
Amounts outstanding as of the effective date of this Act based on these accounts shall
continue to be for the account of the Central Bank and shall be governed by the
transitory provisions of this Act.
The Revaluation of International Reserve (RIR) account as of the effective date of this
Act of the Central Bank shall continue to be for the account of the same entity and
shall be governed by the provisions of Section 44 of Republic Act No. 265, as
amended, until otherwise provided for in accordance with the transitory provisions of
this Act.

ARTICLE VII
The Auditor
SECTION 47. Appointment and Personnel.— The Chairman of the Commission on
Audit shall act as the ex officio auditor of the Bangko Sentral and, as such, he is
empowered and authorized to appoint a representative who shall be the auditor of
the Bangko Sentral and, in accordance with law, fix his salary, and to appoint and fix
the salaries and number of personnel to assist said representative in his work. The
salaries and other emoluments shall be paid by the Commission. The auditor of
the Bangko Sentral and personnel under him may be removed only by the Chairman
of the Commission.
The representative of the Chairman of the Commission must be a certified public
accountant with at least ten (10) years experience as such. No relative of any member
of the Monetary Board or the Chairman of the Commission within the sixth degree of
consanguinity or affinity shall be appointed such representative.
CHAPTER II
THE BANGKO SENTRAL AND THE MEANS OF PAYMENT
ARTICLE I
The Unit of Monetary Value
SECTION 48. The Peso.— The unit of monetary value in the Philippines is the
"peso," which is represented by the sign "P."
The peso is divided into one hundred (100) equal parts called "centavos," which are
represented by the sign "c."
ARTICLE II
Issue of Means of Payment
A. Currency
SECTION 49. Definition of Currency.— The word "currency" is hereby defined, for
purposes of this Act, as meaning all Philippine notes and coins issued or circulating in
accordance with the provisions of this Act.
SECTION 50. Exclusive Issue Power.— The Bangko Sentral shall have the sole
power and authority to issue currency, within the territory of the Philippines. No other
person or entity, public or private, may put into circulation notes, coins or any other
object or document which in the opinion of the Monetary Board, might circulate as
currency, nor reproduce or imitate the facsimiles of Bangko Sentral notes without prior
authority from the Bangko Sentral.
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The Monetary Board may issue such regulations as it may deem advisable in order to
prevent the circulation of foreign currency or of currency substitutes as well as to
prevent the reproduction of facsimiles of Bangko Sentral notes.
The Bangko Sentral shall have the authority to investigate, make arrests, conduct
searches and seizures in accordance with law, for the purpose of maintaining the
integrity of the currency.
Violation of this provision or of any regulation issued by the Bangko Sentral pursuant
thereto shall constitute an offense punishable by imprisonment of not less than five (5)
years but not more than ten (10) years. In case the Revised Penal Code provides for a
greater penalty, then that penalty shall be imposed.
SECTION 51. Liability for Notes and Coins.— Notes and coins issued by the Bangko
Sentral shall be liabilities of the Bangko Sentral and may be issued only against, and
in amounts not exceeding, the assets of the Bangko Sentral.Said notes and coins shall
be a first and paramount lien on all assets of the Bangko Sentral.
The Bangko Sentral's holdings of its own notes and coins shall not be considered as
part of its currency issue and, accordingly, shall not form part of the assets or liabilities
of the Bangko Sentral.
SECTION 52. Legal Tender Power.— All notes and coins issued by the Bangko
Sentral shall be fully guaranteed by the Government of the Republic of the Philippines
and shall be legal tender in the Philippines for all debts, both public and
private: Provided, however,That, unless otherwise fixed by the Monetary Board, coins
shall be legal tender in amounts not exceeding Fifty pesos (P50.00) for denominations
of Twenty-five centavos and above, and in amounts not exceeding Twenty pesos
(P20.00) for denominations of Ten centavos or less.
SECTION 53. Characteristics of the Currency.— The Monetary Board, with the
approval of the President of the Philippines, shall prescribe the denominations,
dimensions, designs, inscriptions and other characteristics of notes issued by
the Bangko Sentral:Provided, however,That said notes shall state that they are
liabilities of the Bangko Sentral and are fully guaranteed by the Government of the
Republic of the Philippines. Said notes shall bear the signatures, in facsimile, of the
President of the Philippines and of the Governor of the Bangko Sentral.
Similarly, the Monetary Board, with the approval of the President of the Philippines,
shall prescribe the weight, fineness, designs, denominations and other characteristics
of the coins issued by the Bangko Sentral.In the minting of coins, the Monetary Board
shall give full consideration to the availability of suitable metals and to their relative
prices and cost of minting.
SECTION 54. Printing of Notes and Minting of Coins.— The Monetary Board shall
prescribe the amounts of notes and coins to be printed and minted, respectively, and
the conditions to which the printing of notes and the minting of coins shall be subject.
The Monetary Board shall have the authority to contract institutions, mints or firms
for such operations.
All expenses incurred in the printing of notes and the minting of coins shall be for the
account of the Bangko Sentral.
SECTION 55. Interconvertibility of Currency.— The Bangko Sentral shall exchange,
on demand and without charge, Philippine currency of any denomination for
Philippine notes and coins of any other denomination requested. If for any reason
the Bangko Sentral is temporarily unable to provide notes or coins of the
denominations requested, it shall meet its obligations by delivering notes and coins of
the denominations which most nearly approximate those requested.
SECTION 56. Replacement of Currency Unfit for Circulation.— The Bangko
Sentral shall withdraw from circulation and shall demonetize all notes and coins which
for any reason whatsoever are unfit for circulation and shall replace them by adequate
notes and coins: Provided, however,That the Bangko Sentral shall not replace notes
and coins the identification of which is impossible, coins which show signs of filing,
clipping or perforation, and notes which have lost more than two-fifths (2/5) of their
surface or all of the signatures inscribed thereon. Notes and coins in such mutilated
conditions shall be withdrawn from circulation and demonetized without
compensation to the bearer.
SECTION 57. Retirement of Old Notes and Coins.— The Bangko Sentral may call in
for replacement notes of any series or denomination which are more than five (5) years
old and coins which are more than ten (10) years old.
Notes and coins called in for replacement in accordance with this provision shall
remain legal tender for a period of one (1) year from the date of call. After this period,
they shall cease to be legal tender but during the following year, or for such longer
period as the Monetary Board may determine, they may be exchanged at par and
without charge in the Bangko Sentral and by agents duly authorized by the Bangko
Sentral for this purpose. After the expiration of this latter period, the notes and coins
which have not been exchanged shall cease to be a liability of the Bangko Sentral and
shall be demonetized. The Bangko Sentral shall also demonetize all notes and coins,
which have been called in and replaced.
B. Demand Deposits
SECTION 58. Definition.— For purposes of this Act, the term "demand deposits"
means all those liabilities of the Bangko Sentral and other banks which are
denominated in Philippine currency and are subject to payment in legal tender upon
demand by the presentation of checks.
237
SECTION 59. Issue of Demand Deposits.— Only banks duly authorized to do so may
accept funds or create liabilities payable in pesos upon demand by the presentation of
checks, and such operations shall be subject to the control of the Monetary Board in
accordance with the powers granted it with respect thereto under this Act.
SECTION 60. Legal Character.— Checks representing demand deposits do not have
legal tender power and their acceptance in the payment of debts, both public and
private, is at the option of the creditor: Provided, however,That a check which has been
cleared and credited to the account of the creditor shall be equivalent to a delivery to
the creditor of cash in an amount equal to the amount credited to his account.
CHAPTER III
GUIDING PRINCIPLES OF MONETARY ADMINISTRATION BY THE
BANGKO SENTRAL
ARTICLE I
Domestic Monetary Stabilization
SECTION 61. Guiding Principle. — The Monetary Board shall regularly assess price
developments and outlook and, based on its analysis and evaluation of inflationary
pressures, use its policy instruments to attain and maintain price stability.
SECTION 62. Power to Define Terms.— For purposes of this article and of this Act,
the Monetary Board shall formulate definitions of monetary aggregates, credit and
prices and shall make public such definitions and any changes thereof.
SECTION 63. Action When Abnormal Movements Occur in the Price Level. —
Whenever abnormal movements in the prices endanger the stability of the Philippine
economy or important sectors thereof, the Monetary Board shall:
(a) take such remedial measures as are appropriate and within the powers granted
to the Monetary Board and the Bangko Sentral under the provisions of this
Act; and
(b) submit to the President of the Philippines and the Congress, and make public,
a detailed report which shall include, as a minimum, a description and
analysis of:
(1) the causes of the rise or fall of prices;
(2) the extent to which the changes in prices have been reflected in changes
in the level of domestic output, employment, wages and economic
activity in general, and the nature and significance of any such changes;
and
(3) the measures which the Monetary Board has taken and the other
monetary, fiscal or administrative measures which it recommends to be
adopted.
Whenever the cost of living index increases by more than ten percent (10%), in relation
to the level existing at the end of the corresponding month of the preceding year, or
even though this quantitative guideline has not been reached when in its judgment the
circumstances so warrant, the Monetary Board shall submit the reports mentioned in
this section, and shall state therein whether, in the opinion of the Board, said changes
in the cost of living represent a threat to the stability of the Philippine economy or of
important sectors thereof.
The Monetary Board shall continue to submit periodic reports to the President of the
Philippines and to Congress until it considers that the price disturbances have
disappeared or have been adequately controlled."
ARTICLE II
International Monetary Stabilization
SECTION 64. International Monetary Stabilization.— The Bangko Sentral shall
exercise its powers under this Act to preserve the international value of the peso and
to maintain its convertibility into other freely convertible currencies primarily for,
although not necessarily limited to, current payments for foreign trade and invisibles.
SECTION 65. International Reserves.— In order to maintain the international
stability and convertibility of the Philippine peso, the Bangko Sentral shall maintain
international reserves adequate to meet any foreseeable net demands on the Bangko
Sentral for foreign currencies.
In judging the adequacy of the international reserves, the Monetary Board shall be
guided by the prospective receipts and payments of foreign exchange by the
Philippines. The Board shall give special attention to the volume and maturity of
the Bangko Sentral's own liabilities in foreign currencies, to the volume and maturity
of the foreign exchange assets and liabilities of other banks operating in the Philippines
and, insofar as they are known or can be estimated, the volume and maturity of the
foreign exchange assets and liabilities of all other persons and entities in the
Philippines.
SECTION 66. Composition of the International Reserves. — The international
reserves of the Bangko Sentral may include, but shall not be limited to, the following
assets:
(a) gold; and
(b) assets in foreign currencies in the form of: documents and instruments
customarily employed for the international transfer of funds; demand and
time deposits in central banks, treasuries and commercial banks abroad;
foreign government securities; and foreign notes and coins.
The Monetary Board shall endeavor to hold the foreign exchange resources of
the Bangko Sentral in freely convertible currencies. The Monetary Board shall issue
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regulations determining the other qualifications which foreign exchange assets must
meet in order to be included in the international reserves of the Bangko Sentral.
The Bangko Sentral shall be free to convert any of the assets in its international
reserves into other assets as described in subsections (a) and (b) of this section.
SECTION 67. Action When the International Stability of the Peso Is Threatened.—
Whenever the international reserve of the Bangko Sentral falls to a level which the
Monetary Board considers inadequate to meet the prospective net demands on
the Bangko Sentral for foreign currencies, or whenever the international reserve
appears to be in imminent danger of falling to such a level, or whenever the
international reserve is falling as a result of payments or remittances abroad which in
the opinion of the Monetary Board, are contrary to the national welfare, the Monetary
Board shall:
(a) take such remedial measures as are appropriate and within the powers granted
to the Monetary Board and the Bangko Sentral under the provisions of this
Act; and
(b) submit to the President of the Philippines and to Congress a detailed report
which shall include, as a minimum, a description and analysis of:
(1) the nature and causes of the existing or imminent decline;
(2) the remedial measures already taken or to be taken by the Monetary
Board;
(3) the monetary, fiscal or administrative measures further proposed; and
(4) the character and extent of the cooperation required from other
government agencies for the successful execution of the policies of the
Monetary Board.
If the resultant actions fail to check the deterioration of the reserve position of
the Bangko Sentral,or if the deterioration cannot be checked except by chronic
restrictions on exchange and trade transactions or by sacrifice of the domestic
objectives of a balanced and sustainable growth of the economy, the Monetary Board
shall propose to the President, with appropriate notice to Congress, such additional
action as it deems necessary to restore equilibrium in the international balance of
payments of the Philippines.
The Monetary Board shall submit periodic reports to the President and to Congress
until the threat to the international monetary stability of the Philippines has
disappeared.
CHAPTER IV
INSTRUMENTS OF BANGKO SENTRAL ACTION
ARTICLE I
General Criterion
SECTION 68. Means of Action.— In order to achieve the primary objective of price
stability, the Monetary Board shall rely on its moral influence and the powers granted
to it under this Act for the management of monetary aggregates.
ARTICLE II
Operations in Gold and Foreign Exchange
SECTION 69. Purchases and Sales of Gold.— The Bangko Sentral may buy and sell
gold in any form, subject to such regulations as the Monetary Board may issue.
The purchases and sales of gold authorized by this section shall be made in the national
currency at the prevailing international market price as determined by the Monetary
Board.
SECTION 70. Purchases and Sales of Foreign Exchange.— The Bangko Sentral may
buy and sell foreign notes and coins, and documents and instruments of types
customarily employed for the international transfer of funds. The Bangko Sentral may
engage in future exchange operations.
The Bangko Sentral may engage in foreign exchange transactions with the following
entities or persons only:
(a) banking institutions operating in the Philippines;
(b) the Government, its political subdivisions and instrumentalities;
(c) foreign or international financial institutions;
(d) foreign governments and their instrumentalities; and
(e) other entities or persons which the Monetary Board is hereby empowered to
authorize as foreign exchange dealers, subject to such rules and regulations
as the Monetary Board shall prescribe.
In order to maintain the convertibility of the peso, the Bangko Sentral may, at the
request of any banking institution operating in the Philippines, buy any quantity of
foreign exchange offered, and sell any quantity of foreign exchange demanded, by
such institution, provided that the foreign currencies so offered or demanded are freely
convertible into gold or United States dollars. This requirement shall not apply to
demands for foreign notes and coins.
The Bangko Sentral shall effect its exchange transactions between foreign currencies
and the Philippine peso at the rates determined in accordance with the provisions of
Section 74 of this Act.
SECTION 71. Foreign Asset Position of the Bangko Sentral.— The Bangko
Sentral shall endeavor to maintain at all times a net positive foreign asset position so
that its gross foreign exchange assets will always exceed its gross foreign liabilities.
In the event that the equivalent amount in pesos of the foreign exchange liabilities of
the Bangko Sentral exceed twice the equivalent amount in pesos of the foreign
exchange assets of the bank, the Bangko Sentral shall, within sixty (60) days from the
239
date the limit is exceeded, submit a report to the Congress stating the origin of these
liabilities, and the manner in which they will be paid.
SECTION 72. Emergency Restrictions on Exchange Operations.— In order to
achieve the primary objective of the Bangko Sentral as set forth in Section 3 of this
Act, or protect the international reserves of the Bangko Sentral in the imminence of,
or during an exchange crisis, or in time of national emergency and to give the Monetary
Board and the Government time in which to take constructive measures to forestall,
combat, or overcome such a crisis or emergency, the Monetary Board, with the
concurrence of at least five (5) of its members and with the approval of the President
of the Philippines, may temporarily suspend or restrict sales of exchange by
the Bangko Sentral,and may subject all transactions in gold and foreign exchange to
license by the Bangko Sentral,and may require that any foreign exchange thereafter
obtained by any person residing or entity operating in the Philippines be delivered
to Bangko Sentral or to any bank or agent designated by the Bangko Sentral for the
purpose, at the effective exchange rate or rates: Provided, however, That foreign
currency deposits made under Republic Act No. 6426 shall be exempt from these
requirements.
SECTION 73. Acquisition of Inconvertible Currencies.— The Bangko Sentral shall
avoid the acquisition and holding of currencies which are not freely convertible, and
may acquire such currencies in an amount exceeding the minimum balance necessary
to cover current demands for said currencies only when, and to the extent that, such
acquisition is considered by the Monetary Board to be in the national interest. The
Monetary Board shall determine the procedures which shall apply to the acquisition
and disposition by the Bangko Sentral of foreign exchange which is not freely
utilizable in the international market.
SECTION 74. Exchange Rates.— The Monetary Board shall determine the exchange
rate policy of the country.
The Monetary Board shall determine the rates at which the Bangko Sentral shall buy
and sell spot exchange, and shall establish deviation limits from the effective exchange
rate or rates as it may deem proper. The Bangko Sentral shall not collect any additional
commissions or charges of any sort, other than actual telegraphic of cable costs
incurred by it.
The Monetary Board shall similarly determine the rates for other types of foreign
exchange transactions by the Bangko Sentral,including purchases and sales of foreign
notes and coins, but the margins between the effective exchange rates and the rates
thus established may not exceed the corresponding margins for spot exchange
transactions by more than the additional costs or expenses involved in each type of
transactions.
SECTION 75. Operations with Foreign Entities.— The Monetary Board may
authorize the Bangko Sentral to grant loans to and receive loans from foreign banks
and other foreign or international entities, both public and private, and may engage in
such other operations with these entities as are in the national interest and are
appropriate to its character as a central bank. The Bangko Sentral may also act as agent
or correspondent for such entities.
Upon authority of the Monetary Board, the Bangko Sentral may pledge any gold or
other assets which it possesses as security against loans which it receives from foreign
or international entities.
ARTICLE III
Regulation of Foreign Exchange Operations of the Banks
SECTION 76. Foreign Exchange Holdings of the Banks.— In order that the Bangko
Sentral may at all times have foreign exchange resources sufficient to enable it to
maintain the international stability and convertibility of the peso, or in order to
promote the domestic investment of bank resources, the Monetary Board may require
the banks to sell to the Bangko Sentral or to other banks all or part of their surplus
holdings of foreign exchange. Such transfers may be required for all foreign currencies
or for only certain of such currencies, according to the decision of the Monetary Board.
The transfers shall be made at the rates established under the provisions of Section 74
of this Act.
The Monetary Board, may whenever warranted, determine the net assets and net
liabilities of banks and shall, in making such a determination, take into account the
bank's networth, outstanding liabilities, actual and contingent, or such other financial
or performance ratios as may be appropriate under the circumstances. Any such
determination of net assets and net liabilities shall be applied to all banks uniformly
and without discrimination.
SECTION 77. Requirement of Balanced Currency Position.— The Monetary Board
may require the banks to maintain a balanced position between their assets and
liabilities in Philippine pesos or in any other currency or currencies in which they
operate. The banks shall be granted a reasonable period of time in which to adjust their
currency positions to any such requirement.
The powers granted under this section shall be exercised only when special
circumstances make such action necessary, in the opinion of the Monetary Board, and
shall be applied to all banks alike and without discrimination.
SECTION 78. Regulation of Non-spot Exchange Transactions.— In order to restrain
the banks from taking speculative positions with respect to future fluctuations in
foreign exchange rates, the Monetary Board may issue such regulations governing
bank purchases and sales of non-spot exchange as it may consider necessary for said
purpose.
240
SECTION 79. Other Exchange Profits and Losses.— The banks shall bear the risks
of non-compliance with the terms of the foreign exchange documents and instruments
which they buy or sell, and shall also bear any other typically commercial or banking
risks, including exchange risks not assumed by the Bangko Sentral under the
provisions of the preceding section.
SECTION 80. Information on Exchange Operations.— The banks shall report to
the Bangko Sentral the volume and composition of their purchases and sales of gold
and foreign exchange each day, and must furnish such additional information as
the Bangko Sentral may request with reference to the movements in their accounts in
foreign currencies.
The Monetary Board may also require other persons and entities to report to it currently
all transactions or operations in gold, in any shape or form, and in foreign exchange
whether entered into or undertaken by them directly or through agents, or to submit
such data as may be required on operations or activities giving rise to or in connection
with or relating to a gold or foreign exchange transaction. The Monetary Board shall
prescribe the forms on which such declarations must be made. The accuracy of the
declarations may be verified by the Bangko Sentral by whatever inspection it may
deem necessary.
ARTICLE IV
Loans to Banking and Other Financial Institutions
A. Credit Policy
SECTION 81. Guiding Principles. — The rediscounts, discounts, loans and advances
which the Bangko Sentral is authorized to extend to banking institutions, under the
provisions of the present article of this Act shall be used to influence the volume of
credit consistent with the objective of price stability and maintenance of financial
stability.
B. Normal Credit Operations
SECTION 82. Authorized Types of Operations.— Subject to the principle stated in
the preceding section of this Act, the Bangko Sentral may normally and regularly carry
on the following credit operations with banking institutions operating in the
Philippines:
(a) Commercial credits.— The Bangko Sentral may rediscount, discount, buy
and sell bills, acceptances, promissory notes and other credit instruments with
maturities of not more than one hundred eighty (180) days from the date of
their rediscount, discount or acquisition by the Bangko Sentral and resulting
from transactions related to:
(1) the importation, exportation, purchase or sale of readily saleable goods
and products, or their transportation within the Philippines; or
 (2) the storing of non-perishable goods and products which are duly insured
and deposited, under conditions assuring their preservation, in authorized
bonded warehouses or in other places approved by the Monetary Board.
(b) Production credits.— The Bangko Sentral may rediscount, discount, buy and
sell bills, acceptances, promissory notes and other credit instruments having
maturities of not more than three hundred sixty (360) days from the date of
their rediscount, discount of acquisition by the Bangko Sentral and resulting
from transactions related to the production or processing of agricultural,
animal, mineral, or industrial products. Documents or instruments acquired
in accordance with this subsection shall be secured by a pledge of the
respective crops or products: Provided, however,That the crops or products
need not be pledged to secure the documents if the original loan granted by
the Bangko Sentral is secured by a lien or mortgage on real estate property
seventy percent (70%) of the appraised value of which equals or exceeds the
amount of the loan granted. casia
(c) Other credits.— Special credit instruments not otherwise rediscountable
under the immediately preceding subsections (a) and (b) may be eligible for
rediscounting in accordance with rules and regulations which the Bangko
Sentral shall prescribe. Whenever necessary, the Bangko Sentral shall
provide funds from non-inflationary sources: Provided, however,That the
Monetary Board shall prescribe additional safeguards for disbursing these
funds.
(d) Advances.— The Bangko Sentral may grant advances against the following
kinds of collaterals for fixed periods which, with the exception of advances
against collateral named in clause (4) of the present subsection, shall not
exceed one hundred eighty (180) days:
(1) gold coins or bullion;
(2) securities representing obligations of the Bangko Sentral or of other
domestic credit institutions of recognized solvency;
(3) the credit instruments to which reference is made in subsection (a) of this
section;
(4) the credit instruments to which reference is made in subsection (b) of this
section, for periods which shall not exceed three hundred sixty (360)
days;
(5) utilized portions of advances in current account covered by regular
overdraft agreements related to operations included under subsections (a)
and (b) of this section, and certified as to amount and liquidity by the
institution soliciting the advance;
(6) negotiable treasury bills, certificates of indebtedness, notes and other
negotiable obligations of the Government maturing within three (3) years
from the date of the advance; and
(7) negotiable bonds issued by the Government of the Philippines by
Philippine provincial, city or municipal governments, or by any
Philippine Government instrumentality, and having maturities of not
more than ten (10) years from the date of the advance.
241
The rediscounts, discounts, loans and advances made in accordance with the
provisions of this section may not be renewed or extended unless extraordinary
circumstances fully justify such renewal or extension.
Advances made against the collateral named in clauses (6) and (7) of subsection (d) of
this section may not exceed eighty percent (80%) of the current market value of the
collateral.
C. Special Credit Operation
SECTION 83. Loans for Liquidity Purposes.— The Bangko Sentral may extend loans
and advances to banking institutions for a period of not more than seven (7) days
without any collateral for the purpose of providing liquidity to the banking system in
times of need.
D. Emergency Credit Operations
SECTION 84. Emergency Loans and Advances. — In periods of national and/or local
emergency or of imminent financial panic which directly threaten monetary and
financial stability, the Monetary Board may, by a vote of at least five (5) of its
members, authorize the Bangko Sentral to grant extraordinary loans or advances to
banking institutions, secured by assets as defined hereunder: Provided, That while
such loans or advances are outstanding, the debtor institution shall not, except upon
prior authorization by the Monetary Board, expand the total volume of its loans or
investments.
The Monetary Board may, at its discretion, likewise authorize the Bangko Sentral to
grant emergency loans or advances to banking institutions, even during normal
periods, for the purpose of assisting a bank in a precarious financial condition or under
serious financial pressures brought by unforeseen events, or events which, though
foreseeable, could not be prevented by the bank concerned: Provided, however, That
the Monetary Board has ascertained that the bank is not insolvent and has the assets
defined hereunder to secure the advances: Provided, further, That a concurrent vote of
at least five (5) members of the Monetary Board is obtained.
The amount of any emergency loan or advance shall not exceed the sum of fifty percent
(50%) of total deposits and deposit substitutes of the banking institution, and shall be
disbursed in two (2) or more tranches. The amount of the first tranche shall be limited
to twenty-five percent (25%) of the total deposit and deposit substitutes of the
institution and shall be secured by (a) government securities; (b) acceptable guarantees
backed up by the national government or its securities; (c) other unencumbered first
class collaterals; and (d) other kinds of collaterals as may be authorized by the
Monetary Board in accordance with sound risk management principles: Provided,
That if as determined by the Monetary Board, the circumstances surrounding the
emergency warrant a loan or advance greater than the amount provided hereinabove,
the amount of the first tranche may exceed twenty-five percent (25%) of the bank's
total deposit and deposit substitutes if the same is adequately secured by any of the
collaterals set forth above as approved by the Monetary Board, and the principal
stockholders of the institution furnish an acceptable undertaking to indemnify and hold
harmless from suit a conservator whose appointment the Monetary Board may find
necessary at any time.
Prior to the release of the first tranche, the banking institution shall submit to
the Bangko Sentral a resolution of its board of directors authorizing the Bangko
Sentral to evaluate other assets of the banking institution certified by its external
auditor to be good and available for collateral purposes should the release of the
subsequent tranche be thereafter applied for.
The Monetary Board may, by a vote of at least five (5) of its members, authorize the
release of a subsequent tranche on condition that the principal stockholders of the
institution:
(a) furnish an acceptable undertaking to indemnify and hold harmless from suit a
conservator whose appointment the Monetary Board may find necessary at
any time; and
(b) provide acceptable security which, in the judgment of the Monetary Board,
would be adequate to supplement, where necessary, the assets tendered by the
banking institution to collateralize the subsequent tranche.
In connection with the exercise of these powers, the prohibitions in Section 128 of this
Act shall not apply insofar as it refers to acceptance as collateral of shares and their
acquisition as a result of foreclosure proceedings, including the exercise of voting
rights pertaining to said shares: Provided, however, That should the Bangko
Sentral acquire any of the shares it has accepted as collateral as a result of foreclosure
proceedings, the Bangko Sentral shall dispose of said shares by public bidding within
one (1) year from the date of consolidation of title by the Bangko Sentral.
Whenever a financial institution incurs an overdraft in its account with the Bangko
Sentral, the same shall be eliminated within the period prescribed in Section 102 of
this Act.
E. Credit Terms
SECTION 85. Interest and Rediscount Rates.— The Bangko Sentral shall collect
interest and other appropriate charges on all loans and advances it extends, the closure,
receivership or liquidation of the debtor-institution notwithstanding. This provision
shall apply prospectively.
The Monetary Board shall fix the interest and rediscount rates to be charged by
the Bangko Sentral on its credit operations in accordance with the character and term
242
of the operation, but after due consideration has been given to the credit needs of the
market, the composition of the Bangko Sentral's portfolio, and the general
requirements of the national monetary policy. Interest and rediscount rates shall be
applied to all banks of the same category uniformly and without discrimination.
SECTION 86. Endorsement.— The documents rediscounted, discounted, bought or
accepted as collateral by the Bangko Sentral in the course of the credit operations
authorized in this article shall bear the endorsement of the institution from which they
are received.
SECTION 87. Repayment of Credits.— Documents rediscounted, discounted or
accepted as collateral by the Bangko Sentral must be withdrawn by the borrowing
institution on the dates of their maturities, or upon liquidation of the obligations which
they represent or to which they relate whenever said obligations have been liquidated
prior to their dates of maturity.
Banks shall have the right at any time to withdraw any documents which they have
presented to the Bangko Sentral as collateral, upon payment in full of the
corresponding debt to the Bangko Sentral,including interest charges.
SECTION 88. Other Requirements.— The Monetary Board may prescribe, within the
general powers granted to it under this Act, additional conditions which borrowing
institutions must satisfy in order to have access to the credit of the Bangko
Sentral.These conditions may refer to the rates of interest charged by the banks, to the
purposes for which their loans in general are destined, and to any other clearly
definable aspect of the credit policy of the bank.
SECTION 88-A. Exemption of Collaterals from Attachments, Executions and Other
Restrictions. — Collaterals on loans and advances granted by the Bangko Sentral,
whether or not the interest of the Bangko Sentral is registered, shall not be subject to
attachment, execution or any other court process or administrative restrictions on land
use, nor shall they be included in the property of insolvent persons or institutions.
SECTION 88-B. Deputization of Legal Staff in Case of Foreclosures. — In case of
an extrajudicial foreclosure of mortgage in connection with loans and advances under
this article, the Bangko Sentral may deputize any of its lawyers to conduct the public
auction pursuant to Act No. 3135, as amended.
Likewise, in case of a judicial foreclosure in connection with loans and advances under
this article, the Bangko Sentral may, with the approval of the court, deputize any of its
lawyers to act as special sheriff in the sale of a debtor's properties and in the
enforcement of court writs and processes related thereto. The special sheriff of
the Bangko Sentral shall make a report to the proper court after any action has been
taken by him, which court shall treat such action as if it were an act of its own sheriff
in all respects.

No restraining order or injunction shall be issued by the court enjoining the Bangko
Sentral from proceeding with the foreclosure of the mortgage unless a bond is posted
in favor of the Bangko Sentral in an amount equivalent to the total claim of the Bangko
Sentral. The restraining order or injunction shall be refused or, if granted, shall be
dissolved upon filing by the Bangko Sentral of a bond, which shall be in the form of
a Bangko Sentral check, in an amount twice the amount of the original bond posted
conditioned that the Bangko Sentral will pay the damages which the party may suffer
by the refusal or dissolution of the injunction. The provisions of the Rules of Court on
injunctions insofar as they are applicable and not inconsistent with the provisions of
this section shall govern the issuance and dissolution of the restraining order or
injunction contemplated in this section.
SECTION 88-C. Right of Redemption of Foreclosed Real Property; Right of
Possession during Redemption Period. — In the event of foreclosure, whether
judicially or extrajudicially, the mortgagor, who is a natural person, shall have the right
to redeem the property within one (1) year from the date of foreclosure sale. In case
the mortgagor is a juridical person, the mortgagor shall have the right to redeem the
property sold in a judicial foreclosure sale within one (1) year from the date of
foreclosure sale: Provided, That in case of an extrajudicial foreclosure,
notwithstanding Act No. 3135, the mortgagor shall have the right to redeem the
property sold within ninety (90) days from the foreclosure sale but not later than the
registration of the certificate of foreclosure sale. Redemption shall be effected by
paying the principal, interests, charges, commissions and all claims of whatever nature
of the Bangko Sentral outstanding and due as of the date of foreclosure sale, including
all costs and other expenses incurred by reason of the foreclosure sale and custody of
the property.
The Bangko Sentral, as purchaser in the foreclosure sale and without need of posting
a bond, may take possession of the foreclosed property during the redemption period.
The Bangko Sentral shall be entitled to the fruits of the property, the same to be applied
against the redemption price
SECTION 88-D. Unsecured Bangko Sentral Claims. — All unsecured claims of
the Bangko Sentral shall be considered preferred credits similar to taxes due to the
National Government in the order of preference under Article 2244 of the new Civil
Code.
SECTION 89. Provisional Advances to the National Government.— The Bangko
Sentral may make direct provisional advances with or without interest to the National
Government to finance expenditures authorized in its annual
appropriation: Provided,That said advances shall be repaid before the end of three (3)
months extendible by another three (3) months as the Monetary Board may allow
following the date the National Government received such provisional advances and
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shall not, in their aggregate, exceed twenty percent (20%) of the average annual
income of the borrower for the last three (3) preceding fiscal years.
SECTION 89-A. Financial Facilities for Islamic Banks. — The Bangko Sentral may,
taking into consideration the peculiar characteristics of islamic banking, formulate
rules and regulations for the extension of financial facilities to Islamic
banks: Provided, That such exposures shall be properly secured.
SECTION 89-B. Loans to the Philippine Deposit Insurance Corporation (PDIC). —
The Bangko Sentral, pursuant to its mandate of maintaining financial stability, may
lend funds to the PDIC for insurance purposes and in cases of financial assistance that
the latter is authorized to extend under Section 22(e) of Republic Act No. 3591, as
amended. Notwithstanding Section 23 of Republic Act No. 3591, as amended, the
Monetary Board shall prescribe interest rates and such other terms and conditions of
the loan.
ARTICLE V
Open Market Operations for the Account of the Bangko Sentral
SECTION 90. Principles of Open Market Operations.— The open market purchases
and sales of securities by the Bangko Sentral shall be made exclusively in accordance
with its primary objective of achieving price stability.
SECTION 91. Purchases and Sales of Government Securities.— In order to achieve
the objectives of the national monetary policy, the Bangko Sentral may, in accordance
with the principle stated in Section 90 of this Act and with such rules and regulations
as may be prescribed by the Monetary Board, buy and sell in the open market for its
own account:
(a) evidences of indebtedness issued directly by the Government of the
Philippines or by its political subdivisions; and
(b) evidences of indebtedness issued by government instrumentalities and fully
guaranteed by the Government.
The evidences of indebtedness acquired under the provisions of this section must be
freely negotiable and regularly serviced and must be available to the general public
through banking institutions and local government treasuries in denominations of a
thousand pesos or more.
SECTION 92. Issue and Negotiation of Bangko Sentral Obligations. — In order to
provide the Bangko Sentral with effective instruments for open market operations,
the Bangko Sentral may, subject to such rules and regulations as the Monetary Board
may prescribe and in accordance with the principles stated in Section 90 of this Act,
issue, place, buy and sell freely negotiable evidences of indebtedness of the Bangko
Sentral. Said evidences of indebtedness may be issued directly against the
international reserve of the Bangko Sentral or against the securities which it has
acquired under the provisions of Section 91 of this Act, or may be issued without
relation to specific types of assets of the Bangko Sentral.
The Monetary Board shall determine the interest rates, maturities and other
characteristics of said obligations of the Bangko Sentral, and may, if it deems it
advisable, denominate the obligations in gold or foreign currencies.
Subject to the principles stated in Section 90 of this Act, the evidences of indebtedness
of the Bangko Sentral to which this section refers may be acquired by the Bangko
Sentral before their maturity, either through purchases in the open market or through
redemptions at par and by lot if the Bangko Sentral has reserved the right to make such
redemptions. The evidences of indebtedness acquired or redeemed by the Bangko
Sentral shall not be included among its assets, and shall be immediately retired and
cancelled.
ARTICLE VI
Composition of Bangko Sentral's Portfolio
SECTION 93. Review of the Bangko Sentral's Portfolio.— At least once every month
the Monetary Board shall review the portfolio of the Bangko Sentral in relation to its
future credit policy.
In reviewing the Bangko Sentral's portfolio, the Monetary Board shall especially
consider whether a sufficiently large part of the portfolio consists of assets with early
maturities, in order that a contraction in Bangko Sentral credit may be effected
promptly whenever the national monetary policy so requires.
ARTICLE VII
Bank Reserves
SECTION 94. Reserve Requirements.— In order to control the volume of money
created by the credit operations of the banking system, all banks operating in the
Philippines shall be required to maintain reserves against their deposit
liabilities: Provided,That the Monetary Board may, at its discretion, also require all
banks and/or quasi-banks to maintain reserves against funds held in trust and liabilities
for deposit substitutes as defined in this Act. The required reserves of each bank shall
be proportional to the volume of its deposit liabilities and shall ordinarily take the form
of a deposit in the Bangko Sentral.Reserve requirements shall be applied to all banks
of the same category uniformly and without discrimination.
Reserves against deposit substitutes, if imposed, shall be determined in the same
manner as provided for reserve requirements against regular bank deposits, with
respect to the imposition, increase, and computation of reserves.
The Monetary Board may exempt from reserve requirements deposits and deposit
substitutes with remaining maturities of two (2) years or more, as well as interbank
borrowings.
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Since the requirement to maintain bank reserves is imposed primarily to control the
volume of money, the Bangko Sentral shall not pay interest on the reserves maintained
with it unless the Monetary Board decides otherwise as warranted by circumstances.
SECTION 95. Definition of Deposit Substitutes. — The term 'deposit substitutes' is
defined as an alternative form of obtaining funds from the public, other than deposits,
through the issuance, endorsement, or acceptance of debt instruments for the
borrower's own account, for the purpose of relending or purchasing of receivables and
other obligations. These instruments may include, but need not be limited to, bankers
acceptances, promissory notes, participations, certificates of assignment and similar
instruments with recourse, and repurchase agreements. The phrase 'obtaining funds
from the public' shall mean borrowing from twenty (20) or more lenders at any one
time, and, for this purpose, 'lenders' shall refer to individuals and corporate entities
that are not acting as financial intermediaries, subject to the safeguards and regulations
issued by the Monetary Board. The Monetary Board shall determine what specific
instruments shall be considered as deposit substitutes for the purposes of Section 94
of this Act: Provided, however, That deposit substitutes of commercial, industrial and
other nonfinancial companies for the limited purpose of financing their own needs or
the needs of their agents or dealers shall not be covered by the provisions of Section
94 of this Act.
SECTION 96. Required Reserves Against Peso Deposits.— The Monetary Board
may fix and, when it deems necessary, alter the minimum reserve ratios to peso
deposits, as well as to deposit substitutes, which each bank and/or quasi-bank may
maintain, and such ratio shall be applied uniformly to all banks of the same category
as well as to quasi-banks.
SECTION 97. Required Reserves Against Foreign Currency Deposits.— The
Monetary Board is similarly authorized to prescribe and modify the minimum reserve
ratios applicable to deposits denominated in foreign currencies.
SECTION 98. Reserves Against Unused Balances of Overdraft Lines.— In order to
facilitate Bangko Sentral control over the volume of bank credit, the Monetary Board
may establish minimum reserve requirements for unused balances of overdraft lines.
The powers of the Monetary Board to prescribe and modify reserve requirements
against unused balances of overdraft lines shall be the same as its powers with respect
to reserve requirements against demand deposits.
SECTION 99. Increase in Reserve Requirements.— Whenever in the opinion of the
Monetary Board it becomes necessary to increase reserve requirements against
existing liabilities, the increase shall be made in a gradual manner and shall not exceed
four percentage points in any thirty-day period. Banks and other affected financial
institutions shall be notified reasonably in advance of the date on which such increase
is to become effective.

SECTION 100. Computation on Reserves.— The reserve position of each bank or
quasi-bank shall be calculated daily on the basis of the amount, at the close of business
for the day, of the institution's reserves and the amount of its liability accounts against
which reserves are required to be maintained: Provided,That with reference to
holidays or non-banking days, the reserve position as calculated at the close of the
business day immediately preceding such holidays and non-banking days shall apply
on such days.
For the purpose of computing the reserve position of each bank or quasi-bank, its
principal office in the Philippines and all its branches and agencies located therein
shall be considered as a single unit.
SECTION 101. Reserve Deficiencies. — Whenever the reserve position of any bank
or quasi-bank, computed in the manner specified in the preceding section of this Act,
is below the required minimum, the bank or quasi-bank shall pay the Bangko
Sentral monetary penalty as may be prescribed by the Monetary Board: Provided,
however, That banks and quasi-banks shall ordinarily be permitted to offset any
reserve deficiency occurring on one or more days of the week with any excess reserves
which they may hold on other days of the same week and shall be required to pay the
penalty in accordance with the mechanism approved by the Monetary Board. In cases
of abuse, the Monetary Board may deny any bank or quasi-bank the privilege of
offsetting reserve deficiencies in the aforesaid manner.
If a bank or quasi-bank chronically has a reserve deficiency, the Monetary Board may
limit or prohibit the making of new loans or investments by the institution and may
require that part or all of the net profits of the institution be assigned to surplus.
The Monetary Board may modify or set aside the reserve deficiency penalties provided
in this section, for part or the entire period of a strike or lockout affecting a bank or a
quasi-bank as defined in the Labor Code, or of a national emergency affecting
operations of banks or quasi-banks, or in such other instances where the grant of
waiver of penalties is determined by the Monetary Board to be justifiable. The
Monetary Board may also modify or set aside reserve deficiency penalties for
rehabilitation program of a bank.
SECTION 102. Interbank Settlement.— The Bangko Sentral shall establish facilities
for interbank clearing under such rules and regulations as the Monetary Board may
prescribe: Provided,That the Bangko Sentral may charge administrative and other fees
for the maintenance of such facilities.
The deposit reserves maintained by the banks in the Bangko Sentral in accordance
with the provisions of Section 94 of this Act shall serve as basis for the clearing of
checks and the settlement of interbank balances, subject to such rules and regulations
as the Monetary Board may issue with respect to such operations: Provided,That any
245
bank which incurs on overdrawing in its deposit account with the Bangko Sentral shall
fully cover said overdraft, including interest thereon at a rate equivalent to one-tenth
of one percent (1/10 of 1%) per day or the prevailing ninety-one-day treasury bill rate
plus three percentage points, whichever is higher, not later than the next clearing
day: Provided, further,That settlement of clearing balances shall not be effected for
any account which continues to be overdrawn for five (5) consecutive banking days
until such time as the overdrawing is fully covered or otherwise converted into an
emergency loan or advance pursuant to the provisions of Section 84 of this
Act: Provided, finally,That the appropriate clearing office shall be officially notified
of banks with overdrawn balances. Banks with existing overdrafts with the Bangko
Sentral as of the effectivity of this Act shall, within such period as may be prescribed
by the Monetary Board, either convert the overdraft into an emergency loan or advance
with a plan of payment, or settle such overdrafts, and that, upon failure to so comply
herewith, the Bangko Sentral shall take such action against the bank as may be
warranted under this Act.
SECTION 103. Exemption from Attachment and Other Purposes.— Deposits
maintained by banks with the Bangko Sentral as part of their reserve requirements
shall be exempt from attachment, garnishments, or any other order or process of any
court, government agency or any other administrative body issued to satisfy the claim
of a party other than the Government, or its political subdivisions or instrumentalities.
ARTICLE VIII
Selective Regulation of Bank Operations
SECTION 104. Guiding Principle. — The Monetary Board shall use the powers
granted to it under this Act to ensure that the supply, availability and cost of money
are in accord with the needs of the Philippine economy and that bank credit is not
granted for speculative purposes prejudicial to the national interests. Regulations on
bank operations shall be applied to all banks of the same category, as may be defined
by the Monetary Board, uniformly and without discrimination.
SECTION 105. Margin Requirements Against Letters of Credit.— The Monetary
Board may at any time prescribe minimum cash margins for the opening of letters of
credit, and may relate the size of the required margin to the nature of the transaction
to be financed.
SECTION 106. Required Security Against Bank Loans.— In order to promote
liquidity and solvency of the banking system, the Monetary Board may issue such
regulations as it may deem necessary with respect to the maximum permissible
maturities of the loans and investments which the banks may make, and the kind and
amount of security to be required against the various types of credit operations of the
banks.
SECTION 107. Portfolio Ceilings.— Whenever the Monetary Board considers it
advisable to prevent or check an expansion of bank credit, the Board may place an
upper limit on the amount of loans and investments which the banks may hold, or may
place a limit on the rate of increase of such assets within specified periods of time. The
Monetary Board may apply such limits to the loans and investments of each bank or
to specific categories thereof.
In no case shall the Monetary Board establish limits which are below the value of the
loans or investments of the banks on the date on which they are notified of such
restrictions. The restrictions shall be applied to all banks uniformly and without
discrimination.
SECTION 108. Minimum Capital Ratios. — The Monetary Board may prescribe
minimum risk-based capital adequacy ratios based on internationally accepted
standards and may alter said ratios whenever it deems necessary. In the exercise of its
authority under this section, the Monetary Board may require banks to hold capital
beyond the minimum requirements commensurate to their risk profile.
ARTICLE IX
Coordination of Credit Policies by Government Institutions
SECTION 109. Coordination of Credit Policies.— Government-owned corporations
which perform banking or credit functions shall coordinate their general credit policies
with those of the Monetary Board.
Toward this end, the Monetary Board may, whenever it deems it expedient, make
suggestions or recommendations to such corporations for the more effective
coordination of their policies with those of the Bangko Sentral.
CHAPTER V
FUNCTIONS AS BANKER AND FINANCIAL ADVISOR OF THE
GOVERNMENT
ARTICLE I
Functions as Banker of the Government
SECTION 110. Designation of Bangko Sentral as Banker of the Government.—
The Bangko Sentral shall act as a banker of the Government, its political subdivisions
and instrumentalities.
SECTION 111. Representation with the International Monetary Fund.— The Bangko
Sentral shall represent the Government in all dealings, negotiations and transactions
with the International Monetary Fund and shall carry such accounts as may result from
Philippine membership in, or operations with, said Fund.
SECTION 112. Representation with Other Financial Institutions.— The Bangko
Sentral may be authorized by the Government to represent it in dealings, negotiations
or transactions with the International Bank for Reconstruction and Development and
246
with other foreign or international financial institutions or agencies. The President
may, however, designate any of his other financial advisors to jointly represent the
Government in such dealings, negotiations or transactions.
SECTION 113. Official Deposits. — The Bangko Sentral shall be the official
depository of the Government, its political subdivisions and instrumentalities as well
as of government-owned or -controlled corporations. As a general policy, their cash
balances should be deposited with the Bangko Sentral, with only minimum working
balances to be held by government-owned banks and such other banks licensed to
operate in the Philippines as the Monetary Board may authorize.
The Bangko Sentral may accept deposits and pay interest on such deposits and other
similar placements of the Government or of its political subdivisions and
instrumentalities, banks and other Bangko Sentral-supervised institutions.
SECTION 114. Fiscal Operations.— The Bangko Sentral shall open a general cash
account for the Treasurer of the Philippines, in which the liquid funds of the
Government shall be deposited.
Transfers of funds from this account to other accounts shall be made only upon order
of the Treasurer of the Philippines.
SECTION 115. Other Banks as Agents of the Bangko Sentral.— In the performance
of its functions as fiscal agent, the Bangko Sentral may engage the services of other
government-owned and -controlled banks and of other domestic banks for operations
in localities at home or abroad in which the Bangko Sentral does not have offices or
agencies adequately equipped to perform said operations: Provided, however,That for
fiscal operations in foreign countries, the Bangko Sentral may engage the services of
foreign banking and financial institutions.
SECTION 116. Remuneration for Services.— The Bangko Sentral may charge
equitable rates, commissions or fees for services which it renders to the Government,
its political subdivisions and instrumentalities.
ARTICLE II
The Marketing and Stabilization of Securities for the Account of the Government
A. The Issue and Placing of Government Securities
SECTION 117. Issue of Government Obligations.— The issue of securities
representing obligations of the Government, its political subdivisions or
instrumentalities, may be made through the Bangko Sentral,which may act as agent of,
and for the account of, the Government or its respective subdivisions or
instrumentality, as the case may be: Provided, however,That the Bangko Sentral shall
not guarantee the placement of said securities, and shall not subscribe to their issue
except to replace its maturing holdings of securities with the same type as the maturing
securities.
SECTION 118. Methods of Placing Government Securities.— The Bangko
Sentral may place the securities to which the preceding section refers through direct
sale to financial institutions and the public.
The Bangko Sentral shall not be a member of any stock exchange or syndicate, but
may intervene therein for the sole purpose of regulating their operations in the placing
of government securities.
The Government, or its political subdivisions or instrumentalities, shall reimburse
the Bangko Sentral for the expenses incurred in the placing of the aforesaid securities.
SECTION 119. Servicing and Redemption of the Public Debt.— The servicing and
redemption of the public debt shall also be effected through the Bangko Sentral.
B. Bangko Sentral Support of the Government Securities Market
SECTION 120. The Securities Stabilization Fund.— There shall be established a
"Securities Stabilization Fund" which shall be administered by the Bangko Sentral for
the account of the Government.
The operations of the Securities Stabilization Fund shall consist of purchases and sales,
in the open market, of bonds and other evidences of indebtedness, issued or fully
guaranteed by the Government. The purpose of these operations shall be to increase
the liquidity and stabilize the value of said securities in order thereby to promote
private investment in government obligations.
The Monetary Board shall use the resources of the Fund to prevent, or moderate, sharp
fluctuations in the quotations of said government obligations, but shall not endeavor
to alter movements of the market resulting from basic changes in the pattern or level
of interest rates.
The Monetary Board shall issue such regulations as may be necessary to implement
the provisions of this section.
SECTION 121. Resources of the Securities Stabilization Fund. — Subject to Section
132 of this Act, the resources of the Securities Stabilization Fund shall come from the
balance of the fund as held by the Central Bank under Republic Act No. 265 as of the
effective date of this Act.
SECTION 122. Profits and Losses of the Fund.— The Securities Stabilization Fund
shall retain net profits which it may make on its operations, regardless of whether said
profits arise from capital gains or from interest earnings. The Fund shall
correspondingly bear any net losses which it may incur.
247
ARTICLE III
Functions as Financial Advisor of the Government
SECTION 123. Financial Advice on Official Credit Operations. — Before
undertaking any credit operation abroad, the Government, through the Secretary of
Finance, shall request the opinion, in writing, of the Monetary Board on the monetary
implications of the contemplated action. Such opinions must similarly be requested by
all political subdivisions and instrumentalities of the Government before any credit
operation abroad is undertaken by them.
The opinion of the Monetary Board shall be based on the gold and foreign exchange
resources and obligations of the nation and on the effects of the proposed operation on
the balance of payments and on monetary aggregates.
Whenever the Government, or any of its political subdivisions or instrumentalities,
contemplates borrowing within the Philippines, the prior opinion of the Monetary
Board shall likewise be requested in order that the Board may render an opinion on the
probable effects of the proposed operation on monetary aggregates, the price level, and
the balance of payments.
A credit operation or borrowing as provided herein may take the form of different
credit facilities such as, but not limited to, a single loan, series of loans under a
borrowing program, or credit lines. No prior Monetary Board opinion shall be required
for individual drawdowns or borrowings within approved credit lines or borrowing
programs.
SECTION 124. Representation on the National Economic and Development
Authority.— In order to assure effective coordination between the economic, financial
and fiscal policies of the Government and the monetary, credit and exchange policies
of the Bangko Sentral,the Deputy Governor designated by the Governor of the Bangko
Sentral shall be an ex officio member of the National Economic and Development
Authority Board.
CHAPTER VI
PRIVILEGES AND PROHIBITIONS
ARTICLE I
Privileges
SECTION 125. Tax Exemptions. — The Bangko Sentral shall be exempt from all
national, provincial, municipal and city taxes on income derived from its governmental
functions, specifically:
(a) income from its activities or transactions in the exercise of its supervision
over the operations of banks and its regulatory and examination powers over
non-bank financial institutions performing quasi-banking functions, money
 service businesses, credit granting businesses and payment system operators;
and
(b) income in pursuit of its primary objective to maintain price stability
conducive to a balanced and sustainable growth of the economy, and the
promotion and maintenance of monetary and financial stability and the
convertibility of the peso.
All other incomes not included in the above enumeration shall be considered as
proprietary income and shall be subject to all taxes, charges, fees and assessments.
SECTION 126. Exemption from Customs Duties.— The provision of any general or
special law to the contrary notwithstanding, the importation and exportation by
the Bangko Sentral of notes and coins, and of gold and other metals to be used for
purposes authorized under this Act, and the importation of all equipment needed for
bank note production, minting of coins, metal refining and other security printing
operations shall be fully exempt from all customs duties and consular fees and from
all other taxes, assessments and charges related to such importation or exportation.
SECTION 127. Applicability of the Civil Service Law.— Appointments in the Bangko
Sentral,except as to those which are policy-determining, primarily confidential or
highly technical in nature, shall be made only according to the Civil Service Law and
regulations: Provided,That no qualification requirements for positions in the Bangko
Sentral shall be imposed other than those set by the Monetary Board: Provided,
further,That, the Monetary Board or Governor, in accordance with Sections 15(c) and
17(d) of this Act, respectively, may without need of obtaining prior approval from any
other government agency, appoint personnel in the Bangko Sentral whose services are
deemed necessary in order not to unduly disrupt the operations of the Bangko Sentral.
Officers and employees of the Bangko Sentral,including all members of the Monetary
Board, shall not engage directly or indirectly in partisan activities or take part in any
election except to vote.
ARTICLE II
Prohibitions
SECTION 128. Prohibitions. — The Bangko Sentral shall not acquire shares of any
kind or accept them as collateral, and shall not participate in the ownership or
management of any enterprise, either directly or indirectly: Provided, That this
prohibition shall not apply whenever the Monetary Board, by a vote of at least five (5)
of its members, (1) deems an acquisition or investment to be necessary to qualify or as
required for membership in international and regional organizations; or (2) determines
that investing in and/or operating an enterprise will be consistent with the effective
fulfillment of its mandate and will not constitute any conflict of interest.
The Bangko Sentral shall not engage in development banking or financing: Provided,
however, That outstanding loans obtained or extended for development financing shall
not be affected by the prohibition of this section.
CHAPTER VII
248
TRANSITORY PROVISIONS
SECTION 129. Phase-out of Fiscal Agency Functions.— Unless circumstances
warrant otherwise and approved by the Congress Oversight Committee, the Bangko
Sentral shall, within a period of three (3) years but in no case longer than five (5) years
from the approval of this Act, phase out all fiscal agency functions provided for in
Sections 117, 118, 119, and 120 as well as in other pertinent provisions of this Act and
transfer the same to the Department of Finance.
SECTION 130. Phase-out of Regulatory Powers Over the Operations of Finance
Corporations and Other Institutions Performing Similar Functions.— The Bangko
Sentral shall, within a period of five (5) years from the effectivity of this Act, phase
out its regulatory powers over finance companies without quasi-banking functions and
other institutions performing similar functions as provided in existing laws, the same
to be assumed by the Securities and Exchange Commission.
SECTION 131. Implementing Details.— The Bangko Sentral shall be made
operational by the performance of the following acts:
(a) the President shall constitute the Monetary Board by appointing the members
thereof within sixty (60) days from the effectivity of this Act; and
(b) the transfer of such assets and liabilities from the Central Bank to the Bangko
Sentral as provided in Section 132 shall be completed within ninety (90) days
from the constitution of the Monetary Board.
All incumbent personnel in the Central Bank as of the date of the approval of this Act
shall continue to exercise their duties and functions as personnel of the Bangko
Sentral subject to the provisions of Section 133: Provided,That such personnel in the
Central Bank as may be necessary for the purpose of implementing Section 132 may
be assigned by the Bangko Sentral Monetary Board to the Central Bank.
SECTION 132. Transfer of Assets and Liabilities.— Upon the effectivity of this Act,
three (3) members of the Monetary Board, which may include the Governor, in
representation of the Bangko Sentral,the Secretary of Finance and the Secretary of
Budget and Management in representation of the National Government, and the
Chairmen of the Committees on Banks of the Senate and the House of Representatives
shall determine the assets and liabilities of the Central Bank which may be transferred
to or assumed by the Bangko Sentral.The Committee shall complete its work within
ninety (90) days from the constitution of the Monetary Board submitting a
comprehensive report with all its findings and justification.
The following guidelines shall be strictly observed in the determination of which assets
and liabilities shall be transferred to the Bangko Sentral:
(a) the Monetary Board and the Secretary of Finance shall have primary
responsibility for working out creative monetary and financial solutions to
retire the Central Bank liabilities and losses at the least cost to the
Government;
 (b) the Bangko Sentral shall remit seventy-five percent (75%) of its net profits as
computed in this Act to a special deposit account (sinking fund) or to the SECTION 137. Separability Clause.— If any provision or section of this Act or the
National Treasury as dividends, until such time as the net liabilities of the application thereof to any person or circumstance is held invalid, the other provisions
Central Bank shall have been liquidated through generally accepted finance or sections of this Act, and the application of such provision or section to other persons
mechanisms such as, but not limited to, write-offs, set-offs, condonation, or circumstances, shall not be affected thereby.
collections, reappraisal, revaluation and bond issuance by the National
Government. Thereafter, it shall remit fifty percent (50%) of its said net SECTION 138. Effectivity Clause.— This Act shall take effect fifteen (15) days
profits to the National Treasury. following its publication in the Official Gazette or in two (2) national newspapers of
(c) the assets and liabilities to be transferred shall be limited to an amount that general circulation.
will enable the Bangko Sentral to perform its responsibilities adequately and
operate on a viable basis: Provided,That the assets shall exceed the liabilities
as certified by the Commission on Audit (COA),by an initial amount of Ten
billion pesos (P10,000,000,000);
(d) liabilities to be assumed by the Bangko Sentral shall include liability for
notes and coins in circulation as of the effective date of this Act; and
(e) any asset or liability of the Central Bank not transferred to the Bangko
Sentral shall be retained and administered, disposed of and liquidated by the
Central Bank itself which shall continue to exist as the CB Board of
Liquidators only for the purposes provided in this paragraph but not later than
twenty-five (25) years or until such time that liabilities have been
liquidated: Provided,That the Bangko Sentral may financially assist the
Central Bank Board of Liquidators in the liquidation of CB
liabilities: Provided, finally,That upon disposition of said retained assets and
liquidation of said retained liabilities, the Central Bank shall be deemed
abolished.
(a) All actions taken by the Bangko Sentral Monetary Board under this section
shall be reported to Congress and the President within thirty (30) days.

SECTION 134. Separation Benefits.— Pursuant to Section 15 of this Act, the

Monetary Board is authorized to provide separation incentives, and all those who shall
retire or be separated from the service on account of reorganization under the
preceding section shall be entitled to such incentives, which shall be in addition to all
gratuities and benefits to which they may be entitled under existing laws.

SECTION 135. Repealing Clause. — Except as may be provided for in Sections 46

and 132 of this Act, Republic Act No. 265, as amended, the provisions of any other
law, special charters, rule or regulation issued pursuant to said Republic Act No. 265,
as amended, or parts thereof, which may be inconsistent with the provisions of this
Act are hereby repealed. Presidential Decree No. 1792 is likewise repealed.

SECTION 136. Transfer of Powers.— All powers, duties and functions vested by law
in the Central Bank of the Philippines not inconsistent with the provisions of this Act
shall be deemed transferred to the Bangko Sentral ng Pilipinas. All references to the
Central Bank of the Philippines in any law or special charters shall be deemed to refer
to the Bangko Sentral.

249
 GENERAL BANKING LAW OF 2000 substantive similarities of specific functions to which such rules, modes or standards
REPUBLIC ACT No. 8791 are to be applied;
4.2. The conduct of examination to determine compliance with laws and regulations
CHAPTER I if the circumstances so warrant as determined by the Monetary Board;
TITLE AND CLASSIFICATION OF BANKS
4.3. Overseeing to ascertain that laws and regulations are complied with;
SECTION 1. Title. — The short title of this Act shall be
"The General Banking Law of 2000." (1a) 4.4. Regular investigation which shall not be oftener than once a year from the last
date of examination to determine whether an institution is conducting its business on
SECTION 2. Declaration of Policy. — The State recognizes the vital role of banks a safe or sound basis: Provided, That the deficiencies/irregularities found by or
in providing an environment conducive to the sustained development of the national discovered by an audit shall be immediately addressed;
economy and the fiduciary nature of banking that requires high standards of integrity
and performance. In furtherance thereof, the State shall promote and maintain a stable 4.5. Inquiring into the solvency and liquidity of the institution (2-D); or
and efficient banking and financial system that is globally competitive, dynamic and
responsive to the demands of a developing economy. (n) 4.6. Enforcing prompt corrective action. (n)

SECTION 3. Definition and Classification of Banks. — The Bangko Sentral shall also have supervision over the operations of and exercise
3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the regulatory powers over quasi-banks, trust entities and other financial institutions which
form of deposits. (2a) under special laws are subject to Bangko Sentral supervision. (2-Ca)

3.2. Banks shall be classified into:
(a) Universal banks;
(b) Commercial banks;
(c) Thrift banks, composed of: (i) Savings and mortgage banks, (ii) Stock savings
and loan associations, and (iii) Private development banks, as defined
in Republic Act No. 7906 (hereafter the "Thrift Banks Act");
(d) Rural banks, as defined in Republic Act No. 7353 (hereafter the "Rural Banks
Act");
(e) Cooperative banks, as defined in Republic Act No. 6938 (hereafter the
"Cooperative Code");
(f) Islamic banks as defined in Republic Act No. 6848, otherwise known as the
"Charter of Al Amanah Islamic Investment Bank of the Philippines"; and
(g) Other classifications of banks as determined by the Monetary Board of the
Bangko Sentral ng Pilipinas. (6-Aa)
CHAPTER II
AUTHORITY OF THE BANGKO SENTRAL
For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the
borrowing of funds through the issuance, endorsement or assignment with recourse or
acceptance of deposit substitutes as defined in Section 95 of Republic Act No. 7653
(hereafter the "New Central Bank Act") for purposes of relending or purchasing of
receivables and other obligations. (2-Da)
SECTION 5. Policy Direction; Ratios, Ceilings and Limitations. — The Bangko
Sentral shall provide policy direction in the areas of money, banking and credit. (n)
For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or
other forms of regulation on the different types of accounts and practices of banks and
quasi-banks which shall, to the extent feasible, conform to internationally accepted
standards, including those of the Bank for International Settlements (BIS). The
Monetary Board may exempt particular categories of transactions from such ratios,
ceilings and limitations, but not limited to exceptional cases or to enable a bank or
quasi-bank under rehabilitation or during a merger or consolidation to continue in
business with safety to its creditors, depositors and the general public. (2-Ca)

SECTION 4. Supervisory Powers. — The operations and activities of banks shall be
subject to supervision of the Bangko Sentral. "Supervision" shall include the
following:
4.1. The issuance of rules of conduct or the establishment of standards of operation
for uniform application to all institutions or functions covered, taking into
consideration the distinctive character of the operations of institutions and the
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SECTION 6. Authority to Engage in Banking and Quasi-Banking Functions. — No
person or entity shall engage in banking operations or quasi-banking functions without
authority from the Bangko Sentral: Provided, however, That an entity authorized by
the Bangko Sentral to perform universal or commercial banking functions shall
likewise have the authority to engage in quasi-banking functions.
The determination of whether a person or entity is performing banking or quasi-
banking functions without Bangko Sentral authority shall be decided by the Monetary
Board. To resolve such issue, the Monetary Board may, through the appropriate
supervising and examining department of the Bangko Sentral, examine, inspect or
investigate the books and records of such person or entity. Upon issuance of this
authority, such person or entity may commence to engage in banking operations or
quasi-banking functions and shall continue to do so unless such authority is sooner
surrendered, revoked, suspended or annulled by the Bangko Sentral in accordance with
this Act or other special laws.
The department head and the examiners of the appropriate supervising and examining
department are hereby authorized to administer oaths to any such person, employee,
officer, or director of any such entity and to compel the presentation or production of
such books, documents, papers or records that are reasonably necessary to ascertain
the facts relative to the true functions and operations of such person or entity. Failure
or refusal to comply with the required presentation or production of such books,
documents, papers or records within a reasonable time shall subject the persons
responsible therefor to the penal sanctions provided under the New Central Bank Act.
Persons or entities found to be performing banking or quasi-banking functions without
authority from the Bangko Sentral shall be subject to appropriate sanctions under the
New Central Bank Act and other applicable laws. (4a)
SECTION 7. Examination by the Bangko Sentral. — The Bangko Sentral shall, when
examining a bank, have the authority to examine an enterprise which is wholly or
majority-owned or controlled by the bank. (21-Ba)
CHAPTER III
ORGANIZATION, MANAGEMENT AND ADMINISTRATION OF
BANKS, QUASI-BANKS AND TRUST ENTITIES
SECTION 8. Organization. — The Monetary Board may authorize the organization
of a bank or quasi-bank subject to the following conditions:
8.1. That the entity is a stock corporation (7);
8.2. That its funds are obtained from the public, which shall mean twenty (20) or more
persons (2-Da); and
8.3. That the minimum capital requirements prescribed by the Monetary Board for
each category of banks are satisfied. (n)
No new commercial bank shall be established within three (3) years from the
effectivity of this Act. In the exercise of the authority granted herein, the Monetary
Board shall take into consideration their capability in terms of their financial resources
and technical expertise and integrity. The bank licensing process shall incorporate an
assessment of the bank's ownership structure, directors and senior management, its
251
operating plan and internal controls as well as its projected financial condition and
capital base.
SECTION 9. Issuance of Stocks. — The Monetary Board may prescribe rules and
regulations on the types of stock a bank may issue, including the terms thereof and
rights appurtenant thereto to determine compliance with laws and regulations
governing capital and equity structure of banks: Provided, That banks shall issue par
value stocks only.
SECTION 10. Treasury Stocks. — No bank shall purchase or acquire shares of its
own capital stock or accept its own shares as a security for a loan, except when
authorized by the Monetary Board: Provided, That in every case the stock so
purchased or acquired shall, within six (6) months from the time of its purchase or
acquisition, be sold or disposed of at a public or private sale. (24a)
SECTION 11. Foreign Stockholdings. — Foreign individuals and non-bank
corporations may own or control up to forty percent (40%) of the voting stock of a
domestic bank. This rule shall apply to Filipinos and domestic non-bank corporations.
(12a; 12-Aa)
The percentage of foreign-owned voting stocks in a bank shall be determined by the
citizenship of the individual stockholders in that bank. The citizenship of the
corporation which is a stockholder in a bank shall follow the citizenship of the
controlling stockholders of the corporation, irrespective of the place of incorporation.
SECTION 12. Stockholdings of Family Groups or Related Interests. —
Stockholdings of individuals related to each other within the fourth degree of
consanguinity or affinity, legitimate or common-law, shall be considered family
groups or related interests and must be fully disclosed in all transactions by such an
individual with the bank. (12-Da)
SECTION 13. Corporate Stockholdings. — Two or more corporations owned or
controlled by the same family group or same group of persons shall be considered
related interests and must be fully disclosed in all transactions by such corporations or
related groups of persons with the bank. (12-Ba)
SECTION 14. Certificate of Authority to Register. — The Securities and Exchange
Commission shall not register the articles of incorporation of any bank, or any
amendment thereto, unless accompanied by a certificate of authority issued by the
Monetary Board, under its seal. Such certificate shall not be issued unless the
Monetary Board is satisfied from the evidence submitted to it:
14.1. That all requirements of existing laws and regulations to engage in the business
for which the applicant is proposed to be incorporated have been complied with;
14.2. That the public interest and economic conditions, both general and local, justify
the authorization; and
14.3. That the amount of capital, the financing, organization, direction and
administration, as well as the integrity and responsibility of the organizers and
administrators reasonably assure the safety of deposits and the public interest. (9)
The Securities and Exchange Commission shall not register the by-laws of any bank,
or any amendment thereto, unless accompanied by a certificate of authority from the
Bangko Sentral. (10)
SECTION 15. Board of Directors. — The provisions of the Corporation Code to the
contrary notwithstanding, there shall be at least five (5), and a maximum of fifteen
(15) members of the board of directors of a bank, two (2) of whom shall be independent
directors. An "independent director" shall mean a person other than an officer or
employee of the bank, its subsidiaries or affiliates or related interests. (n)
Non-Filipino citizens may become members of the board of directors of a bank to the
extent of the foreign participation in the equity of said bank. (Sec. 7, RA 7721)
The meetings of the board of directors may be conducted through modern technologies
such as, but not limited to, teleconferencing and video-conferencing. (n)
SECTION 16. Fit and Proper Rule. — To maintain the quality of bank management
and afford better protection to depositors and the public in general, the Monetary
Board shall prescribe, pass upon and review the qualifications and disqualifications of
individuals elected or appointed bank directors or officers and disqualify those found
unfit.
After due notice to the board of directors of the bank, the Monetary Board may
disqualify, suspend or remove any bank director or officer who commits or omits an
act which render him unfit for the position.
In determining whether an individual is fit and proper to hold the position of a director
or officer of a bank, regard shall be given to his integrity, experience, education,
training, and competence. (9-Aa)
SECTION 17. Directors of Merged or Consolidated Banks. — In the case of a bank
merger or consolidation, the number of directors shall not exceed twenty-one (21).
SECTION 18. Compensation and Other Benefits of Directors and Officers. — To
protect the funds of depositors and creditors, the Monetary Board may regulate the
payment by the bank to its directors and officers of compensation, allowance, fees,
bonuses, stock options, profit sharing and fringe benefits only in exceptional cases and
when the circumstances warrant, such as but not limited to the following:
18.1. When a bank is under comptrollership or conservatorship; or
18.2. When a bank is found by the Monetary Board to be conducting business in an
unsafe or unsound manner; or
252
18.3. When a bank is found by the Monetary Board to be in an unsatisfactory financial
condition. (n)
SECTION 19. Prohibition on Public Officials. — Except as otherwise provided in
the Rural Banks Act, no appointive or elective public official, whether full-time or
part-time shall at the same time serve as officer of any private bank, save in cases
where such service is incident to financial assistance provided by the government or a
government-owned or controlled corporation to the bank or unless otherwise provided
under existing laws. (13)
SECTION 20. Bank Branches. — Universal or commercial banks may open branches
or other offices within or outside the Philippines upon prior approval of the Bangko
Sentral.
Branching by all other banks shall be governed by pertinent laws.
A bank may, subject to prior approval of the Monetary Board, use any or all of its
branches as outlets for the presentation and/or sale of the financial products of its allied
undertaking or of its investment house units.
A bank authorized to establish branches or other offices shall be responsible for all
business conducted in such branches and offices to the same extent and in the same
manner as though such business had all been conducted in the head office. A bank and
its branches and offices shall be treated as one unit. (6-B; 27)
SECTION 21. Banking Days and Hours. — Unless otherwise authorized by the
Bangko Sentral in the interest of the banking public, all banks including their branches
and offices shall transact business on all working days for at least six (6) hours a day.
In addition, banks or any of their branches or offices may open for business on
Saturdays, Sundays or holidays for at least three (3) hours a day: Provided, That banks
which opt to open on days other than working days shall report to the Bangko Sentral
the additional days during which they or their branches or offices shall transact
business.
For purposes of this Section, working days shall mean Mondays to Fridays, except if
such days are holidays. (6-Ca)
SECTION 22. Strikes and Lockouts. — The banking industry is hereby declared as
indispensable to the national interest and, notwithstanding the provisions of any law to
the contrary, any strike or lockout involving banks, if unsettled after seven (7) calendar
days shall be reported by the Bangko Sentral to the Secretary of Labor who may
assume jurisdiction over the dispute or decide it or certify the same to the National
Labor Relations Commission for compulsory arbitration. However, the President of
the Philippines may at any time intervene and assume jurisdiction over such labor
dispute in order to settle or terminate the same. (6-E)

CHAPTER IV
DEPOSITS, LOANS AND OTHER OPERATIONS
ARTICLE I
Operations of Universal Banks
SECTION 23. Powers of a Universal Bank. — A universal bank shall have the
authority to exercise, in addition to the powers authorized for a commercial bank in
Section 29, the powers of an investment house as provided in existing laws and the
power to invest in non-allied enterprises as provided in this Act. (21-B)
SECTION 24. Equity Investments of a Universal Bank. — A universal bank may,
subject to the conditions stated in the succeeding paragraph, invest in the equities of
allied and non-allied enterprises as may be determined by the Monetary Board. Allied
enterprises may either be financial or non-financial.
Except as the Monetary Board may otherwise prescribe:
24.1. The total investment in equities of allied and non-allied enterprises shall not
exceed fifty percent (50%) of the net worth of the bank; and
24.2. The equity investment in any one enterprise, whether allied or non-allied, shall
not exceed twenty-five percent (25%) of the net worth of the bank.
As used in this Act, "net worth" shall mean the total of the unimpaired paid-in capital
including paid-in surplus, retained earnings and undivided profit, net of valuation
reserves and other adjustments as may be required by the Bangko Sentral.
The acquisition of such equity or equities is subject to the prior approval of the
Monetary Board which shall promulgate appropriate guidelines to govern such
investments. (21-Ba)
SECTION 25. Equity Investments of a Universal Bank in Financial Allied
Enterprises. — A universal bank can own up to one hundred percent (100%) of the
equity in a thrift bank, a rural bank or a financial allied enterprise.
A publicly-listed universal or commercial bank may own up to one hundred percent
(100%) of the voting stock of only one other universal or commercial bank. (21-B; 21-
Ca)
253
SECTION 26. Equity Investments of a Universal Bank in Non-Financial Allied
Enterprises. — A universal bank may own up to one hundred percent (100%) of the
equity in a non-financial allied enterprise. (21-Ba)
SECTION 27. Equity Investments of a Universal Bank in Non-Allied Enterprises. —
The equity investment of a universal bank, or of its wholly or majority-owned
subsidiaries, in a single non-allied enterprise shall not exceed thirty-five percent (35%)
of the total equity in that enterprise nor shall it exceed thirty-five percent (35%) of the
voting stock in that enterprise. (21-B)
SECTION 28. Equity Investments in Quasi-Banks. — To promote competitive
conditions in financial markets, the Monetary Board may further limit to forty percent
(40%) equity investments of universal banks in quasi-banks. This rule shall also apply
in the case of commercial banks. (12-E)
ARTICLE II
Operations of Commercial Banks
SECTION 29. Powers of a Commercial Bank. — A commercial bank shall have, in
addition to the general powers incident to corporations, all such powers as may be
necessary to carry on the business of commercial banking, such as accepting drafts and
issuing letters of credit; discounting and negotiating promissory notes, drafts, bills of
exchange, and other evidences of debt; accepting or creating demand deposits;
receiving other types of deposits and deposit substitutes; buying and selling foreign
exchange and gold or silver bullion; acquiring marketable bonds and other debt
securities; and extending credit, subject to such rules as the Monetary Board may
promulgate. These rules may include the determination of bonds and other debt
securities eligible for investment, the maturities and aggregate amount of such
investment. (21a)
SECTION 30. Equity Investments of a Commercial Bank. — A commercial bank
may, subject to the conditions stated in the succeeding paragraphs, invest only in the
equities of allied enterprises as may be determined by the Monetary Board. Allied
enterprises may either be financial or non-financial.
Except as the Monetary Board may otherwise prescribe:
30.1. The total investment in equities of allied enterprises shall not exceed thirty-five
percent (35%) of the net worth of the bank; and
30.2. The equity investment in any one enterprise shall not exceed twenty-five percent
(25%) of the net worth of the bank.
The acquisition of such equity or equities is subject to the prior approval of the
Monetary Board which shall promulgate appropriate guidelines to govern such
investments. (21A-a; 21-Ca)
SECTION 31. Equity Investments of a Commercial Bank in Financial Allied
Enterprises. — A commercial bank may own up to one hundred percent (100%) of the
equity of a thrift bank or a rural bank.
Where the equity investment of a commercial bank is in other financial allied
enterprises, including another commercial bank, such investment shall remain a
minority holding in that enterprise. (21-Aa; 21-Ca)
SECTION 32. Equity Investments of a Commercial Bank in Non-Financial Allied
Enterprises. — A commercial bank may own up to one hundred percent (100%) of the
equity in a non-financial allied enterprise. (21-Aa)
ARTICLE III
Provisions Applicable to All Banks, Quasi-Banks, and Trust Entities
SECTION 33. Acceptance of Demand Deposits. — A bank other than a universal or
commercial bank cannot accept or create demand deposits except upon prior approval
of, and subject to such conditions and rules as may be prescribed by the Monetary
Board. (72-Aa)
SECTION 34. Risk-Based Capital. — The Monetary Board shall prescribe the
minimum ratio which the net worth of a bank must bear to its total risk assets which
may include contingent accounts.
For purposes of this Section, the Monetary Board may require that such ratio be
determined on the basis of the net worth and risk assets of a bank and its subsidiaries,
financial or otherwise, as well as prescribe the composition and the manner of
determining the net worth and total risk assets of banks and their
subsidiaries: Provided, That in the exercise of this authority, the Monetary Board shall,
to the extent feasible, conform to internationally accepted standards, including those
of the Bank for International Settlements (BIS), relating to risk-based capital
requirements: Provided, further, That it may alter or suspend compliance with such
ratio whenever necessary for a maximum period of one (1) year: Provided, finally,
That such ratio shall be applied uniformly to banks of the same category.
In case a bank does not comply with the prescribed minimum ratio, the Monetary
Board may limit or prohibit the distribution of net profits by such bank and may require
that part or all of the net profits be used to increase the capital accounts of the bank
until the minimum requirement has been met. The Monetary Board may, furthermore,
restrict or prohibit the acquisition of major assets and the making of new investments
by the bank, with the exception of purchases of readily marketable evidences of
254
indebtedness of the Republic of the Philippines and of the Bangko Sentral and any
other evidences of indebtedness or obligations the servicing and repayment of which
are fully guaranteed by the Republic of the Philippines, until the minimum required
capital ratio has been restored.
In case of a bank merger or consolidation, or when a bank is under rehabilitation under
a program approved by the Bangko Sentral, the Monetary Board may temporarily
relieve the surviving bank, consolidated bank, or constituent bank or corporations
under rehabilitation from full compliance with the required capital ratio under such
conditions as it may prescribe.
Before the effectivity of the rules which the Monetary Board is authorized to prescribe
under this provision, Section 22 of the General Banking Act, as amended, Section 9 of
the Thrift Banks Act, and all pertinent rules issued pursuant thereto, shall continue to
be in force. (22a)
SECTION 35. Limit on Loans, Credit Accommodations and Guarantees. —
35.1. Except as the Monetary Board may otherwise prescribe for reasons of national
interest, the total amount of loans, credit accommodations and guarantees as may be
defined by the Monetary Board that may be extended by a bank to any person,
partnership, association, corporation or other entity shall at no time exceed twenty
percent (20%) of the net worth of such bank. The basis for determining compliance
with single-borrower limit is the total credit commitment of the bank to the borrower.
35.2. Unless the Monetary Board prescribes otherwise, the total amount of loans,
credit accommodations and guarantees prescribed in the preceding paragraph may be
increased by an additional ten percent (10%) of the net worth of such bank provided
the additional liabilities of any borrower are adequately secured by trust receipts,
shipping documents, warehouse receipts or other similar documents transferring or
securing title covering readily marketable, non-perishable goods which must be fully
covered by insurance.
35.3. The above prescribed ceilings shall include: (a) the direct liability of the maker
or acceptor of paper discounted with or sold to such bank and the liability of
a general indorser, drawer or guarantor who obtains a loan or other credit
accommodation from or discounts paper with or sells papers to such bank; (b) in the
case of an individual who owns or controls a majority interest in a corporation,
partnership, association or any other entity, the liabilities of said entities to such bank;
(c) in the case of a corporation, all liabilities to such bank of all subsidiaries in which
such corporation owns or controls a majority interest; and (d) in the case of a
partnership, association or other entity, the liabilities of the members thereof to such
bank.
35.4. Even if a parent corporation, partnership, association, entity or an individual
who owns or controls a majority interest in such entities has no liability to the bank,
the Monetary Board may prescribe the combination of the liabilities of subsidiary
corporations or members of the partnership, association, entity or such individual
under certain circumstances, including but not limited to any of the following
situations: (a) the parent corporation, partnership, association, entity or individual
guarantees the repayment of the liabilities; (b) the liabilities were incurred for the
accommodation of the parent corporation or another subsidiary or of the partnership
or association or entity or such individual; or (c) the subsidiaries though separate
entities operate merely as departments or divisions of a single entity.
35.5. For purposes of this Section, loans, other credit accommodations and guarantees
shall exclude: (a) loans and other credit accommodations secured by obligations of the
Bangko Sentral or of the Philippine Government; (b) loans and other credit
accommodations fully guaranteed by the government as to the payment of principal
and interest; (c) loans and other credit accommodations covered by assignment of
deposits maintained in the lending bank and held in the Philippines; (d) loans, credit
accommodations and acceptances under letters of credit to the extent covered by
margin deposits; and (e) other loans or credit accommodations which the Monetary
Board may from time to time, specify as non-risk items.
35.6. Loans and other credit accommodations, deposits maintained with, and usual
guarantees by a bank to any other bank or non-bank entity, whether locally or abroad,
shall be subject to the limits as herein prescribed.
35.7. Certain types of contingent accounts of borrowers may be included among those
subject to these prescribed limits as may be determined by the Monetary Board. (23a)
SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders
and Their Related Interests. — No director or officer of any bank shall, directly or
indirectly, for himself or as the representative or agent of others, borrow from such
bank nor shall he become a guarantor, indorser or surety for loans from such bank to
others, or in any manner be an obligor or incur any contractual liability to the bank
except with the written approval of the majority of all the directors of the bank,
excluding the director concerned: Provided, That such written approval shall not be
required for loans, other credit accommodations and advances granted to officers
under a fringe benefit plan approved by the Bangko Sentral. The required approval
shall be entered upon the records of the bank and a copy of such entry shall be
transmitted forthwith to the appropriate supervising and examining department of the
Bangko Sentral.
Dealings of a bank with any of its directors, officers or stockholders and their related
interests shall be upon terms not less favorable to the bank than those offered to others.
After due notice to the board of directors of the bank, the office of any bank director
or officer who violates the provisions of this Section may be declared vacant and the
director or officer shall be subject to the penal provisions of the New Central Bank
Act.
255
The Monetary Board may regulate the amount of loans, credit accommodations and
guarantees that may be extended, directly or indirectly, by a bank to its directors,
officers, stockholders and their related interests, as well as investments of such bank
in enterprises owned or controlled by said directors, officers, stockholders and their
related interests. However, the outstanding loans, credit accommodations and
guarantees which a bank may extend to each of its stockholders, directors, or officers
and their related interests, shall be limited to an amount equivalent to their respective
unencumbered deposits and book value of their paid-in capital contribution in the
bank: Provided, however, That loans, credit accommodations and guarantees secured
by assets considered as non-risk by the Monetary Board shall be excluded from such
limit: Provided, further, That loans, credit accommodations and advances to officers
in the form of fringe benefits granted in accordance with rules as may be prescribed
by the Monetary Board shall not be subject to the individual limit.
The Monetary Board shall define the term "related interests."
The limit on loans, credit accommodations and guarantees prescribed herein shall not
apply to loans, credit accommodations and guarantees extended by a cooperative bank
to its cooperative shareholders. (83a)
SECTION 37. Loans and Other Credit Accommodations Against Real Estate. —
Except as the Monetary Board may otherwise prescribe, loans and other credit
accommodations against real estate shall not exceed seventy-five percent (75%) of the
appraised value of the respective real estate security, plus sixty percent (60%) of the
appraised value of the insured improvements, and such loans may be made to the
owner of the real estate or to his assignees. (78a)
SECTION 38. Loans and Other Credit Accommodations on Security of Chattels and
Intangible Properties. — Except as the Monetary Board may otherwise prescribe,
loans and other credit accommodations on security of chattels and intangible
properties, such as, but not limited to, patents, trademarks, trade names, and copyrights
shall not exceed seventy-five percent (75%) of the appraised value of the security, and
such loans and other credit accommodations may be made to the title-holder of the
chattels and intangible properties or his assignees. (78a)
SECTION 39. Grant and Purpose of Loans and Other Credit Accommodations. —
A bank shall grant loans and other credit accommodations only in amounts and for the
periods of time essential for the effective completion of the operations to be financed.
Such grant of loans and other credit accommodations shall be consistent with safe and
sound banking practices. (75a)
The purpose of all loans and other credit accommodations shall be stated in the
application and in the contract between the bank and the borrower. If the bank finds
that the proceeds of the loan or other credit accommodation have been employed,
without its approval, for purposes other than those agreed upon with the bank, it shall
have the right to terminate the loan or other credit accommodation and demand
immediate repayment of the obligation. (77)
SECTION 40. Requirement for Grant of Loans or Other Credit Accommodations. —
Before granting a loan or other credit accommodation, a bank must ascertain that the
debtor is capable of fulfilling his commitments to the bank.
Toward this end, a bank may demand from its credit applicants a statement of their
assets and liabilities and of their income and expenditures and such information as may
be prescribed by law or by rules and regulations of Monetary Board to enable the bank
to properly evaluate the credit application which includes the corresponding financial
statements submitted for taxation purposes to the Bureau of Internal Revenue. Should
such statements prove to be false or incorrect in any material detail, the bank may
terminate any loan or other credit accommodation granted on the basis of said
statements and shall have the right to demand immediate repayment or liquidation of
the obligation.
In formulating rules and regulations under this Section, the Monetary Board shall
recognize the peculiar characteristics of microfinancing, such as cash flow-based
lending to the basic sectors that are not covered by traditional collateral. (76a)
SECTION 41. Unsecured Loans or Other Credit Accommodations. — The Monetary
Board is hereby authorized to issue such regulations as it may deem necessary with
respect to unsecured loans or other credit accommodations that may be granted by
banks. (n)
SECTION 42. Other Security Requirements for Bank Credits. — The Monetary
Board may, by regulation, prescribe further security requirements to which the various
types of bank credits shall be subject, and, in accordance with the authority granted to
it in Section 106 of the New Central Bank Act, the Board may by regulation, reduce
the maximum ratios established in Sections 36 and 37 of this Act, or, in special cases,
increase the maximum ratios established therein. (78)
SECTION 43. Authority to Prescribe Terms and Conditions of Loans and Other
Credit Accommodations. — The Monetary Board may, similarly, in accordance with
the authority granted to it in Section 106 of the New Central Bank Act, and taking into
account the requirements of the economy for the effective utilization of long-term
funds, prescribe the maturities, as well as related terms and conditions for various types
of bank loans and other credit accommodations. Any change by the Board in the
maximum maturities shall apply only to loans and other credit accommodations made
after the date of such action.
The Monetary Board shall regulate the interest imposed on microfinance borrowers by
lending investors and similar lenders, such as, but not limited to, the unconscionable
rates of interest collected on salary loans and similar credit accommodations. (78a)
256
SECTION 44. Amortization on Loans and Other Credit Accommodations. — The
amortization schedule of bank loans and other credit accommodations shall be adapted
to the nature of the operations to be financed.
In case of loans and other credit accommodations with maturities of more than five (5)
years, provisions must be made for periodic amortization payments, but such payments
must be made at least annually: Provided, however, That when the borrowed funds are
to be used for purposes which do not initially produce revenues adequate for regular
amortization payments therefrom, the bank may permit the initial amortization
payment to be deferred until such time as said revenues are sufficient for such purpose,
but in no case shall the initial amortization date be later than five (5) years from the
date on which the loan or other credit accommodation is granted. (79a)
In case of loans and other credit accommodations to microfinance sectors, the schedule
of loan amortization shall take into consideration the projected cash flow of the
borrower and adopt this into the terms and conditions formulated by banks. (n)
SECTION 45. Prepayment of Loans and Other Credit Accommodations. — A
borrower may at any time prior to the agreed maturity date prepay, in whole or in part,
the unpaid balance of any bank loan and other credit accommodation, subject to such
reasonable terms and conditions as may be agreed upon between the bank and its
borrower. (80a)
SECTION 46. Development Assistance Incentives. — The Bangko Sentral shall
provide incentives to banks which, without government guarantee, extend loans to
finance educational institutions, cooperatives, hospitals and other medical services,
socialized or low-cost housing, local government units and other activities with social
content. (n)
SECTION 47. Foreclosure of Real Estate Mortgage. — In the event of foreclosure,
whether judicially or extrajudicially, of any mortgage on real estate which is security
for any loan or other credit accommodation granted, the mortgagor or debtor whose
real property has been sold for the full or partial payment of his obligation shall have
the right within one year after the sale of the real estate, to redeem the property by
paying the amount due under the mortgage deed, with interest thereon at the rate
specified in the mortgage, and all the costs and expenses incurred by the bank or
institution from the sale and custody of said property less the income derived
therefrom. However, the purchaser at the auction sale concerned whether in a judicial
or extrajudicial foreclosure shall have the right to enter upon and take possession of
such property immediately after the date of the confirmation of the auction sale and
administer the same in accordance with law. Any petition in court to enjoin or restrain
the conduct of foreclosure proceedings instituted pursuant to this provision shall be
given due course only upon the filing by the petitioner of a bond in an amount fixed
by the court conditioned that he will pay all the damages which the bank may suffer
by the enjoining or the restraint of the foreclosure proceeding.

Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to
an extrajudicial foreclosure, shall have the right to redeem the property in accordance
with this provision until, but not after, the registration of the certificate of foreclosure
sale with the applicable Register of Deeds which in no case shall be more than three
(3) months after foreclosure, whichever is earlier. Owners of property that has been
sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption
rights until their expiration. (78a)
SECTION 48. Renewal or Extension of Loans and Other Credit Accommodations.
— The Monetary Board may, by regulation, prescribe the conditions and limitations
under which a bank may grant extensions or renewals of its loans and other credit
accommodations. (81)
SECTION 49. Provisions for Losses and Write-Offs. — All debts due to any bank on
which interest is past due and unpaid for such period as may be determined by the
Monetary Board, unless the same are well-secured and in the process of collection
shall be considered bad debts within the meaning of this Section.
The Monetary Board may fix, by regulation or by order in a specific case, the amount
of reserves for bad debts or doubtful accounts or other contingencies.
Writing off of loans, other credit accommodations, advances and other assets shall be
subject to regulations issued by the Monetary Board. (84a)
SECTION 50. Major Investments. — For the purpose of enhancing bank supervision,
the Monetary Board shall establish criteria for reviewing major acquisitions or
investments by a bank including corporate affiliations or structures that may expose
the bank to undue risks or in any way hinder effective supervision.
SECTION 51. Ceiling on Investments in Certain Assets. — Any bank may acquire
real estate as shall be necessary for its own use in the conduct of its
business: Provided, however, That the total investment in such real estate and
improvements thereof, including bank equipment, shall not exceed fifty percent (50%)
of combined capital accounts: Provided, further, That the equity investment of a bank
in another corporation engaged primarily in real estate shall be considered as part of
the bank's total investment in real estate, unless otherwise provided by the Monetary
Board. (25a)
SECTION 52. Acquisition of Real Estate by Way of Satisfaction of Claims. —
Notwithstanding the limitations of the preceding Section, a bank may acquire, hold or
convey real property under the following circumstances:
52.1. Such as shall be mortgaged to it in good faith by way of security for debts;
52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in
the course of its dealings; or
257
52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust
deeds held by it and such as it shall purchase to secure debts due it.
Any real property acquired or held under the circumstances enumerated in the above
paragraph shall be disposed of by the bank within a period of five (5) years or as may
be prescribed by the Monetary Board: Provided, however, That the bank may, after
said period, continue to hold the property for its own use, subject to the limitations of
the preceding Section. (25a)
SECTION 53. Other Banking Services. — In addition to the operations specifically
authorized in this Act, a bank may perform the following services:
53.1. Receive in custody funds, documents and valuable objects;
53.2. Act as financial agent and buy and sell, by order of and for the account of their
customers, shares, evidences of indebtedness and all types of securities;
53.3. Make collections and payments for the account of others and perform such other
services for their customers as are not incompatible with banking business;
53.4. Upon prior approval of the Monetary Board, act as managing agent, adviser,
consultant or administrator of investment management/advisory/consultancy
accounts; and
53.5. Rent out safety deposit boxes.
The bank shall perform the services permitted under Subsections 53.1, 53.2, 53.3 and
53.4 as depositary or as an agent. Accordingly, it shall keep the funds, securities and
other effects which it receives duly separate from the bank's own assets and liabilities.
The Monetary Board may regulate the operations authorized by this Section in order
to ensure that such operations do not endanger the interests of the depositors and other
creditors of the bank.
In case a bank or quasi-bank notifies the Bangko Sentral or publicly announces a bank
holiday, or in any manner suspends the payment of its deposit liabilities continuously
for more than thirty (30) days, the Monetary Board may summarily and without need
for prior hearing close such banking institution and place it under receivership of the
Philippine Deposit Insurance Corporation. (72a)
SECTION 54. Prohibition to Act as Insurer. — A bank shall not directly engage in
insurance business as the insurer. (73)
SECTION 55. Prohibited Transactions. —
55.1. No director, officer, employee, or agent of any bank shall —
(a) Make false entries in any bank report or statement or participate in any
fraudulent transaction, thereby affecting the financial interest of, or causing
damage to, the bank or any person;
 (b) Without order of a court of competent jurisdiction, disclose to any
unauthorized person any information relative to the funds or properties in the
custody of the bank belonging to private individuals, corporations, or any
other entity: Provided, That with respect to bank deposits, the provisions of
existing laws shall prevail;
(c) Accept gifts, fees or commissions or any other form of remuneration in
connection with the approval of a loan or other credit accommodation from
said bank;
(d) Overvalue or aid in overvaluing any security for the purpose of influencing
in any way the actions of the bank or any bank; or
(e) Outsource inherent banking functions.
55.2. No borrower of a bank shall —
(a) Fraudulently overvalue property offered as security for a loan or other credit
accommodation from the bank;
(b) Furnish false or make misrepresentation or suppression of material facts for
the purpose of obtaining, renewing, or increasing a loan or other credit
accommodation or extending the period thereof;
(c) Attempt to defraud the said bank in the event of a court action to recover a
loan or other credit accommodation; or
(d) Offer any director, officer, employee or agent of a bank any gift, fee,
commission, or any other form of compensation in order to influence such
persons into approving a loan or other credit accommodation application.
55.3. No examiner, officer or employee of the Bangko Sentral or of any department,
bureau, office, branch or agency of the Government that is assigned to supervise,
examine, assist or render technical assistance to any bank shall commit any of the acts
enumerated in this Section or aid in the commission of the same. (87-Aa)
The making of false reports or misrepresentation or suppression of material facts by
personnel of the Bangko Sentral ng Pilipinas shall constitute fraud and shall be subject
to the administrative and criminal sanctions provided under the New Central Bank Act.
55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as
the Banks Secrecy Law, no bank shall employ casual or nonregular personnel or too
lengthy probationary personnel in the conduct of its business involving bank deposits.
SECTION 56. Conducting Business in an Unsafe or Unsound Manner. — In
determining whether a particular act or omission, which is not otherwise prohibited by
any law, rule or regulation affecting banks, quasi-banks or trust entities, may be
deemed as conducting business in an unsafe or unsound manner for purposes of this
Section, the Monetary Board shall consider any of the following circumstances:
56.1. The act or omission has resulted or may result in material loss or damage, or
abnormal risk or danger to the safety, stability, liquidity or solvency of the institution;
258
56.2. The act or omission has resulted or may result in material loss or damage or
abnormal risk to the institution's depositors, creditors, investors, stockholders or to the
Bangko Sentral or to the public in general;
56.3. The act or omission has caused any undue injury, or has given any unwarranted
benefits, advantage or preference to the bank or any party in the discharge by the
director or officer of his duties and responsibilities through manifest partiality, evident
bad faith or gross inexcusable negligence; or
56.4. The act or omission involves entering into any contract or transaction manifestly
and grossly disadvantageous to the bank, quasi-bank or trust entity, whether or not the
director or officer profited or will profit thereby.
Whenever a bank, quasi-bank or trust entity persists in conducting its business in an
unsafe or unsound manner, the Monetary Board may, without prejudice to the
administrative sanctions provided in Section 37 of the New Central Bank Act, take
action under Section 30 of the same Act and/or immediately exclude the erring bank
from clearing, the provisions of law to the contrary notwithstanding. (n)
SECTION 57. Prohibition on Dividend Declaration. — No bank or quasi-bank shall
declare dividends greater than its accumulated net profits then on hand, deducting
therefrom its losses and bad debts. Neither shall the bank nor quasi-bank declare
dividends, if at the time of declaration:
57.1 Its clearing account with the Bangko Sentral is overdrawn; or
57.2 It is deficient in the required liquidity floor for government deposits for five (5)
or more consecutive days; or
57.3 It does not comply with the liquidity standards/ratios prescribed by the Bangko
Sentral for purposes of determining funds available for dividend declaration; or
57.4 It has committed a major violation as may be determined by the Bangko Sentral.
SECTION 58. Independent Auditor. — The Monetary Board may require a bank,
quasi-bank or trust entity to engage the services of an independent auditor to be chosen
by the bank, quasi-bank or trust entity concerned from a list of certified public
accountants acceptable to the Monetary Board. The term of the engagement shall be
as prescribed by the Monetary Board which may either be on a continuing basis where
the auditor shall act as resident examiner, or on the basis of special engagements; but
in any case, the independent auditor shall be responsible to the bank's, quasi-bank's or
trust entity's board of directors. A copy of the report shall be furnished to the Monetary
Board. The Monetary Board may also direct the board of directors of a bank, quasi-
bank, trusty entity and/or the individual members thereof, to conduct, either personally
or by a committee created by the board, an annual balance sheet audit of the bank,
quasi-bank or trust entity to review the internal audit and control system of the bank,
quasi-bank or trust entity and to submit a report of such audit. (6-Da)
SECTION 59. Authority to Regulate Electronic Transactions. — The Bangko Sentral
shall have full authority to regulate the use of electronic devices, such as computers,
and processes for recording, storing and transmitting information or data in connection
with the operations of a bank, quasi-bank or trust entity, including the delivery of
services and products to customers by such entity. (n)
SECTION 60. Financial Statements. — Every bank, quasi-bank or trust entity shall
submit to the appropriate supervising and examining department of the Bangko Sentral
financial statements in such form and frequency as may be prescribed by the Bangko
Sentral. Such statements, which shall be as of a specific date designated by the Bangko
Sentral, shall show the actual financial condition of the institution submitting the
statement, and of its branches, offices, subsidiaries and affiliates, including the results
of its operations, and shall contain such information as may be required in Bangko
Sentral regulations. (n)
SECTION 61. Publication of Financial Statements. — Every bank, quasi-bank or
trust entity, shall publish a statement of its financial condition, including those of its
subsidiaries and affiliates, in such terms understandable to the layman and in such
frequency as may be prescribed by the Bangko Sentral, in English or Filipino, at least
once every quarter in a newspaper of general circulation in the city or province where
the principal office, in the case of a domestic institution, or the principal branch or
office in the case of a foreign bank, is located, but if no newspaper is published in the
same province, then in a newspaper published in Metro Manila or in the nearest city
or province.
The Bangko Sentral may by regulation prescribe the newspaper where the statements
prescribed herein shall be published.
The Monetary Board may allow the posting of the financial statements of a bank,
quasi-bank or trust entity in public places it may determine, in lieu of the publication
required in the preceding paragraph, when warranted by the circumstances.
Additionally, banks shall make available to the public in such form and manner as the
Bangko Sentral may prescribe the complete set of its audited financial statements as
well as such other relevant information including those on enterprises majority-owned
or controlled by the bank, that will inform the public of the true financial condition of
a bank as of any given time.
In periods of national and/or local emergency or of imminent panic which directly
threaten monetary and banking stability, the Monetary Board, by a vote of at least five
(5) of its members, in special cases and upon application of the bank, quasi-bank or
259
trust entity, may allow such bank, quasi-bank or trust entity to defer for a stated period
of time the publication of the statement of financial condition required herein. (n)
SECTION 62. Publication of Capital Stock. — A bank, quasi-bank or trust entity
incorporated under the laws of the Philippines shall not publish the amount of its
authorized or subscribed capital stock without indicating at the same time and with
equal prominence, the amount of its capital actually paid up.
No branch of any foreign bank doing business in the Philippines shall in any way
announce the amount of the capital and surplus of its head office, or of the bank in its
entirety without indicating at the same time and with equal prominence the amount of
the capital, if any, definitely assigned to such branch. In case no capital has been
definitely assigned to such branch, such fact shall be stated in, and shall form part of
the publication. (82)
SECTION 63. Settlement of Disputes. — The provisions of any law to the contrary
notwithstanding, the Bangko Sentral shall be consulted by other government agencies
or instrumentalities in actions or proceedings initiated by or brought before them
involving controversies in banks, quasi-banks or trust entities arising out of and
involving relations between and among their directors, officers or stockholders, as well
as disputes between any or all of them and the bank, quasi-bank or trust entity of which
they are directors, officers or stockholders. (n)
SECTION 64. Unauthorized Advertisement or Business Representation. — No
person, association, or corporation unless duly authorized to engage in the business of
a bank, quasi-bank, trust entity, or savings and loan association as defined in this Act,
or other banking laws, shall advertise or hold itself out as being engaged in the
business of such bank, quasi-bank, trust entity, or association, or use in connection
with its business title, the word or words "bank", "banking", "banker", "quasi-bank",
"quasi-banking", "quasi-banker", "savings and loan association", "trust corporation",
"trust company" or words of similar import or transact in any manner the business of
any such bank, corporation or association. (6)
SECTION 65. Service Fees. — The Bangko Sentral may charge equitable rates,
commissions or fees, as may be prescribed by the Monetary Board for supervision,
examination and other services which it renders under this Act. (n) cdasia
SECTION 66. Penalty for Violation of this Act. — Unless otherwise herein provided,
the violation of any of the provisions of this Act shall be subject to Sections 34, 35, 36
and 37 of the New Central Bank Act. If the offender is a director or officer of a bank,
quasi-bank or trust entity, the Monetary Board may also suspend or remove such
director or officer. If the violation is committed by a corporation, such corporation
may be dissolved by quo warranto proceedings instituted by the Solicitor General.
CHAPTER V
 PLACEMENT UNDER CONSERVATORSHIP
SECTION 67. Conservatorship. — The grounds and procedures for placing a bank
under conservatorship, as well as, the powers and duties of the conservator appointed
for the bank shall be governed by the provisions of Section 29 and the last two
paragraphs of Section 30 of the New Central Bank Act: Provided, That this Section
shall also apply to conservatorship proceedings of quasi-banks. (n)
CHAPTER VI
CESSATION OF BANKING BUSINESS
SECTION 68. Voluntary Liquidation. — In case of the voluntary liquidation of any
bank organized under the laws of the Philippines, or of any branch or office in the
Philippines of a foreign bank, written notice of such liquidation shall be sent to the
Monetary Board before such liquidation is undertaken, and the Monetary Board shall
have the right to intervene and take such steps as may be necessary to protect the
interests of creditors. (86)
SECTION 69. Receivership and Involuntary Liquidation. — The grounds and
procedures for placing a bank under receivership or liquidation, as well as the powers
and duties of the receiver or liquidator appointed for the bank shall be governed by the
provisions of Sections 30, 31, 32, and 33 of the New Central Bank Act: Provided, That
the petitioner or plaintiff files with the clerk or judge of the court in which the action
is pending a bond, executed in favor of the Bangko Sentral, in an amount to be fixed
by the court. This Section shall also apply to the extent possible to the receivership
and liquidation proceedings of quasi-banks. (n)
SECTION 70. Penalty for Transactions After a Bank Becomes Insolvent. — Any
director or officer of any bank declared insolvent or placed under receivership by the
Monetary Board who refuses to turn over the bank's records and assets to the
designated receivers, or who tampers with banks records, or who appropriates for
himself or another party or destroys or causes the misappropriation and destruction of
the bank's assets, or who receives or permits or causes to be received in said bank any
deposit, collection of loans and/or receivables, or who pays out or permits or causes to
be paid out any funds of said bank, or who transfers or permits or causes to be
transferred any securities or property of said bank shall be subject to the penal
provisions of the New Central Bank Act. (85a)
CHAPTER VII
LAWS GOVERNING OTHER TYPES OF BANKS
SECTION 71. Other Banking Laws. — The organization, ownership and capital
requirements, powers, supervision and general conduct of business of thrift banks,
rural banks and cooperative banks shall be governed by the provisions of the Thrift
Banks Act, the Rural Banks Act, and the Cooperative Code, respectively.
260
The organization, ownership and capital requirements, powers, supervision
and general conduct of business of Islamic banks shall be governed by special laws.
The provisions of this Act, however, insofar as they are not in conflict with the
provisions of the Thrift Banks Act, the Rural Banks Act, and the Cooperative
Code shall likewise apply to thrift banks, rural banks, and cooperative banks,
respectively. However, for purposes of prescribing the minimum ratio which the net
worth of a thrift bank must bear to its total risk assets, the provisions of Section 33 of
this Act shall govern. (n)
CHAPTER VIII
FOREIGN BANKS
SECTION 72. Transacting Business in the Philippines. — The entry of foreign banks
in the Philippines through the establishment of branches shall be governed by the
provisions of the Foreign Banks Liberalization Act.
The conduct of offshore banking business in the Philippines shall be governed by the
provisions of the Presidential Decree No. 1034, otherwise known as the
"Offshore Banking System Decree." (14a)
SECTION 73. Acquisition of Voting Stock in a Domestic Bank. — Within seven (7)
years from the effectivity of this Act and subject to guidelines issued pursuant to the
Foreign Banks Liberalization Act, the Monetary Board may authorize a foreign bank
to acquire up to one hundred percent (100%) of the voting stock of only one (1) bank
organized under the laws of the Republic of the Philippines.
Within the same period, the Monetary Board may authorize any foreign bank, which
prior to the effectivity of this Act availed itself of the privilege to acquire up to sixty
percent (60%) of the voting stock of a bank under the Foreign Banks Liberalization
Act and the Thrift Banks Act, to further acquire voting shares of such bank to the
extent necessary for it to own one hundred percent (100%) of the voting stock thereof.
In the exercise of this authority, the Monetary Board shall adopt measures as may be
necessary to ensure that at all times the control of seventy percent (70%) of the
resources or assets of the entire banking system is held by banks which are at least
majority-owned by Filipinos.
Any right, privilege or incentive granted to a foreign bank under this Section shall be
equally enjoyed by and extended under the same conditions to banks organized under
the laws of the Republic of the Philippines. (Secs. 2 and 3, RA 7721)
SECTION 74. Local Branches of Foreign Banks. — In the case of a foreign bank
which has more than one (1) branch in the Philippines, all such branches shall be
treated as one (1) unit for the purpose of this Act, and all references to the Philippine
branches of foreign banks shall be held to refer to such units. (68)
SECTION 75. Head Office Guarantee. — In order to provide effective protection of
the interests of the depositors and other creditors of Philippine branches of a foreign
bank, the head office of such branches shall fully guarantee the prompt payment of all
liabilities of its Philippine branch. (69)
Residents and citizens of the Philippines who are creditors of a branch in the
Philippines of a foreign bank shall have preferential rights to the assets of such branch
in accordance with existing laws. (19)
SECTION 76. Summons and Legal Process. — Summons and legal process served
upon the Philippine agent or head of any foreign bank designated to accept service
thereof shall give jurisdiction to the courts over such bank, and service of notices on
such agent or head shall be as binding upon the bank which he represents as if made
upon the bank itself.
Should the authority of such agent or head to accept service of summons and legal
processes for the bank or notice to it be revoked, or should such agent or head become
mentally incompetent or otherwise unable to accept service while exercising such
authority, it shall be the duty of the bank to name and designate promptly another agent
or head upon whom service of summons and processes in legal proceedings against
the bank and of notices affecting the bank may be made, and to file with the Securities
and Exchange Commission a duly authenticated nomination of such agent.
In the absence of the agent or head or should there be no person authorized by the bank
upon whom service of summons, processes and all legal notices may be made, service
of summons, processes and legal notices may be made upon the Bangko Sentral
Deputy Governor In-Charge of the supervising and examining departments and such
service shall be as effective as if made upon the bank or its duly authorized agent or
head.
In case of service for the bank upon the Bangko Sentral Deputy Governor In-Charge
of the supervising and examining departments, the said Deputy Governor shall register
and transmit by mail to the president or the secretary of the bank at its head or principal
office a copy, duly certified by him, of the summons, process, or notice. The sending
of such copy of the summons, process, or notice shall be a necessary part of the
services and shall complete the service. The registry receipt of mailing shall be prima
facie evidence of the transmission of the summons, process or notice. All costs
necessarily incurred by the said Deputy Governor for the making and mailing and
sending of a copy of the summons, process, or notice to the president or the secretary
of the bank at its head or principal office shall be paid in advance by the party at whose
instance the service is made. (17)
SECTION 77. Laws Applicable. — In all matters not specifically covered by special
provisions applicable only to a foreign bank or its branches and other offices in the
Philippines, any foreign bank licensed to do business in the Philippines shall be bound
by the provisions of this Act, all other laws, rules and regulations applicable to banks
organized under the laws of the Philippines of the same class, except those that provide
261
for the creation, formation, organization or dissolution of corporations or for the fixing
of the relations, liabilities, responsibilities, or duties of stockholders, members,
directors or officers of corporations to each other or to the corporation. (18)
SECTION 78. Revocation of License of a Foreign Bank. — The Monetary Board
may revoke the license to transact business in the Philippines of any foreign bank, if it
finds that the foreign bank is insolvent or in imminent danger thereof or that its
continuance in business will involve probable loss to those transacting business with
it. After the revocation of its license, it shall be unlawful for any such foreign bank to
transact business in the Philippines unless its license is renewed or reissued. After the
revocation of such license, the Bangko Sentral shall take the necessary action to protect
the creditors of such foreign bank and the public. The provisions of the New Central
Bank Act on sanctions and penalties shall likewise be applicable. (16)
CHAPTER IX
TRUST OPERATIONS
SECTION 79. Authority to Engage in Trust Business. — Only a stock corporation or
a person duly authorized by the Monetary Board to engage in trust business shall act
as a trustee or administer any trust or hold property in trust or on deposit for the use,
benefit, or behoof of others. For purposes of this Act, such a corporation shall be
referred to as a trust entity. (56a; 57a)
SECTION 80. Conduct of Trust Business. — A trust entity shall administer the funds
or property under its custody with the diligence that a prudent man would exercise in
the conduct of an enterprise of a like character and with similar aims.
No trust entity shall, for the account of the trustor or the beneficiary of the trust,
purchase or acquire property from, or sell, transfer, assign or lend money or property
to, or purchase debt instruments of, any of the departments, directors, officers,
stockholders, or employees of the trust entity, relatives within the first degree of
consanguinity or affinity, or the related interests, of such directors, officers and
stockholders, unless the transaction is specifically authorized by the trustor and the
relationship of the trustee and the other party involved in the transaction is fully
disclosed to the trustor or beneficiary of the trust prior to the transaction.
The Monetary Board shall promulgate such rules and regulations as may be necessary
to prevent circumvention of this prohibition or the evasion of the responsibility herein
imposed on a trust entity. (56)
SECTION 81. Registration of Articles of Incorporation and By-Laws of a Trust
Entity. — The Securities and Exchange Commission shall not register the articles of
incorporation and by-laws or any amendment thereto, of any trust entity, unless
accompanied by a certificate of authority issued by the Bangko Sentral. (n)
SECTION 82. Minimum Capitalization. — A trust entity, before it can engage in
trust or other fiduciary business, shall comply with the minimum paid-in capital
requirement which will be determined by the Monetary Board. (n)
SECTION 83. Powers of a Trust Entity. — A trust entity, in addition to
the general powers incident to corporations, shall have the power to:
83.1. Act as trustee on any mortgage or bond issued by any municipality, corporation,
or any body politic and to accept and execute any trust consistent with law;
83.2. Act under the order or appointment of any court as guardian, receiver, trustee,
or depositary of the estate of any minor or other incompetent person, and as receiver
and depositary of any moneys paid into court by parties to any legal proceedings and
of property of any kind which may be brought under the jurisdiction of the court;
83.3. Act as the executor of any will when it is named the executor thereof;
83.4. Act as administrator of the estate of any deceased person, with the will annexed,
or as administrator of the estate of any deceased person when there is no will;
83.5. Accept and execute any trust for the holding, management, and administration
of any estate, real or personal, and the rents, issues and profits thereof; and
83.6. Establish and manage common trust funds, subject to such rules and regulations
as may be prescribed by the Monetary Board. (58)
SECTION 84. Deposit for the Faithful Performance of Trust Duties. — Before
transacting trust business, every trust entity shall deposit with the Bangko Sentral as
security for the faithful performance of its trust duties, cash or securities approved by
the Monetary Board in an amount equal to not less than Five hundred thousand pesos
(P500,000.00) or such higher amount as may be fixed by the Monetary
Board: Provided, however, That the Monetary Board shall require every trust entity to
increase the amount of its cash or securities on deposit with the Bangko Sentral
whenever in its judgment such increase is necessary by reason of the trust business of
such entity: Provided, further, That the paid-in capital and surplus of such entity must
be at least equal to the amount required to be deposited with the Bangko Sentral in
accordance with the provisions of this paragraph. Should the capital and surplus fall
below said amount, the Monetary Board shall have the same authority as that granted
to it under the provisions of the fifth paragraph of Section 34 of this Act.
A trust entity so long as it shall continue to be solvent and comply with laws or
regulations shall have the right to collect the interest earned on such securities
deposited with the Bangko Sentral and, from time to time, with the approval of the
Bangko Sentral, to exchange the securities for others. If the trust entity fails to comply
with any law or regulation, the Bangko Sentral shall retain such interest on the
262
securities deposited with it for the benefit of rightful claimants. All claims arising out
of the trust business of a trust entity shall have priority over all other claims as regards
the cash or securities deposited as above provided. The Monetary Board may not
permit the cash or securities deposited in accordance with the provisions of this Section
to be reduced below the prescribed minimum amount until the depositing entity shall
discontinue its trust business and shall satisfy the Monetary Board that it has complied
with all its obligations in connection with such business. (65a)
SECTION 85. Bond of Certain Persons for the Faithful Performance of Duties. —
Before an executor, administrator, guardian, trustee, receiver or depositary appointed
by the court enters upon the execution of his duties, he shall, upon order of the court,
file a bond in such sum as the court may direct.
Upon the application of any executor, administrator, guardian, trustee, receiver,
depositary or any other person in interest, the court may, after notice and hearing, order
that the subject matter of the trust or any part thereof be deposited with a trust entity.
Upon presentation of proof to the court that the subject matter of the trust has been
deposited with a trust entity, the court may order that the bond given by such persons
for the faithful performance of their duties be reduced to such sums as it may deem
proper: Provided, however, That the reduced bond shall be sufficient to secure
adequately the proper administration and care of any property remaining under the
control of such persons and the proper accounting for such property.
Property deposited with any trust entity in conformity with this Section shall be held
by such entity under the orders and direction of the court. (59)
SECTION 86. Exemption of Trust Entity from Bond Requirement. — No bond or
other security shall be required by the court from a trust entity for the faithful
performance of its duties as court-appointed trustee, executor, administrator, guardian,
receiver, or depositary. However, the court may, upon proper application with it
showing special cause therefor, require the trust entity to post a bond or other security
for the protection of funds or property confided to such entity. (59)
SECTION 87. Separation of Trust Business from General Business. — The trust
business and all funds, properties or securities received by any trust entity as executor,
administrator, guardian, trustee, receiver, or depositary shall be kept separate and
distinct from the general business including all other funds, properties, and assets of
such trust entity. The accounts of all such funds, properties, or securities shall likewise
be kept separate and distinct from the accounts of the general business of the trust
entity. (61)
SECTION 88. Investment Limitations of a Trust Entity. — Unless otherwise directed
by the instrument creating the trust, the lending and investment of funds and other
assets acquired by a trust entity as executor, administrator, guardian, trustee, receiver
or depositary of the estate of any minor or other incompetent person shall be limited
to loans or investments as may be prescribed by law, the Monetary Board or any court
of competent jurisdiction. (63a)
SECTION 89. Real Estate Acquired by a Trust Entity. — Unless otherwise
specifically directed by the trustor or the nature of the trust, real estate acquired by a
trust entity in whatever manner and for whatever purpose, shall likewise be governed
by the relevant provisions of Section 52 of this Act. (64a)
SECTION 95. Repealing Clause. — Except as may be provided for in Sections 34
and 94 of this Act, the General Banking Act, as amended, and the provisions of any
other law, special charters, rule or regulation issued pursuant to
said General Banking Act, as amended, or parts thereof, which may be inconsistent
with the provisions of this Act are hereby repealed. The provisions of paragraph 8,
Section 8, Republic Act No. 3591, as amended by Republic Act No. 7400, are likewise
repealed. (90a)

SECTION 90. Investment of Non-Trust Funds. — The investment of funds other than
trust funds of a trust entity which is a bank, financing company or an investment house
shall be governed by the relevant provisions of this Act and other applicable laws. (64)
SECTION 91. Sanctions and Penalties. — A trust entity or any of its officers and
directors found to have willfully violated any pertinent provisions of this Act, shall be
subject to the sanctions and penalties provided under Section 66 of this Act as well as
Sections 36 and 37 of the New Central Bank Act. (63)
SECTION 96. Separability Clause. — If any provision or section of this Act or the
application thereof to any person or circumstance is held invalid, the other provisions
or sections of this Act, and the application of such provision or section to other persons
or circumstances, shall not be affected thereby. (n)
SECTION 97. Effectivity Clause. — This Act shall take effect fifteen (15) days
following its publication in the Official Gazette or in two (2) national newspapers
of general circulation. (91)

SECTION 92. Exemption of Trust Assets from Claims. — No assets held by a trust
entity in its capacity as trustee shall be subject to any claims other than those of the
parties interested in the specific trusts. (65)
SECTION 93. Establishment of Branches of a Trust Entity. — The ordinary business
of a trust entity shall be transacted at the place of business specified in its articles of
incorporation. Such trust entity may, with prior approval of the Monetary Board,
establish branches in the Philippines, and the said entity shall be responsible for all
business conducted in such branches to the same extent and in the same manner as
though such business had all been conducted in the head office.

For the purpose of this Act, the trust entity and its branches shall be treated as one unit.

CHAPTER X
FINAL PROVISIONS

SECTION 94. Phase Out of Bangko Sentral Powers Over Building and Loan
Associations. — Within a period of three (3) years from the effectivity of this Act, the
Bangko Sentral shall phase out and transfer its supervising and regulatory powers over
building and loan associations to the Home Insurance and Guaranty Corporation which
shall assume the same. Until otherwise provided by law, building and loan associations
shall continue to be governed by Sections 39 to 55, Chapter VI of
the General Banking Act, as amended, including such rules and regulations issued
pursuant thereto. Upon assumption by the Home Insurance and Guaranty Corporation
of supervising and regulatory powers over building and loan associations, all
references in Sections 39 to 55 of the General Banking Act, as amended, to the Bangko
Sentral and the Monetary Board shall be deemed to refer to the Home Insurance and
Guaranty Corporation and its board of directors, respectively. (n)

263
 LENDING COMPANY REGULATION ACT OF 2007
REPUBLIC ACT No. 9474 AS AMENDED BY REPUBLIC ACT 10881
SECTION 1. Title. — This Act shall be known as the "Lending Company Regulation
Act of 2007".
SECTION 2. Declaration of Policy. — It is hereby declared the policy of the State to
regulate the establishment of lending companies and to place their operation on a
sound, efficient and stable condition to derive the optimum advantages from them as
an additional source of credit; to prevent and mitigate, as far as practicable, practices
prejudicial to public interest; and to lay down the minimum requirements and
standards under which they may be established and do business.
SECTION 3. Definition of Terms. — For purposes of implementing this Act, the
following definitions shall apply:
(a) Lending Company shall refer to a corporation engaged in granting loans from
its own capital funds or from funds sourced from not more than nineteen (19)
persons. It shall not be deemed to include banking institutions, investment
houses, savings and loan associations, financing companies, pawnshops,
insurance companies, cooperatives and other credit institutions already
regulated by law. The term shall be synonymous with lending investors.
(b) Debtor shall refer to a borrower or person granted a loan by the lending
company.
(c) Quasi-Bank shall refer to a non-bank financial institution authorized by the
BSP to engage in quasi-banking functions and to borrow funds from more
than nineteen (19) lenders through the issuance, endorsement or assignment
with recourse or acceptance of deposit substitutes as defined in Section 95
of Republic Act No. 7653 (the "New Central Bank Act") for purposes of
relending or purchasing of receivables and other obligations.
(d) Subsidiary shall refer to a corporation more than fifty percent (50%) of the
voting stock of which is owned by a bank or quasi-bank.
(e) Affiliate shall refer to a corporation, the voting stock of which, to the extent
of fifty percent (50%) or less, is owned by a bank or quasi-bank which is
related or linked to such institution through common stockholders or such
other factors as may be determined by the Monetary Board of the BSP.
(f) SEC shall refer to the Securities and Exchange Commission.
(g) BSP shall refer to the Bangko Sentral ng Pilipinas.
SECTION 4. Form of Organization. — A lending company shall be established only
as a corporation: Provided, That existing lending investors organized as single
proprietorships or partnerships shall be disallowed from engaging in the business of
granting loans to the public one year after the date of effectivity of this Act.
No lending company shall conduct business unless granted an authority to operate by
the SEC.
264
SECTION 5. Capital. — The minimum paid-in capital of any lending company which
may be established after the effectivity of this Act shall be One million pesos
(P1,000,000.00): Provided, however, That lending companies established and in
operation prior thereto shall comply with the minimum capitalization required under
the provisions of this Section within such time as may be prescribed by the SEC which
time shall, in no case, be less than three years from the date of effectivity of this Act
and: Provided, further, That the SEC may prescribe a higher minimum capitalization
if warranted by circumstances.
SECTION. 6. Citizenship Requirements. - A lending company may be owned up to
one hundred percent (100%) by foreign nationals: Provided, However, That where the
loan is secured by land, a lending company, more than forty percent (46%) of whose
capital is owned by foreign nationals, may bid and take part in any sale of such land
as a consequence of such mortgage, avail of enforcement proceedings, take possession,
and transfer their rights to qualified Philippine nationals for a period not exceeding
five (5) years from actual possession: Provided, further, That title to said land shall
not be transferred to such lending companies: Provided, finally, That investments of a
lending company shall be in accordance with the provisions of the Constitution.
SECTION 7. Amount and Charges on Loans. — A lending company may grant loans
in such amounts and reasonable interest rates and charges as may be agreed upon
between the lending company and the debtor: Provided, That the agreement shall be
in compliance with the provisions of Republic Act No. 3765, otherwise known as the
"Truth in Lending Act" and Republic Act 7394, otherwise known as the "Consumer
Act of the Philippines": Provided, further, That the Monetary Board, in consultation
with the SEC and the industry, may prescribe such interest rate as may be warranted
by prevailing economic and social conditions.
SECTION 8. Maintenance of Books of Accounts and Records. — Every lending
company shall maintain books of accounts and records as may be required by the SEC
and prescribed by the Bureau of Internal Revenue and other government agencies. In
case a lending company engages in other businesses, it shall maintain separate books
of accounts for these businesses.
The Manual of Accounts prescribed by the BSP for lending investors shall continue to
be adopted by lending companies for uniform recording and reporting of their
operations, until a new Manual of Accounts shall have been prescribed by the SEC.
It shall issue the appropriate instruments and documents to the parties concerned to
evidence its lending and borrowing transactions.
SECTION 9. Authority of the SEC. — The SEC is hereby authorized to:
(a) Create a new division or bureau within its control to regulate and supervise
the operations and activities of lending companies in the country;
(b) Issue rules and regulations to implement the provisions contained herein;
 (c) Issue rules and regulations on, among other things, minimum capitalization,
uses of funds received, method of marketing and distribution, maturity of
funds received, restrictions or outright prohibition of purchases or sales of
receivables with or without recourse basis;
(d) Require from lending companies reports of condition and such other reports
necessary to determine compliance with the provisions of this Act;
(e) Exercise visitorial powers whenever deemed necessary; and
(f) Impose such administrative sanctions including suspension or revocation of
the lending company's authority to operate and the imposition of fines for
violations of this Act and regulations issued by the SEC in pursuance thereto.
a. Knowingly and willingly make any statement in any application, report,
or document required to be filed under this Act, which statement is false
or misleading with respect to any material fact; and
b. Overvalue or aid in overvaluing any security for the purpose of
influencing in any way the action of the company in any loan, or
discounting line.
4. Any officer, employee or examiner of the SEC directly charged with the
implementation of this Act or of other government agencies who shall commit,
connive, aid, or assist in the commission of acts enumerated under Subsections
1 and 2 of this Section.

SECTION 10. Implementing Rules and Regulations. — Within three months after the
approval of this Act, the SEC shall promulgate the necessary rules and regulations
implementing the provisions of this Act.
SECTION 11. Delineation of Authority between SEC and the BSP. — Lending
companies shall be under the supervision and regulation of the SEC: Provided,
however, That lending companies which are subsidiaries and affiliates of banks and
quasi-banks shall be subject to BSP supervision and examination in accordance
with Republic Act No. 7653: Provided, further, That the Monetary Board, after being
satisfied that there is reasonable ground to believe that a lending company is being
used as a conduit by a bank, quasi-bank or their subsidiary/affiliate to circumvent or
violate BSP rules and regulations, may order an examination of the lending company's
books and accounts.
SECTION 13. Matters not Covered by this Act. — The provisions of Republic Act
No. 3765, otherwise known as the "Truth in Lending Act", Republic Act No. 7394 or
the "Consumer Act of the Philippines" and other existing laws, insofar as they are not
in conflict with any provision of this Act, shall apply in matters not otherwise
specifically provided in this Act.
SECTION 14. Repealing Clause. — All laws, executive orders, letters of instruction,
rules and regulations, or provisions thereof which are inconsistent with the provisions
of this Act are hereby repealed, amended or modified accordingly.
SECTION 15. Separability Clause. — If any portion hereof shall be held invalid or
unconstitutional, such invalidity or unconstitutionality shall not affect the other
provisions which shall remain in full force and effect.

SECTION 12. Penalty. — A fine of not less than Ten thousand pesos (P10,000.00) SECTION 16. Effectivity. — This Act shall take effect fifteen (15) days after its
and not more than Fifty thousand pesos (P50,000.00) or imprisonment of not less than publication in at least two national newspapers of general circulation.
six months but not more than ten (10) years or both, at the discretion of the court, shall
be imposed upon:
1. Any person who shall engage in the business of a lending company without a
validly subsisting authority to operate from the SEC.
2. The president, treasurer and other officers of the corporation, including the
managing officer thereof, who shall knowingly and willingly:
a. Engage in the business of a lending company without a validly subsisting
authority to operate from the SEC;
b. Hold themselves out to be a lending company, either through
advertisement in whatever form, whether in its stationery, commercial
paper, or other document, or through other representations without
authority; IADCES
c. Make use of a trade or firm name containing the words "lending
company" or "lending investor" or any other designation that would give
the public the impression that it is engaged in the business of a lending
company as defined in this Act without authority; and
d. Violate the provisions of this Act.
3. Any officer, employee, or agent of a lending company who shall:

265
 INTELLECTUAL PROPERTY CODE OF THE PHILIPPINES
REPUBLIC ACT No. 8293 AS AMENDED BY REPUBLIC ACT Nos.
9150, 9502, 10372
PART I
THE INTELLECTUAL PROPERTY OFFICE
SECTION 1. Title. — This Act shall be known as the "Intellectual Property Code of
the Philippines."
SECTION 2. Declaration of State Policy. — The State recognizes that an effective
intellectual and industrial property system is vital to the development of domestic and
creative activity, facilitates transfer of technology, attracts foreign investments, and
ensures market access for our products. It shall protect and secure the exclusive rights
of scientists, inventors, artists and other gifted citizens to their intellectual property
and creations, particularly when beneficial to the people, for such periods as provided
in this Act.
The use of intellectual property bears a social function. To this end, the State shall
promote the diffusion of knowledge and information for the promotion of national
development and progress and the common good.
It is also the policy of the State to streamline administrative procedures of registering
patents, trademarks and copyright, to liberalize the registration on the transfer of
technology, and to enhance the enforcement of intellectual property rights in the
Philippines. (n)
SECTION 3. International Conventions and Reciprocity. — Any person who is a
national or who is domiciled or has a real and effective industrial establishment in a
country which is a party to any convention, treaty or agreement relating to intellectual
property rights or the repression of unfair competition, to which the Philippines is also
a party, or extends reciprocal rights to nationals of the Philippines by law, shall be
entitled to benefits to the extent necessary to give effect to any provision of such
convention, treaty or reciprocal law, in addition to the rights to which any owner of an
intellectual property right is otherwise entitled by this Act. (n)
SECTION 4. Definitions. — 4.1. The term "intellectual property rights" consists of:
a) Copyright and Related Rights;
b) Trademarks and Service Marks;
c) Geographic Indications;
d) Industrial Designs;
e) Patents;
f) Layout-Designs (Topographies) of Integrated Circuits; and
g) Protection of Undisclosed Information (n, TRIPS).
266
4.2. The term "technology transfer arrangements" refers to contracts or agreements
involving the transfer of systematic knowledge for the manufacture of a product, the
application of a process, or rendering of a service including management contracts;
and the transfer, assignment or licensing of all forms of intellectual property rights,
including licensing of computer software except computer software developed for
mass market.
4.3. The term "Office" refers to the Intellectual Property Office created by this Act.
4.4. The term "IPO Gazette" refers to the gazette published by the Office under this
Act. (n)
SECTION 5. Functions of the Intellectual Property Office (IPO). — 5.1. To
administer and implement the State policies declared in this Act, there is hereby
created the Intellectual Property Office (IPO) which shall have the following
functions:
a) Examine applications for grant of letters patent for inventions and register
utility models and industrial designs;
b) Examine applications for the registration of marks, geographic indication,
integrated circuits;
c) Register technology transfer arrangements and settle disputes involving
technology transfer payments covered by the provisions of Part II, Chapter IX
on Voluntary Licensing and develop and implement strategies to promote and
facilitate technology transfer;
d) Promote the use of patent information as a tool for technology development;
e) Publish regularly in its own publication the patents, marks, utility models and
industrial designs, issued and approved, and the technology transfer
arrangements registered;
f) Administratively adjudicate contested proceedings affecting intellectual
property rights; and
g) Coordinate with other government agencies and the private sector efforts to
formulate and implement plans and policies to strengthen the protection of
intellectual property rights in the country.
5.2. The Office shall have custody of all records, books, drawings, specifications,
documents, and other papers and things relating to intellectual property rights
applications filed with the Office. (n)
SECTION 6. The Organizational Structure of the IPO. — 6.1. The Office shall be
headed by a Director General who shall be assisted by two (2) Deputies Director
General
6.2. the Office shall be divided into seven (7) Bureaus, each of which shall be headed
by a Director and assisted by an Assistant Director. These Bureaus are:
a. a)The Bureau of Patents;
 b) The Bureau of Trademarks;
c) The Bureau of Legal Affairs;
d) The Documentation, Information and Technology Transfer Bureau;
e) The Management Information System and EDP Bureau; and
f) the Administrative, Financial and Personnel Services Bureau; and
g) the Bureau of Copyright and Other Related Rights."
6.3. The Director General, Deputies Director General, Directors and Assistant
Directors shall be appointed by the President, and the other officers and employees of
the Office by the Secretary of Trade and Industry, conformably with and under
the Civil Service Law.
SECTION 7. The Director General and Deputies Director General. —
7.1. Functions. — The Director General shall exercise the following powers and
functions:
a) Manage and direct all functions and activities of the Office, including the
promulgation of rules and regulations to implement the objectives, policies,
plans, programs and projects of the Office: Provided, That in the exercise of the
authority to propose policies and standards in relation to the following: (1) the
effective, efficient, and economical operations of the Office requiring statutory
enactment; (2) coordination with other agencies of government in relation to the
enforcement of intellectual property rights; (3) the recognition of attorneys,
agents, or other persons representing applicants or other parties before the
Office; and (4) the establishment of fees for the filing and processing of an
application for a patent, utility model or industrial design or mark or a collective
mark, geographic indication and other marks of ownership, and for all other
services performed and materials furnished by the Office, the Director General
shall be subject to the supervision of the Secretary of Trade and Industry;
b) Exercise exclusive appellate jurisdiction over all decisions rendered by the
Director of Legal Affairs, the Director of Patents, the Director of Trademarks,
the Director of Copyright and Other Related Rights, and the Director of the
Documentation, Information and Technology Transfer Bureau. the decisions of
the Director General in the exercise of his appellate jurisdiction in respect of the
decisions of the Director of Patents, the Director of Trademarks and the Director
of Copyright and Other Related Rights shall be appealable to the Court of
Appeals in accordance with the Rules of Court; and those in respect of the
decisions of the Director of the Documentation, Information and Technology
Transfer Bureau shall be appealable to the Secretary of Trade and Industry;
c) Undertake enforcement functions supported by concerned agencies such as the
Philippine National Police, the National Bureau of Investigation, the Bureau of
Customs, the Optical Media Board, and the local government units, among
others;
d) Conduct visits during reasonable hours to establishments and businesses
engaging in activities violating intellectual property rights and provisions of this
Act based on report, information or complaint received by the office; and
267
e) Such other functions in furtherance of protecting IP rights and objectives of this
Act.
7.2. Qualifications. — The Director General and the Deputies Director General must
be natural born citizens of the Philippines, at least thirty-five (35) years of age on the
day of their appointment, holders of a college degree, and of proven competence,
integrity, probity and independence: Provided, That the Director General and at least
one (1) Deputy Director General shall be members of the Philippine Bar who have
engaged in the practice of law for at least ten (10) years: Provided, further, That in the
selection of the Director General and the Deputies Director General, consideration
shall be given to such qualifications as would result, as far as practicable, in the
balanced representation in the Directorate General of the various fields of intellectual
property.
7.3. Term of Office. — The Director General and the Deputies Director General shall
be appointed by the President for a term of five (5) years and shall be eligible for
reappointment only once: Provided, That the first Director General shall have a first
term of seven (7) years. Appointment to any vacancy shall be only for the unexpired
term of the predecessor.
7.4. The Office of the Director General. — The Office of the Director General shall
consist of the Director General and the Deputies Director General, their immediate
staff and such Offices and Services that the Director General will set up to support
directly the Office of the Director General. (n)
SECTION 8. The Bureau of Patents. — The Bureau of Patents shall have the
following functions:
8.1. Search and examination of patent applications and the grant of patents;
8.2. Registration of utility models, industrial designs, and integrated circuits; and
8.3. Conduct studies and researches in the field of patents in order to assist the Director
General in formulating policies on the administration and examination of patents.
SECTION 9. The Bureau of Trademarks. — The Bureau of Trademarks shall have
the following functions:
9.1. Search and examination of the applications for the registration of marks,
geographic indications and other marks of ownership and the issuance of the
certificates of registration; and
9.2. Conduct studies and researches in the field of trademarks in order to assist the
Director General in formulating policies on the administration and examination of
trademarks. (n)
SECTION. 9A. The Bureau of Copyright and Other Related Rights. – the Bureau of
Copyright and Other Related Rights shall have the following functions:
9A.1. Exercise original jurisdiction to resolve disputes relating to the terms of a license
involving the author’s right to public performance or other communication of his
work;
9A.2. Accept, review and decide on applications for the accreditation of collective
management organizations or similar entities;
9A.3. Conduct studies and researches in the field of copyright and related rights; and
9A.4. Provide other copyright and related rights service and charge reasonable fees
therefor."
SECTION 10. The Bureau of Legal Affairs. — The Bureau of Legal Affairs shall have
the following functions:
10.1. Hear and decide opposition to the application for registration of marks;
cancellation of trademarks; subject to the provisions of Section 64, cancellation of
patents, utility models, and industrial designs; and petitions for compulsory licensing
of patents;
10.2.
(a) Exercise original jurisdiction in administrative complaints for violations of
laws involving intellectual property rights: Provided, That its jurisdiction is
limited to complaints where the total damages claimed are not less than Two
hundred thousand pesos (P200,000): Provided, further, That availment of the
provisional remedies may be granted in accordance with the Rules of Court.
The Director of Legal Affairs shall have the power to hold and punish for
contempt all those who disregard orders or writs issued in the course of the
proceedings. (n)
(b) After formal investigation, the Director for Legal Affairs may impose one (1)
or more of the following administrative penalties:
(i) The issuance of a cease and desist order which shall specify the acts that
the respondent shall cease and desist from and shall require him to submit a
compliance report within a reasonable time which shall be fixed in the order;
(ii) The acceptance of a voluntary assurance of compliance or discontinuance
as may be imposed. Such voluntary assurance may include one or more of
the following:
(1) An assurance to comply with the provisions of the intellectual
property law violated;
(2) An assurance to refrain from engaging in unlawful and unfair acts
and practices subject of the formal investigation;
268
(3) An assurance to recall, replace, repair, or refund the money value of
defective goods distributed in commerce; and
(4) An assurance to reimburse the complainant the expenses and costs
incurred in prosecuting the case in the Bureau of Legal Affairs.
The Director of Legal Affairs may also require the respondent to
submit periodic compliance reports and file a bond to guarantee
compliance of his undertaking;
(iii) The condemnation or seizure of products which are subject of the
offense. The goods seized hereunder shall be disposed of in such manner as
may be deemed appropriate by the Director of Legal Affairs, such as by sale,
donation to distressed local governments or to charitable or relief institutions,
exportation, recycling into other goods, or any combination thereof, under
such guidelines as he may provide;
(iv) The forfeiture of paraphernalia and all real and personal properties which
have been used in the commission of the offense;
(v) The imposition of administrative fines in such amount as deemed
reasonable by the Director of Legal Affairs, which shall in no case be less
than Five thousand pesos (P5,000) nor more than One hundred fifty thousand
pesos (P150,000). In addition, an additional fine of not more than One
thousand pesos (P1,000) shall be imposed for each day of continuing
violation;
(vi) The cancellation of any permit, license, authority, or registration which
may have been granted by the Office, or the suspension of the validity thereof
for such period of time as the Director of Legal Affairs may deem reasonable
which shall not exceed one (1) year;
(vii) The withholding of any permit, license, authority, or registration which
is being secured by the respondent from the Office;
(viii) The assessment of damages;
(ix) Censure; and
(x) Other analogous penalties or sanctions. (Secs. 6, 7, 8, and 9, Executive
Order No. 913 [1983]a)
10.3. The Director General may by Regulations establish the procedure to govern the
implementation of this Section. (n)
SECTION 11. The Documentation, Information and Technology Transfer Bureau. —
The Documentation, Information and Technology Transfer Bureau shall have the
following functions:
11.1. Support the search and examination activities of the Office through the following
activities:
(a) Maintain and upkeep classification systems whether they be national or
international such as the International Patent Classification (IPC) system;
(b) Provide advisory services for the determination of search patterns;
(c) Maintain search files and search rooms and reference libraries; and
 (d) Adapt and package industrial property information.
11.2. Establish networks or intermediaries or regional representatives;
11.3. Educate the public and build awareness on intellectual property through the
conduct of seminars and lectures, and other similar activities;
11.4. Establish working relations with research and development institutions as well
as with local and international intellectual property professional groups and the like;
11.5. Perform state-of-the-art searches;
11.6. Promote the use of patent information as an effective tool to facilitate the
development of technology in the country;
11.7. Provide technical, advisory, and other services relating to the licensing and
promotion of technology, and carry out an efficient and effective program for
technology transfer; and
11.8. Register technology transfer arrangements, and settle disputes involving
technology transfer payments. (n)
SECTION 12. The Management Information Services and EDP Bureau. — The
Management Information Services and EDP Bureau shall:
12.1. Conduct automation planning, research and development, testing of systems,
contracts with firms, contracting, purchase and maintenance of equipment, design and
maintenance of systems, user consultation, and the like; and
12.2. Provide management information support and service to the Office. (n)
SECTION 13. The Administrative, Financial and Human Resource Development
Service Bureau. — 13.1. The Administrative Service shall:
(a) Provide services relative to procurement and allocation of supplies and
equipment, transportation, messengerial work, cashiering, payment of
salaries and other Office's obligations, office maintenance, proper safety and
security, and other utility services; and comply with government regulatory
requirements in the areas of performance appraisal, compensation and
benefits, employment records and reports;
(b) Receive all applications filed with the Office and collect fees therefor; and
(c) Publish patent applications and grants, trademark applications, and
registration of marks, industrial designs, utility models, geographic
indication, and lay-out-designs of integrated circuits registrations.
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13.2. The Patent and Trademark Administration Services shall perform the following
functions among others:
(a) Maintain registers of assignments, mergings, licenses, and bibliographic on
patents and trademarks;
(b) Collect maintenance fees, issue certified copies of documents in its custody
and perform similar other activities; and
(c) Hold in custody all the applications filed with the office, and all patent grants,
certificate of registrations issued by the office, and the like.
13.3. The Financial Service shall formulate and manage a financial program to ensure
availability and proper utilization of funds; provide for an effective monitoring system
of the financial operations of the Office; and
13.4. The Human Resource Development Service shall design and implement human
resource development plans and programs for the personnel of the Office; provide for
present and future manpower needs of the organization; maintain high morale and
favorable employee attitudes towards the organization through the continuing design
and implementation of employee development programs. (n)
SECTION 14. Use of Intellectual Property Rights Fees by the IPO. — 14.1. For a
more effective and expeditious implementation of this Act, the Director General shall
be authorized to retain, without need of a separate approval from any government
agency, and subject only to the existing accounting and auditing rules and regulations,
all the fees, fines, royalties and other charges, collected by the Office under this Act
and the other laws that the Office will be mandated to administer, for use in its
operations, like upgrading of its facilities, equipment outlay, human resource
development, and the acquisition of the appropriate office space, among others, to
improve the delivery of its services to the public. This amount, which shall be in
addition to the Office's annual budget, shall be deposited and maintained in a separate
account or fund, which may be used or disbursed directly by the Director General.
14.2. After five (5) years from the coming into force of this Act, the Director General
shall, subject to the approval of the Secretary of Trade and Industry, determine if the
fees and charges mentioned in Subsection 14.1 hereof that the Office shall collect are
sufficient to meet its budgetary requirements. If so, it shall retain all the fees and
charges it shall collect under the same conditions indicated in said Subsection 14.1 but
shall forthwith, cease to receive any funds from the annual budget of the National
Government; if not, the provisions of said Subsection 14.1 shall continue to apply until
such time when the Director General, subject to the approval of the Secretary of Trade
and Industry, certifies that the above-stated fees and charges the Office shall collect
are enough to fund its operations. (n)
SECTION 15. Special Technical and Scientific Assistance. — The Director General
is empowered to obtain the assistance of technical, scientific or other qualified officers
and employees of other departments, bureaus, offices, agencies and instrumentalities
of the Government, including corporations owned, controlled or operated by the
Government, when deemed necessary in the consideration of any matter submitted to
the Office relative to the enforcement of the provisions of this Act. (Sec. 3, R.A. No.
165a)
SECTION 16. Seal of Office. — The Office shall have a seal, the form and design of
which shall be approved by the Director General. (Sec. 4, R.A. No. 165a)
SECTION 17. Publication of Laws and Regulations. — The Director General shall
cause to be printed and make available for distribution, pamphlet copies of this Act,
other pertinent laws, executive orders and information circulars relating to matters
within the jurisdiction of the Office. (Sec. 5, R.A. No. 165a)
SECTION 18. The IPO Gazette. — All matters required to be published under this
Act shall be published in the Office's own publication to be known as the IPO Gazette.
SECTION 19. Disqualification of Officers and Employees of the Office. — All
officers and employees of the Office shall not apply or act as an attorney or patent
agent of an application for a grant of patent, for the registration of a utility model,
industrial design or mark nor acquire, except by hereditary succession, any patent or
utility model, design registration, or mark or any right, title or interest therein during
their employment and for one (1) year thereafter. (Sec. 77, R.A. No. 165a)
PART II
THE LAW ON PATENTS
CHAPTER I
General Provisions
SECTION 20. Definition of Terms Used in Part II, The Law on Patents. — As used
in Part II, the following terms shall have the following meanings:
(a) 20.1. "Bureau" means the Bureau of Patents;
(b) 20.2. "Director" means the Director of Patents;
(c) 20.3. "Regulations" means the Rules of Practice in Patent Cases formulated
by the Director of Patents and promulgated by the Director General;
(d) 20.4. "Examiner" means the patent examiner;
(e) 20.5. "Patent application" or "application" means an application for a patent
for an invention except in Chapters XII and XIII, where "application" means
an application for a utility model and an industrial design, respectively; and
(f) 20.6. "Priority date" means the date of filing of the foreign application for the
same invention referred to in Section 31 of this Act. (n)
CHAPTER II
Patentability
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SECTION 21. Patentable Inventions. — Any technical solution of a problem in any
field of human activity which is new, involves an inventive step and is industrially
applicable shall be patentable. It may be, or may relate to, a product, or process, or an
improvement of any of the foregoing. (Sec. 7, R.A. No. 165a)
SECTION 22. Non-Patentable Inventions. — The following shall be excluded from
patent protection:
22.1. Discoveries, scientific theories and mathematical methods, and in the case of
drugs and medicines, the mere discovery of a new form or new property of a known
substance which does not result in the enhancement of the known efficacy of that
substance, or the mere discovery of any new property or new use for a known
substance, or the mere use of a known process unless such known process results in a
new product that employs at least one new reactant.
For the purpose of this clause, salts, esters, ethers, polymorphs, metabolites, pure form,
particle size, isomers, mixtures of isomers, complexes, combinations, and other
derivatives of a known substance shall be considered to be the same substance, unless
they differ significantly in properties with regard to efficacy;
22.2. Schemes, rules and methods of performing mental acts, playing games or doing
business, and programs for computers;
22.3. Methods for treatment of the human or animal body by surgery or therapy and
diagnostic methods practiced on the human or animal body. This provision shall not
apply to products and composition for use in any of these methods;
22.4. Plant varieties or animal breeds or essentially biological process for the
production of plants or animals. This provision shall not apply to micro-organisms and
non-biological and microbiological processes.
Provisions under this subsection shall not preclude Congress to consider the enactment
of a law providing sui generis protection of plant varieties and animal breeds and a
system of community intellectual rights protection:
22.5. Aesthetic creations; and
22.6. Anything which is contrary to public order or morality. (Sec. 8, R.A. No. 165a)
SECTION 23. Novelty. — An invention shall not be considered new if it forms part
of a prior art. (Sec. 9, R.A. No. 165a)
SECTION 24. Prior Art. — Prior art shall consist of:
24.1. Everything which has been made available to the public anywhere in the world,
before the filing date or the priority date of the application claiming the invention; and
24.2. The whole contents of an application for a patent, utility model, or industrial
design registration, published in accordance with this Act, filed or effective in the
Philippines, with a filing or priority date that is earlier than the filing or priority date
of the application: Provided, That the application which has validly claimed the filing
date of an earlier application under Section 31 of this Act, shall be prior art with effect
as of the filing date of such earlier application: Provided, further, That the applicant
or the inventor identified in both applications are not one and the same. (Sec. 9, R.A.
No. 165a)
SECTION 25. Non-Prejudicial Disclosure. — 25.1. The disclosure of information
contained in the application during the twelve (12) months preceding the filing date or
the priority date of the application shall not prejudice the applicant on the ground of
lack of novelty if such disclosure was made by:
(a) The inventor;
(b) A patent office and the information was contained (a) in another application
filed by the inventor and should not have been disclosed by the office, or (b)
in an application filed without the knowledge or consent of the inventor by a
third party which obtained the information directly or indirectly from the
inventor; or
(c) A third party which obtained the information directly or indirectly from the
inventor.
25.2. For the purposes of Subsection 25.1, "inventor" also means any person who, at
the filing date of application, had the right to the patent. (n)
SECTION. 26. Inventive Step. - 26.1. An invention involves an inventive step if,
having regard to prior art, it is not obvious to a person skilled in the art at the time of
the filing date or priority date of the application claiming the invention. (n)
26.2. In the case of drugs and medicines, there is no inventive step if the invention
results from the mere discovery of a new form or new property of a known substance
which does not result in the enhancement of the known efficacy of that substance, or
the mere discovery of any new property or new use for a known substance, or the mere
use of a known process unless such known process results in a new product that
employs at least one new reactant.
SECTION 27. Industrial Applicability. — An invention that can be produced and
used in any industry shall be industrially applicable.
CHAPTER III
RIGHT TO A PATENT
SECTION 28. Right to a Patent. — The right to a patent belongs to the inventor, his
heirs, or assigns. When two (2) or more persons have jointly made an invention, the
right to a patent shall belong to them jointly. (Sec. 10, R.A. No. 165a)
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SECTION 29. First to File Rule. — If two (2) or more persons have made the
invention separately and independently of each other, the right to the patent shall
belong to the person who filed an application for such invention, or where two or more
applications are filed for the same invention, to the applicant who has the earliest filing
date or, the earliest priority date. (3rd sentence, Sec. 10, R.A. No. 165a)
SECTION 30. Inventions Created Pursuant to a Commission. — 30.1. The person
who commissions the work shall own the patent, unless otherwise provided in the
contract.
30.2. In case the employee made the invention in the course of his employment
contract, the patent shall belong to:
(a) The employee, if the inventive activity is not a part of his regular duties even
if the employee uses the time, facilities and materials of the employer.
(b) The employer, if the invention is the result of the performance of his
regularly-assigned duties, unless there is an agreement, express or implied, to
the contrary. (n)
SECTION 31. Right of Priority. — An application for patent filed by any person who
has previously applied for the same invention in another country which by treaty,
convention, or law affords similar privileges to Filipino citizens, shall be considered
as filed as of the date of filing the foreign application: Provided, That: (a) the local
application expressly claims priority; (b) it is filed within twelve (12) months from the
date the earliest foreign application was filed; and (c) a certified copy of the foreign
application together with an English translation is filed within six (6) months from the
date of filing in the Philippines. (Sec. 15, R.A. No. 165a)
CHAPTER IV
PATENT APPLICATION
SECTION 32. The Application. — 32.1. The patent application shall be in Filipino or
English and shall contain the following:
(a) A request for the grant of a patent;
(b) A description of the invention;
(c) Drawings necessary for the understanding of the invention;
(d) One or more claims; and
(e) An abstract.
32.2. No patent may be granted unless the application identifies the inventor. If the
applicant is not the inventor, the Office may require him to submit said authority. (Sec.
13, R.A. No. 165a)
SECTION 33. Appointment of Agent or Representative. — An applicant who is not a
resident of the Philippines must appoint and maintain a resident agent or representative
in the Philippines upon whom notice or process for judicial or administrative
procedure relating to the application for patent or the patent may be served. (Sec. 11,
R.A. No. 165a)
SECTION 34. The Request. — The request shall contain a petition for the grant of the
patent, the name and other data of the applicant, the inventor and the agent and the title
of the invention. (n)
SECTION 35. Disclosure and Description of the Invention. — 35.1. Disclosure. —
The application shall disclose the invention in a manner sufficiently clear and complete
for it to be carried out by a person skilled in the art. Where the application concerns a
microbiological process or the product thereof and involves the use of a micro-
organism which cannot be sufficiently disclosed in the application in such a way as to
enable the invention to be carried out by a person skilled in the art, and such material
is not available to the public, the application shall be supplemented by a deposit of
such material with an international depository institution.
35.2. Description. — The Regulations shall prescribe the contents of the description
and the order of presentation. (Sec. 14, R.A. No. 165a)
SECTION 36. The Claims. — 36.1. The application shall contain one (1) or more
claims which shall define the matter for which protection is sought. Each claim shall
be clear and concise, and shall be supported by the description.
36.2.The Regulations shall prescribe the manner of the presentation of claims. (n)
SECTION 37. The Abstract. — The abstract shall consist of a concise summary of
the disclosure of the invention as contained in the description, claims and drawings in
preferably not more than one hundred fifty (150) words. It must be drafted in a way
which allows the clear understanding of the technical problem, the gist of the solution
of that problem through the invention, and the principal use or uses of the invention.
The abstract shall merely serve for technical information. (n)
SECTION 38. Unity of Invention. — 38.1. The application shall relate to one
invention only or to a group of inventions forming a single general inventive concept.
38.2. If several independent inventions which do not form a single general inventive
concept are claimed in one application, the Director may require that the application
be restricted to a single invention. A later application filed for an invention divided out
shall be considered as having been filed on the same day as the first
application: Provided, That the later application is filed within four (4) months after
the requirement to divide becomes final, or within such additional time, not exceeding
four (4) months, as may be granted: Provided, further, That each divisional application
shall not go beyond the disclosure in the initial application.
38.3.The fact that a patent has been granted on an application that did not comply with
the requirement of unity of invention shall not be a ground to cancel the patent. (Sec.
17, R.A. No. 165a)
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SECTION 39. Information Concerning Corresponding Foreign Application for
Patents. — The applicant shall, at the request of the Director, furnish him with the date
and number of any application for a patent filed by him abroad, hereafter referred to
as the "foreign application," relating to the same or essentially the same invention as
that claimed in the application filed with the Office and other documents relating to
the foreign application. (n)
CHAPTER V
PROCEDURE FOR GRANT OF PATENT
SECTION 40. Filing Date Requirements. — 40.1. The filing date of a patent
application shall be the date of receipt by the Office of at least the following elements:
(a) An express or implicit indication that a Philippine patent is sought;
(b) Information identifying the applicant; and
(c) Description of the invention and one (1) or more claims in Filipino or English.
40.2. If any of these elements is not submitted within the period set by the Regulations,
the application shall be considered withdrawn. (n)
SECTION 41. According a Filing Date. — The Office shall examine whether the
patent application satisfies the requirements for the grant of date of filing as provided
in Section 40 hereof. If the date of filing cannot be accorded, the applicant shall be
given an opportunity to correct the deficiencies in accordance with the implementing
Regulations. If the application does not contain all the elements indicated in Section
40, the filing date should be that date when all the elements are received. If the
deficiencies are not remedied within the prescribed time limit, the application shall be
considered withdrawn. (n)
SECTION 42. Formality Examination. — 42.1. After the patent application has been
accorded a filing date and the required fees have been paid on time in accordance with
the Regulations, the applicant shall comply with the formal requirements specified by
Section 32 and the Regulations within the prescribed period, otherwise the application
shall be considered withdrawn.
42.2. The Regulations shall determine the procedure for the re-examination and revival
of an application as well as the appeal to the Director of Patents from any final action
by the examiner. (Sec. 16, R.A. No. 165a)
SECTION 43. Classification and Search. — An application that has complied with
the formal requirements shall be classified and a search conducted to determine the
prior art. (n)
SECTION 44. Publication of Patent Application. — 44.1. The patent application shall
be published in the IPO Gazette together with a search document established by or on
behalf of the Office citing any documents that reflect prior art, after the expiration of
eighteen (18) months from the filing date or priority date.
44.2. After publication of a patent application, any interested party may inspect the
application documents filed with the Office.
44.3. The Director General, subject to the approval of the Secretary of Trade and
Industry, may prohibit or restrict the publication of an application, if in his opinion, to
do so would be prejudicial to the national security and interests of the Republic of the
Philippines. (n)
SECTION 45. Confidentiality Before Publication. — A patent application, which has
not yet been published, and all related documents, shall not be made available for
inspection without the consent of the applicant. (n)
SECTION 46. Rights Conferred by a Patent Application After Publication. — The
applicant shall have all the rights of a patentee under Section 76 against any person
who, without his authorization, exercised any of the rights conferred under Section 71
of this Act in relation to the invention claimed in the published patent application, as
if a patent had been granted for that invention: Provided, That the said person had:
46.1. Actual knowledge that the invention that he was using was the subject matter of
a published application; or
46.2. Received written notice that the invention that he was using was the subject
matter of a published application being identified in the said notice by its serial
number: Provided, That the action may not be filed until after the grant of a patent on
the published application and within four (4) years from the commission of the acts
complained of. (n)
SECTION 47. Observation by Third Parties. — Following the publication of the
patent application, any person may present observations in writing concerning the
patentability of the invention. Such observations shall be communicated to the
applicant who may comment on them. The Office shall acknowledge and put such
observations and comment in the file of the application to which it relates. (n)
SECTION 48. Request for Substantive Examination. — 48.1. The application shall be
deemed withdrawn unless within six (6) months from the date of publication under
Section 41, a written request to determine whether a patent application meets the
requirements of Sections 21 to 27 and Sections 32 to 39 and the fees have been paid
on time.
48.2. Withdrawal of the request for examination shall be irrevocable and shall not
authorize the refund of any fee. (n)
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SECTION 49. Amendment of Application. — An applicant may amend the patent
application during examination: Provided, That such amendment shall not include
new matter outside the scope of the disclosure contained in the application as filed. (n)
SECTION 50. Grant of Patent. — 50.1. If the application meets the requirements of
this Act, the Office shall grant the patent: Provided, That all the fees are paid on time.
50.2. If the required fees for grant and printing are not paid in due time, the application
shall be deemed to be withdrawn.
50.3. A patent shall take effect on the date of the publication of the grant of the patent
in the IPO Gazette. (Sec. 18, R.A. No. 165a)
SECTION 51. Refusal of the Application. — 51.1. The final order of refusal of the
examiner to grant the patent shall be appealable to the Director in accordance with this
Act.
51.2. The Regulations shall provide for the procedure by which an appeal from the
order of refusal from the Director shall be undertaken. (n)
SECTION 52. Publication Upon Grant of Patent. — 52.1. The grant of the patent
together with other related information shall be published in the IPO Gazette within
the time prescribed by the Regulations.
52.2. Any interested party may inspect the complete description, claims, and drawings
of the patent on file with the Office. (Sec. 18, R.A. No. 165a)
SECTION 53. Contents of Patent. — The patent shall be issued in the name of the
Republic of the Philippines under the seal of the Office and shall be signed by the
Director, and registered together with the description, claims, and drawings, if any, in
books and records of the Office. (Secs. 19 and 20, R.A. No. 165a)
SECTION 54. Term of Patent. — The term of a patent shall be twenty (20) years from
the filing date of the application. (Sec. 21, R.A. No. 165a)
SECTION 55. Annual Fees. — 55.1. To maintain the patent application or patent, an
annual fee shall be paid upon the expiration of four (4) years from the date the
application was published pursuant to Section 44 hereof, and on each subsequent
anniversary of such date. Payment may be made within three (3) months before the
due date. The obligation to pay the annual fees shall terminate should the application
be withdrawn, refused, or cancelled.
55.2. If the annual fee is not paid, the patent application shall be deemed withdrawn or
the patent considered as lapsed from the day following the expiration of the period
within which the annual fees were due. A notice that the application is deemed
withdrawn or the lapse of a patent for non-payment of any annual fee shall be
published in the IPO Gazette and the lapse shall be recorded in the Register of the
Office.
55.3. A grace period of six (6) months shall be granted for the payment of the annual
fee, upon payment of the prescribed surcharge for delayed payment. (Sec. 22, R.A.
No. 165a)
SECTION 56. Surrender of Patent. — 56.1. The owner of the patent, with the consent
of all persons having grants or licenses or other right, title or interest in and to the
patent and the invention covered thereby, which have been recorded in the Office, may
surrender his patent or any claim or claims forming part thereof to the Office for
cancellation.
56.2. A person may give notice to the Office of his opposition to the surrender of a
patent under this section, and if he does so, the Bureau shall notify the proprietor of
the patent and determine the question.
56.3. If the Office is satisfied that the patent may properly be surrendered, he may
accept the offer and, as from the day when notice of his acceptance is published in the
IPO Gazette, the patent shall cease to have effect, but no action for infringement shall
lie and no right compensation shall accrue for any use of the patented invention before
that day for the services of the government. (Sec. 24, R.A. No. 165a)
SECTION 57. Correction of Mistakes of the Office. — The Director shall have the
power to correct, without fee, any mistake in a patent incurred through the fault of the
Office when clearly disclosed in the records thereof, to make the patent conform to the
records. (Sec. 25, R.A. No. 165)
SECTION 58. Correction of Mistake in the Application. — On request of any
interested person and payment of the prescribed fee, the Director is authorized to
correct any mistake in a patent of a formal and clerical nature, not incurred through
the fault of the Office. (Sec. 26, R.A. No. 165a)
SECTION 59. Changes in Patents. — 59.1. The owner of a patent shall have the right
to request the Bureau to make the changes in the patent in order to:
(a) Limit the extent of the protection conferred by it;
(b) Correct obvious mistakes or to correct clerical errors; and
(c) Correct mistakes or errors, other than those referred to in letter (b), made in
good faith: Provided, That where the change would result in a broadening of
the extent of protection conferred by the patent, no request may be made after
the expiration of two (2) years from the grant of a patent and the change shall
not affect the rights of any third party which has relied on the patent, as
published.
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59.2. No change in the patent shall be permitted under this section, where the change
would result in the disclosure contained in the patent going beyond the disclosure
contained in the application filed.
59.3. If, and to the extent to which the Office changes the patent according to this
section, it shall publish the same. (n)
SECTION 60. Form and Publication of Amendment. — An amendment or correction
of a patent shall be accomplished by a certificate of such amendment or correction,
authenticated by the seal of the Office and signed by the Director, which certificate
shall be attached to the patent. Notice of such amendment or correction shall be
published in the IPO Gazette and copies of the patent kept or furnished by the Office
shall include a copy of the certificate of amendment or correction. (Sec. 27, R.A. No.
165)
CHAPTER VI
CANCELLATION OF PATENTS AND SUBSTITUTION OF PATENTEE
SECTION 61. Cancellation of Patents. — 61.1. Any interested person may, upon
payment of the required fee, petition to cancel the patent or any claim thereof, or parts
of the claim, on any of the following grounds:
(a) That what is claimed as the invention is not new or patentable;
(b) That the patent does not disclose the invention in a manner sufficiently clear
and complete for it to be carried out by any person skilled in the art; or
(c) That the patent is contrary to public order or morality.
61.2. Where the grounds for cancellation relate to some of the claims or parts of the
claim, cancellation may be effected to such extent only. (Secs. 28 and 29, R.A. No.
165a)
SECTION 62. Requirement of the Petition. — The petition for cancellation shall be
in writing, verified by the petitioner or by any person in his behalf who knows the
facts, specify the grounds upon which it is based, include a statement of the facts to be
relied upon, and filed with the Office. Copies of printed publications or of patents of
other countries, and other supporting documents mentioned in the petition shall be
attached thereto, together with the translation thereof in English, if not in the English
language. (Sec. 30, R.A. No. 165)
SECTION 63. Notice of Hearing. — Upon filing of a petition for cancellation, the
Director of Legal Affairs shall forthwith serve notice of the filing thereof upon the
patentee and all persons having grants or licenses, or any other right, title or interest in
and to the patent and the invention covered thereby, as appears of record in the Office,
and of notice of the date of hearing thereon on such persons and the petitioner. Notice
of the filing of the petition shall be published in the IPO Gazette. (Sec. 31, R.A. No.
165a)
SECTION 64. Committee of Three. — In cases involving highly technical issues, on
motion of any party, the Director of Legal Affairs may order that the petition be heard
and decided by a committee composed of the Director of Legal Affairs as chairman
and two (2) members who have the experience or expertise in the field of technology
to which the patent sought to be cancelled relates. The decision of the committee shall
be appealable to the Director General. (n)
SECTION 65. Cancellation of the Patent. — 65.1. If the Committee finds that a case
for cancellation has been proved, it shall order the patent or any specified claim or
claims thereof cancelled.
65.2. If the Committee finds that, taking into consideration the amendment made by
the patentee during the cancellation proceedings, the patent and the invention to which
it relates meet the requirement of this Act, it may decide to maintain the patent as
amended: Provided, That the fee for printing of a new patent is paid within the time
limit prescribed in the Regulations.
65.3. If the fee for the printing of a new patent is not paid in due time, the patent should
be revoked.
.4. If the patent is amended under Subsection 65.2 hereof, the Bureau shall, at the same
time as it publishes the mention of the cancellation decision, publish the abstract,
representative claims and drawings indicating clearly what the amendments consist of.
SECTION 66. Effect of Cancellation of Patent or Claim. — The rights conferred by
the patent or any specified claim or claims cancelled shall terminate. Notice of the
cancellation shall be published in the IPO Gazette. Unless restrained by the Director
General, the decision or order to cancel by Director of Legal Affairs shall be
immediately executory even pending appeal. (Sec. 32, R.A. No. 165a)
CHAPTER VII
REMEDIES OF A PERSON WITH A RIGHT TO A PATENT
SECTION 67. Patent Application by Persons Not Having the Right to a Patent. —
67.1. If a person referred to in Section 29 other than the applicant, is declared by final
court order or decision as having the right to the patent, such person may, within three
(3) months after the decision has become final:
(a) Prosecute the application as his own application in place of the applicant;
(b) File a new patent application in respect of the same invention;
(c) Request that the application be refused; or
(d) Seek cancellation of the patent, if one has already been issued.
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67.2. The provisions of Subsection 38.2 shall apply mutatis mutandis to a new
application filed under Subsection 67.1(b). (n)
SECTION 68. Remedies of the True and Actual Inventor. — If a person, who was
deprived of the patent without his consent or through fraud is declared by final court
order or decision to be the true and actual inventor, the court shall order for his
substitution as patentee, or at the option of the true inventor, cancel the patent, and
award actual and other damages in his favor if warranted by the circumstances. (Sec.
33, R.A. No. 165a)
SECTION 69. Publication of the Court Order. — The court shall furnish the Office
a copy of the order or decision referred to in Sections 67 and 68, which shall be
published in the IPO Gazette within three (3) months from the date such order or
decision became final and executory, and shall be recorded in the register of the Office.
SECTION 70. Time to File Action in Court. — The actions indicated in Sections 67
and 68 shall be filed within one (1) year from the date of publication made in
accordance with Sections 44 and 51, respectively. (n)
CHAPTER VIII
RIGHTS OF PATENTEES AND INFRINGEMENT OF PATENTS
SECTION 71. Rights Conferred by Patent. — 71.1. A patent shall confer on its owner
the following exclusive rights:
(a) Where the subject matter of a patent is a product, to restrain, prohibit and
prevent any unauthorized person or entity from making, using, offering for
sale, selling or importing that product;
(b) Where the subject matter of a patent is a process, to restrain, prevent or
prohibit any unauthorized person or entity from using the process, and from
manufacturing, dealing in, using, selling or offering for sale, or importing any
product obtained directly or indirectly from such process.
71.2.Patent owners shall also have the right to assign, or transfer by succession the
patent, and to conclude licensing contracts for the same. (Sec. 37, R.A. No. 165a)
SECTION. 72. Limitations of Patent Rights. - The owner of a patent has no right to
prevent third parties from performing, without his authorization, the acts referred to in
Section 71 hereof in the following circumstances:
72.1. Using a patented product which has been put on the market in the Philippines by
the owner of the product, or with his express consent, insofar as such use is performed
after that product has been so put on the said market: Provided, That, with regard to
drugs and medicines, the limitation on patent rights shall apply after a drug or medicine
has been introduced in the Philippines or anywhere else in the world by the patent
owner, or by any party authorized to use the invention: Provided, further, That the right
to import the drugs and medicines contemplated in this section shall be available to
any government agency or any private third party;
72.2. Where the act is done privately and on a non-commercial scale or for a non-
commercial purpose: Provided, That it does not significantly prejudice the economic
interests of the owner of the patent;
72.3. Where the act consists of making or using exclusively for experimental use of
the invention for scientific purposes or educational purposes and such other activities
directly related to such scientific or educational experimental use;
72.4. In the case of drugs and medicines, where the act includes testing, using, making
or selling the invention including any data related thereto, solely for purposes
reasonably related to the development and submission of information and issuance of
approvals by government regulatory agencies required under any law of the
Philippines or of another country that regulates the manufacture, construction, use or
sale of any product: Provided, That, in order to protect the data submitted by the
original patent holder from unfair commercial use provided in Article 39.3 of the
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS
Agreement), the Intellectual Property Office, in consultation with the appropriate
government agencies, shall issue the appropriate rules and regulations necessary
therein not later than one hundred twenty (120) days after the enactment of this law;
72.5. Where the act consists of the preparation for individual cases, in a pharmacy
or by a medical professional, of a medicine in accordance with a medical shall apply
after a drug or medicine has been introduced in the Philippines or anywhere else in the
world by the patent owner, or by any party authorized to use the invention: Provided,
further, That the right to import the drugs and medicines contemplated in this section
shall be available to any government agency or any private third party;
72.2. Where the act is done privately and on a non-commercial scale or for a non-
commercial purpose: Provided, That it does not significantly prejudice the economic
interests of the owner of the patent;
72.3. Where the act consists of making or using exclusively for experimental use of
the invention for scientific purposes or educational purposes and such other activities
directly related to such scientific or educational experimental use;
72.4. In the case of drugs and medicines, where the act includes testing, using, making
or selling the invention including any data related thereto, solely for purposes
reasonably related to the development and submission of information and issuance of
approvals by government regulatory agencies required under any law of the
Philippines or of another country that regulates the manufacture, construction, use or
sale of any product: Provided, That, in order to protect the data submitted by the
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original patent holder from unfair commercial use provided in Article 39.3 of the
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS
Agreement), the Intellectual Property Office, in consultation with the appropriate
government agencies, shall issue the appropriate rules and regulations necessary
therein not later than one hundred twenty (120) days after the enactment of this law;
72.5. Where the act consists of the preparation for individual cases, in a pharmacy or
by a medical professional, of a medicine in accordance with a medical shall apply after
a drug or medicine has been introduced in the Philippines or anywhere else in the world
by the patent owner, or by any party authorized to use the invention: Provided, further,
That the right to import the drugs and medicines contemplated in this section shall be
available to any government agency or any private third party;
72.2. Where the act is done privately and on a non-commercial scale or for a non-
commercial purpose: Provided, That it does not significantly prejudice the economic
interests of the owner of the patent;
72.3. Where the act consists of making or using exclusively for experimental use of
the invention for scientific purposes or educational purposes and such other activities
directly related to such scientific or educational experimental use;
72.4. In the case of drugs and medicines, where the act includes testing, using, making
or selling the invention including any data related thereto, solely for purposes
reasonably related to the development and submission of information and issuance of
approvals by government regulatory agencies required under any law of the
Philippines or of another country that regulates the manufacture, construction, use or
sale of any product: Provided, That, in order to protect the data submitted by the
original patent holder from unfair commercial use provided in Article 39.3 of the
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS
Agreement), the Intellectual Property Office, in consultation with the appropriate
government agencies, shall issue the appropriate rules and regulations necessary
therein not later than one hundred twenty (120) days after the enactment of this law;
72.5. Where the act consists of the preparation for individual cases, in a pharmacy or
by a medical professional, of a medicine in accordance with a medical
74.3. All cases arising from the implementation of this provision shall be cognizable
by courts with appropriate jurisdiction provided by law.
No court, except the Supreme Court of the Philippines, shall issue any temporary
restraining order or preliminary injunction or such other provisional remedies that will
prevent its immediate execution.
74.4. The Intellectual Property Office (IPO), in consultation with the appropriate
government agencies, shall issue the appropriate implementing rules and regulations
for the use or exploitation of patented inventions as contemplated in this section within
one hundred twenty (120) days after the effectivity of this law.
SECTION 75. Extent of Protection and Interpretation of Claims. — 75.1. The extent
of protection conferred by the patent shall be determined by the claims, which are to
be interpreted in the light of the description and drawings.
75.2. For the purpose of determining the extent of protection conferred by the patent,
due account shall be taken of elements which are equivalent to the elements expressed
in the claims, so that a claim shall be considered to cover not only all the elements as
expressed therein, but also equivalents.
SECTION. 76. Civil Action for Infringement. - 76.1. The making, using, offering for
sale, selling, or importing a patented product or a product obtained directly or
indirectly from a patented process, or the use of a patented process without the
authorization of the patentee constitutes patent infringement: Provided, That, this shall
not apply to instances covered by Sections 72.1 and 72.4 (Limitations of Patent
Rights); Section 74 (Use of Invention by Government); Section 93.6 (Compulsory
Licensing); and Section 93-A (Procedures on Issuance of a Special Compulsory
License under the TRIPS Agreement) of this Code.
76.2. Any patentee, or anyone possessing any right, title or interest in and to the
patented invention, whose rights have been infringed, may bring a civil action before
a court of competent jurisdiction, to recover from the infringer such damages sustained
thereby, plus attorney's fees and other expenses of litigation, and to secure an
injunction for the protection of his rights.
76.3. If the damages are inadequate or cannot be readily ascertained with reasonable
certainty, the court may award by way of damages a sum equivalent to reasonable
royalty.
76.4. The court may, according to the circumstances of the case, award damages in a
sum above the amount found as actual damages sustained: Provided, That the award
does not exceed three (3) times the amount of such actual damages.
76.5. The court may, in its discretion, order that the infringing goods, materials and
implements predominantly used in the infringement be disposed of outside the
channels of commerce or destroyed, without compensation.
76.6. Anyone who actively induces the infringement of a patent or provides the
infringer with a component of a patented product or of a product produced because of
a patented process knowing it to be especially adopted for infringing the patented
invention and not suitable for substantial non-infringing use shall be liable as a
contributory infringer and shall be jointly and severally liable with the infringer. (Sec.
42, R.A. No. 165a)
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SECTION 77. Infringement Action by a Foreign National. — Any foreign national or
juridical entity who meets the requirements of Section 3 and not engaged in business
in the Philippines, to which a patent has been granted or assigned under this Act, may
bring an action for infringement of patent, whether or not it is licensed to do business
in the Philippines under existing law. (Sec. 41-A, R.A. No. 165a)
SECTION 78. Process Patents; Burden of Proof . — If the subject matter of a patent
is a process for obtaining a product, any identical product shall be presumed to have
been obtained through the use of the patented process if the product is new or there is
substantial likelihood that the identical product was made by the process and the owner
of the patent has been unable despite reasonable efforts, to determine the process
actually used. In ordering the defendant to prove that the process to obtain the identical
product is different from the patented process, the court shall adopt measures to
protect, as far as practicable, his manufacturing and business secrets. (n)
SECTION 79. Limitation of Action for Damages. — No damages can be recovered
for acts of infringement committed more than four (4) years before the institution of
the action for infringement. (Sec. 43, R.A. No. 165)
SECTION 80. Damages; Requirement of Notice. — Damages cannot be recovered
for acts of infringement committed before the infringer had known, or had reasonable
grounds to know of the patent. It is presumed that the infringer had known of the patent
if on the patented product, or on the container or package in which the article is
supplied to the public, or on the advertising material relating to the patented product
or process, are placed the words "Philippine Patent" with the number of the patent.
(Sec. 44, R.A. No. 165a)
SECTION 81. Defenses in Action for Infringement. — In an action for infringement,
the defendant, in addition to other defenses available to him, may show the invalidity
of the patent, or any claim thereof, on any of the grounds on which a petition of
cancellation can be brought under Section 61 hereof. (Sec. 45, R.A. No. 165)
SECTION 82. Patent Found Invalid May be Cancelled. — In an action for
infringement, if the court shall find the patent or any claim to be invalid, it shall cancel
the same, and the Director of Legal Affairs upon receipt of the final judgment of
cancellation by the court, shall record that fact in the register of the Office and shall
publish a notice to that effect in the IPO Gazette. (Sec. 46, R.A. No. 165a)
SECTION 83. Assessor in Infringement Action. — 83.1. Two (2) or more assessors
may be appointed by the court. The assessors shall be possessed of the necessary
scientific and technical knowledge required by the subject matter in litigation. Either
party may challenge the fitness of any assessor proposed for appointment.
83.2. Each assessor shall receive a compensation in an amount to be fixed by the court
and advanced by the complaining party, which shall be awarded as part of his costs
should he prevail in the action. (Sec. 47, R.A. No. 165a)
SECTION 84. Criminal Action for Repetition of Infringement. — If infringement is
repeated by the infringer or by anyone in connivance with him after finality of the
judgment of the court against the infringer, the offenders shall, without prejudice to
the institution of a civil action for damages, be criminally liable therefor and, upon
conviction, shall suffer imprisonment for the period of not less than six (6) months but
not more than three (3) years and/or a fine of not less than One hundred thousand pesos
(P100,000) but not more than Three hundred thousand pesos (P300,000), at the
discretion of the court. The criminal action herein provided shall prescribe in three (3)
years from date of the commission of the crime. (Sec. 48, R.A. No. 165a)
CHAPTER IX
VOLUNTARY LICENSING
SECTION 85. Voluntary License Contract. — To encourage the transfer and
dissemination of technology, prevent or control practices and conditions that may in
particular cases constitute an abuse of intellectual property rights having an adverse
effect on competition and trade, all technology transfer arrangements shall comply
with the provisions of this Chapter. (n)
SECTION 86. Jurisdiction to Settle Disputes on Royalties. — The Director of the
Documentation, Information and Technology Transfer Bureau shall exercise quasi-
judicial jurisdiction in the settlement of disputes between parties to a technology
transfer arrangement arising from technology transfer payments, including the fixing
of appropriate amount or rate of royalty. (n)
SECTION 87. Prohibited Clauses. — Except in cases under Section 91, the following
provisions shall be deemed prima facie to have an adverse effect on competition and
trade:
87.1. Those which impose upon the licensee the obligation to acquire from a specific
source capital goods, intermediate products, raw materials, and other technologies, or
of permanently employing personnel indicated by the licensor;
87.2. Those pursuant to which the licensor reserves the right to fix the sale or resale
prices of the products manufactured on the basis of the license;
87.3. Those that contain restrictions regarding the volume and structure of production;
87.4. Those that prohibit the use of competitive technologies in a non-exclusive
technology transfer agreement;
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87.5. Those that establish a full or partial purchase option in favor of the licensor;
87.6. Those that obligate the licensee to transfer for free to the licensor the inventions
or improvements that may be obtained through the use of the licensed technology;
87.7. Those that require payment of royalties to the owners of patents for patents which
are not used;
87.8. Those that prohibit the licensee to export the licensed product unless justified for
the protection of the legitimate interest of the licensor such as exports to countries
where exclusive licenses to manufacture and/or distribute the licensed product(s) have
already been granted;
87.9. Those which restrict the use of the technology supplied after the expiration of
the technology transfer arrangement, except in cases of early termination of the
technology transfer arrangement due to reason(s) attributable to the licensee;
87.10. Those which require payments for patents and other industrial property rights
after their expiration, termination arrangement;
87.11. Those which require that the technology recipient shall not contest the validity
of any of the patents of the technology supplier;
87.12. Those which restrict the research and development activities of the licensee
designed to absorb and adapt the transferred technology to local conditions or to
initiate research and development programs in connection with new products,
processes or equipment;
87.13. Those which prevent the licensee from adapting the imported technology to
local conditions, or introducing innovation to it, as long as it does not impair the quality
standards prescribed by the licensor;
87.14. Those which exempt the licensor for liability for non-fulfilment of his
responsibilities under the technology transfer arrangement and/or liability arising from
third party suits brought about by the use of the licensed product or the licensed
technology; and
87.15. Other clauses with equivalent effects. (Sec. 33-C (2), RA 165a)
SECTION 88. Mandatory Provisions. — The following provisions shall be included
in voluntary license contracts:
88.1. That the laws of the Philippines shall govern the interpretation of the same and
in the event of litigation, the venue shall be the proper court in the place where the
licensee has its principal office;
88.2. Continued access to improvements in techniques and processes related to the
technology shall be made available during the period of the technology transfer
arrangement;
88.3. In the event the technology transfer arrangement shall provide for arbitration, the
Procedure of Arbitration of the Arbitration Law of the Philippines or the Arbitration
Rules of the United Nations Commission on International Trade Law (UNCITRAL)
or the Rules of Conciliation and Arbitration of the International Chamber of
Commerce (ICC) shall apply and the venue of arbitration shall be the Philippines or
any neutral country; and
88.4. The Philippine taxes on all payments relating to the technology transfer
arrangement shall be borne by the licensor. (n)
SECTION 89. Rights of Licensor. — In the absence of any provision to the contrary
in the technology transfer arrangement, the grant of a license shall not prevent the
licensor from granting further licenses to third person nor from exploiting the subject
matter of the technology transfer arrangement himself. (Sec. 33-B, R.A. 165a)
SECTION 90. Rights of Licensee. — The licensee shall be entitled to exploit the
subject matter of the technology transfer arrangement during the whole term of the
technology transfer arrangement. (Sec. 33-C (1), R.A. 165a)
SECTION 91. Exceptional Cases. — In exceptional or meritorious cases where
substantial benefits will accrue to the economy, such as high technology content,
increase in foreign exchange earnings, employment generation, regional dispersal of
industries and/or substitution with or use of local raw materials, or in the case of Board
of Investments, registered companies with pioneer status, exemption from any of the
above requirements may be allowed by the Documentation, Information and
Technology Transfer Bureau after evaluation thereof on a case by case basis. (n)
SECTION 92. Non-Registration with the Documentation, Information and
Technology Transfer Bureau. — Technology transfer arrangements that conform with
the provisions of Sections 86 and 87 need not be registered with the Documentation,
Information and Technology Transfer Bureau. Non-conformance with any of the
provisions of Sections 87 and 88, however, shall automatically render the technology
transfer arrangement unenforceable, unless said technology transfer arrangement is
approved and registered with the Documentation, Information and Technology
Transfer Bureau under the provisions of Section 91 on exceptional cases. (n)
CHAPTER X
COMPULSORY LICENSING
SECTION 93. Grounds for Compulsory Licensing. - The Director General of the
Intellectual Property Office may grant a license to exploit a patented invention, even
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without the agreement of the patent owner, in favor of any person who has shown his
capability to exploit the invention, under any of the following circumstances:
93.1. National emergency or other circumstances of extreme urgency;
93.2. Where the public interest, in particular, national security, nutrition, health or the
development of other vital sectors of the national economy as determined by the
appropriate agency of the Government, so requires; or
93.3. Where a judicial or administrative body has determined that the manner of
exploitation by the owner of the patent or his licensee is anti-competitive; or
93.4. In case of public non-commercial use of the patent by the patentee, without
satisfactory reason;
93.5. If the patented invention is not being worked in the Philippines on a commercial
scale, although capable of being worked, without satisfactory reason: Provided, That
the importation of the patented article shall constitute working or using the patent;
(Secs. 34, 34-A, 34-B, R.A. No. 165a) and
93.6. Where the demand for patented drugs and medicines is not being met to an
adequate extent and on reasonable terms, as determined by the Secretary of the
Department of Health
SECTION 93-A. Procedures on Issuance of a Special Compulsory License under the
TRIPS Agreement. - 93-A.1. The Director General of the Intellectual Property Office,
upon the written recommendation of the Secretary of the Department of Health, shall,
upon filing of a petition, grant a special compulsory license for the importation of
patented drugs and medicines. The special compulsory license for the importation
contemplated under this provision shall be an additional special alternative procedure
to ensure access to quality affordable medicines and shall be primarily for domestic
consumption: Provided, That adequate remuneration shall be paid to the patent owner
either by the exporting or importing country. The compulsory license shall also contain
a provision directing the grantee the license to exercise reasonable measures to prevent
the re-exportation of the products imported under this provision.
The grant of a special compulsory license under this provision shall be an exception
to Sections 100.4 and 100.6 of Republic Act No. 8293 and shall be immediately
executory.
No court, except the Supreme Court of the Philippines, shall issue any temporary
restraining order or preliminary injunction or such other provisional remedies that will
prevent the grant of the special compulsory license.
93-A.2. A compulsory license shall also be available for the manufacture and export
of drugs and medicines to any country having insufficient or no manufacturing
capacity in the pharmaceutical sector to address public health problems: Provided,
That, a compulsory license has been granted by such country or such country has, by
notification or otherwise, allowed importation into its jurisdiction of the patented drugs
and medicines from the Philippines in compliance with the TRIPS Agreement.
93-A.3. The right to grant a special compulsory license under this section shall not
limit or prejudice the rights, obligations and flexibilities provided under the TRIPS
Agreement and under Philippine laws, particularly Section 72.1 and Section 74 of the
Intellectual Property Code, as amended under this Act. It is also without prejudice to
the extent to which drugs and medicines produced under a compulsory license can be
exported as allowed in the TRIPS Agreement and applicable laws
SECTION 94. Period for Filing a Petition for a Compulsory License. - 94.1. A
compulsory license may not be applied for on the ground stated in Subsection 93.5
before the expiration of a period of four (4) years from the date of filing of the
application or three (3) years from the date of the patent whichever period expires last.
94.2. A compulsory license which is applied for on any of the grounds stated in
Subsections 93.2, 93.3, 93.4, and 93.6 and Section 97 may be applied for at any time
after the grant of the patent. (Sec. 34(1), R. A. No. 165)"
SECTION 95. Requirement to Obtain a License on Reasonable Commercial Terms. -
95.1. The license will only be granted after the petitioner has made efforts to obtain
authorization from the patent owner on reasonable commercial terms and conditions
but such efforts have not been successful within a reasonable period of time.
95.2. The requirement under Subsection 95.1 shall not apply in any of the following
cases:
(a) Where the petition for compulsory license seeks to remedy a practice
determined after judicial or administrative process to be anti-competitive;
(b) In situations of national emergency or other circumstances of extreme
urgency;
(c) In cases of public non-commercial use; and
(d) In cases where the demand for the patented drugs and medicines in the
Philippines is not being met to an adequate extent and on reasonable terms,
as determined by the Secretary of the Department of Health.
95.3. In situations of national emergency or other circumstances of extreme urgency,
the right holder shall be notified as soon as reasonably practicable.
95.4. In the case of public non-commercial use, where the government or contractor,
without making a patent search, knows or has demonstrable grounds to know that a
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valid patent is or will be used by or for the government, the right holder shall be
informed promptly. (n)
95.5. Where the demand for the patented drugs and medicines in the Philippines is not
being met to an adequate extent and on reasonable terms, as determined by the
Secretary of the Department of Health, the right holder shall be informed promptly.
SECTION 96. Compulsory Licensing of Patents Involving Semi-Conductor
Technology. — In the case of compulsory licensing of patents involving semi-
conductor technology, the license may only be granted in case of public non-
commercial use or to remedy a practice determined after judicial or administrative
process to be anti-competitive. (n)
SECTION 97. Compulsory License Based on Interdependence of Patents. — If the
invention protected by a patent, hereafter referred to as the "second patent," within the
country cannot be worked without infringing another patent, hereafter referred to as
the "first patent," granted on a prior application or benefiting from an earlier priority,
a compulsory license may be granted to the owner of the second patent to the extent
necessary for the working of his invention, subject to the following conditions:
97.1. The invention claimed in the second patent involves an important technical
advance of considerable economic significance in relation to the first patent;
97.2. The owner of the first patent shall be entitled to a cross-license on reasonable
terms to use the invention claimed in the second patent;
97.3. The use authorized in respect of the first patent shall be non-assignable except
with the assignment of the second patent; and
97.4. The terms and conditions of Sections 95, 96 and 98 to 100 of this Act. (Sec. 34-
C, R.A. No. 165a)
SECTION 98. Form and Contents of Petition. — The petition for compulsory
licensing must be in writing, verified by the petitioner and accompanied by payment
of the required filing fee. It shall contain the name and address of the petitioner as well
as those of the respondents, the number and date of issue of the patent in connection
with which compulsory license is sought, the name of the patentee, the title of the
invention, the statutory grounds upon which compulsory license is sought, the ultimate
facts constituting the petitioner's cause of action, and the relief prayed for. (Sec. 34-
D, R.A. No. 165)
SECTION 99. Notice of Hearing. — 99.1. Upon filing of a petition, the Director of
Legal Affairs shall forthwith serve notice of the filing thereof upon the patent owner
and all persons having grants or licenses, or any other right, title or interest in and to
the patent and invention covered thereby as appears of record in the Office, and of
notice of the date of hearing thereon, on such persons and petitioner. The resident agent
or representative appointed in accordance with Section 33 hereof, shall be bound to
accept service of notice of the filing of the petition within the meaning of this Section.
99.2. In every case, the notice shall be published by the said Office in a newspaper of
general circulation, once a week for three (3) consecutive weeks and once in the IPO
Gazette at applicant's expense. (Sec. 34-E, R.A. No. 165)
SECTION 100. Terms and Conditions of Compulsory License. — The basic terms
and conditions including the rate of royalties of a compulsory license shall be fixed by
the Director of Legal Affairs subject to the following conditions:
100.1. The scope and duration of such license shall be limited to the purpose for which
it was authorized;
100.2. The license shall be non-exclusive;
100.3. The license shall be non-assignable, except with that part of the enterprise or
business with which the invention is being exploited;
100.4. Use of the subject matter of the license shall be devoted predominantly for the
supply of the Philippine market: Provided, That this limitation shall not apply where
the grant of the license is based on the ground that the patentee's manner of exploiting
the patent is determined by judicial or administrative process, to be anti-competitive.
100.5. The license may be terminated upon proper showing that circumstances which
led to its grant have ceased to exist and are unlikely to recur: Provided, That adequate
protection shall be afforded to the legitimate interest of the licensee; and
100.6. The patentee shall be paid adequate remuneration taking into account the
economic value of the grant or authorization, except that in cases where the license
was granted to remedy a practice which was determined after judicial or administrative
process, to be anti-competitive, the need to correct the anti-competitive practice may
be taken into account in fixing the amount of remuneration. (Sec. 35-B, R.A. No. 165a)
SECTION 101. Amendment, Cancellation, Surrender of Compulsory License. —
101.1. Upon the request of the patentee or the licensee, the Director of Legal Affairs
may amend the decision granting the compulsory license, upon proper showing of new
facts or circumstances justifying such amendment.
101.2. Upon the request of the patentee, the said Director may cancel the compulsory
license:
(a) If the ground for the grant of the compulsory license no longer exists and is
unlikely to recur;
(b) If the licensee has neither begun to supply the domestic market nor made
serious preparation therefor;
(c) If the licensee has not complied with the prescribed terms of the license;
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101.3. The licensee may surrender the license by a written declaration submitted to the
Office.
101.4. The said Director shall cause the amendment, surrender, or cancellation in the
Register, notify the patentee, and/or the licensee, and cause notice thereof to be
published in the IPO Gazette. (Sec. 35-D, R.A. No. 165a)
SECTION 102. Licensee's Exemption from Liability. — Any person who works a
patented product, substance and/or process under a license granted under this Chapter,
shall be free from any liability for infringement: Provided, however, That in the case
of voluntary licensing, no collusion with the licensor is proven. This is without
prejudice to the right of the rightful owner of the patent to recover from the licensor
whatever he may have received as royalties under the license. (Sec. 35-E, R.A. No.
165a)
CHAPTER XI
ASSIGNMENT AND TRANSMISSION OF RIGHTS
SECTION 103. Transmission of Rights. — 103.1. Patents or applications for patents
and invention to which they relate, shall be protected in the same way as the rights of
other property under the Civil Code.
103.2. Inventions and any right, title or interest in and to patents and inventions
covered thereby, may be assigned or transmitted by inheritance or bequest or may be
the subject of a license contract. (Sec. 50, R.A. No. 165a)
SECTION 104. Assignment of Inventions. — An assignment may be of the entire
right, title or interest in and to the patent and the invention covered thereby, or of an
undivided share of the entire patent and invention, in which event the parties become
joint owners thereof. An assignment may be limited to a specified territory. (Sec.
51, R.A. No. 165)
SECTION 105. Form of Assignment. — The assignment must be in writing,
acknowledged before a notary public or other officer authorized to administer oath or
perform notarial acts, and certified under the hand and official seal of the notary or
such other officer. (Sec. 52, R.A. No. 165)
SECTION 106. Recording. — 106.1. The Office shall record assignments, licenses
and other instruments relating to the transmission of any right, title or interest in and
to inventions, and patents or application for patents or inventions to which they relate,
which are presented in due form to the Office for registration, in books and records
kept for the purpose. The original documents together with a signed duplicate thereof
shall be filed, and the contents thereof should be kept confidential. If the original is
not available, an authenticated copy thereof in duplicate may be filed. Upon recording,
the Office shall retain the duplicate, return the original or the authenticated copy to the
party who filed the same and notice of the recording shall be published in the IPO
Gazette.
106.2.Such instruments shall be void as against any subsequent purchaser or
mortgagee for valuable consideration and without notice, unless, it is so recorded in
the Office, within three (3) months from the date of said instrument, or prior to the
subsequent purchase or mortgage. (Sec. 53, R.A. No. 165a)
SECTION 107. Rights of Joint Owners. — If two (2) or more persons jointly own a
patent and the invention covered thereby, either by the issuance of the patent in their
joint favor or by reason of the assignment of an undivided share in the patent and
invention or by reason of the succession in title to such share, each of the joint owners
shall be entitled to personally make, use, sell, or import the invention for his own
profit: Provided, however, That neither of the joint owners shall be entitled to grant
licenses or to assign his right, title or interest or part thereof without the consent of the
other owner or owners, or without proportionally dividing the proceeds with such other
owner or owners. (Sec. 54, R.A. No. 165)
CHAPTER XII
REGISTRATION OF UTILITY MODELS
SECTION 108. Applicability of Provisions Relating to Patents. — 108.1. Subject to
Section 109, the provisions governing patents shall apply, mutatis mutandis, to the
registration of utility models.
108.2. Where the right to a patent conflicts with the right to a utility model registration
in the case referred to in Section 29, the said provision shall apply as if the word
"patent" were replaced by the words "patent or utility model registration". (Sec. 55,
R.A. No. 165a)
SECTION 109. Special Provisions Relating to Utility Models. — 109.1.
(a) An invention qualifies for registration as a utility model if it is new and
industrially applicable.
(b) Section 21, "Patentable Inventions", shall apply except the reference to
inventive step as a condition of protection.
109.2. Sections 43 to 49 shall not apply in the case of applications for registration of a
utility model.
109.3. A utility model registration shall expire, without any possibility of renewal, at
the end of the seventh year after the date of the filing of the application.
109.4. In proceedings under Sections 61 to 64, the utility model registration shall be
canceled on the following grounds:
282
(a) That the claimed invention does not qualify for registration as a utility model
and does not meet the requirements of registrability, in particular having
regard to Subsection 109.1 and Sections 22, 23, 24 and 27;
(b) That the description and the claims do not comply with the prescribed
requirements;
(c) That any drawing which is necessary for the understanding of the invention
has not been furnished;
(d) That the owner of the utility model registration is not the inventor or his
successor in title. (Secs. 55, 56, and 57, R.A. No. 165a)
SECTION 110. Conversion of Patent Applications or Applications for Utility Model
Registration. — 110.1. At any time before the grant or refusal of a patent, an applicant
for a patent may, upon payment of the prescribed fee, convert his application into an
application for registration of a utility model, which shall be accorded the filing date
of the initial application. An application may be converted only once.
110.2. At any time before the grant or refusal of a utility model registration, an
applicant for a utility model registration may, upon payment of the prescribed fee,
convert his application into a patent application, which shall be accorded the filing
date of the initial application. (Sec. 58, R.A. No. 165a)
SECTION 111. Prohibition Against Filing of Parallel Applications. — An applicant
may not file two (2) applications for the same subject, one for utility model registration
and the other for the grant of a patent whether simultaneously or consecutively. (Sec.
59, R.A. No. 165a)
CHAPTER XIII
INDUSTRIAL DESIGN AND LAYOUT DESIGNS (TOPOGRAPHIES) OF
INTEGRATED CIRCUITS
SECTION 112. Definition of Terms:"
1. An Industrial Design is any composition of lines or colors or any three-
dimensional form, whether or not associated with lines or
colors: Provided, That such composition or form gives a special appearance to
and can serve as pattern for an industrial product or handicraft;
2. Integrated Circuit means a product, in its final form, or an intermediate form,
in which the elements, at least one of which is an active element and some or
all of the interconnections are integrally formed in and/or on a piece of
material, and which is intended to perform an electronic function; and
3. Layout-Design is synonymous With 'Topography' and means the three-
dimensional disposition, however expressed, of the elements, at least one of
which is an active element, and of some or all of the interconnections of an
integrated circuit, or such a three-dimensional disposition prepared for an
integrated circuit intended for manufacture."
SECTION 113. Substantive Conditions/or Protection. - 113.1. Only industrial
designs that are new or ornamental shall benefit from protection under this Act.
113.2. Industrial designs dictated essentially by technical or functional considerations
to obtain a technical result or those that are contrary to public order, health or morals
shall not be protected.
113.3. Only layout -designs of integrated circuits that are original shall benefit from
protection under this Act. A layout-design shall be considered original if it is the result
of its creator's own intellectual effort and is not commonplace among creators of
layout-designs and manufacturers of integrated circuits at the time of its creation.
113.4. A layout-design consisting of a combination of elements and interconnections
that are commonplace shall be protected only if the combination, taken as a whole, is
original."
SECTION 114. Contents of the Application. - 114.1. Every application for
registration of an industrial design or layout-design shall contain:
(a) A request for registration of the industrial design or layout-design;
(b) Information identifying the applicant;
(c) An indication of the kind of article of manufacture or handicraft to which the
industrial design or layout-design shall be applied;
(d) A representation of the article of manufacture or handicraft by way of
drawings, photographs or adequate graphic representation of the industrial
design or of the layout-design as applied to the article of manufacture or
handicraft which clearly and fully discloses those features for which
protection is claimed; and
(e) The name and address of the creator, or where the applicant is not the creator,
a statement indicating the origin of the right to the industrial design or layout-
design registration.
114.2. The application may be accompanied by a specimen of the article embodying
the industrial design or layout-design and shall be subject to the payment of the
prescribed fee."
SECTION 115. Several Industrial Designs in One Application. — Two (2) or more
industrial designs may be the subject of the same application: Provided, That they
relate to the same sub-class of the International Classification or to the same set or
composition of articles. (n)
SECTION 116. Examination. - 116.1. The Office shall accord as the filing date the
date of receipt of the application containing indications allowing the identity of the
applicant to be established and a representation of the article embodying the industrial
design or the layout -design or a pictorial representation thereof.
283
116.2. If the application does not meet these requirements, the filing date should be
that date when all the elements specified in Sec. 114 are filed or the mistakes corrected.
Otherwise, if the requirements are not complied within the prescribed period, the
application shall be considered withdrawn.
116.3. After the application has been accorded a filing date and the required fees paid
on time, the applicant shall comply with the requirements of Sec. 114 within the
prescribed period, otherwise the application shall be considered withdrawn.
116.4. The Office shall examine whether the industrial design or layout-design
complies with requirements of Sec. 112 (Definitions) and Sec. 113 (Substantive
Conditions for Protection)."
SECTION 117. Registration. - 117.1. Where the Office finds that the conditions
referred to in Sec. 113 are fulfilled, it shall order that registration be effected in the
industrial design or layout-design register and cause the issuance of an industrial
design or layout-design certificate of registration; otherwise, it shall refuse the
application.
117.2. The form and contents of an industrial design or layout-design certificate shall
be established by the Registrations: Provided, That the name and address of the creator
shall be mentioned in every case.
117.3. Registration shall be published in the form and within the period fixed by the
Regulations.
117.4. The Office shall record in the register any change in the identity of the
proprietor of the industrial design or layout design or his representative, if proof
thereof is furnished to it. A fee shall be paid, with the request to record the change in
the identity of the proprietor, if the fee is not paid, the request shall be deemed not to
have been filed. In such case, the former proprietor and the former representative shall
remain subject to the rights and obligations as provided in this Act.
117.5. Anyone may inspect the Register and the files of registered industrial designs
or layout-designs including files of cancellation proceedings."
SECTION 118. The Term of Industrial Design or Layout-Design Registration. -
118.1. The registration of an industrial design shall be for a period of five (5) years
from the filing date of the application.
118.2. The registration of an industrial design may be renewed for not more than two
(2) consecutive periods of five (5) years each, by paying the renewal fee.
118.3. The renewal fee shall be paid within twelve (12) months preceding the
expiration of the period of registration. However, a grace period of six (6) months shall
be granted for payment of the fees after such expiration, upon payment of a surcharge.
118.4. The Regulations shall fix the amount of renewal fee, the surcharge and other
requirements regarding the recording of renewals of registration.
118.5. Registration of a layout-design shall be valid for a period often (10) years,
without renewal, and such validity to be counted from the date of commencement of
the protection accorded to the layout-design. The protection of a layout-design under
this Act shall commence:
(a) on the date of the first commercial exploitation, anywhere in the world, of the
layout-design by or with the consent of the right holder: Provided, That an
application for registration is filed with the Intellectual Property Office within
two (2) years from such date of first commercial exploitation; or
(b) on the filing date accorded to the application for the registration of the layout-
design if the layout-design has not been previously exploited commercially
anywhere in the world."
SECTION 119. Application of Other Sections and Chapters. - 119.1. The following
provisions relating to patents shall apply mutatis mutandis to an industrial design
registration.
SECTION21 - Novelty;
SECTION 24 - Prior art: Provided, That the disclosure is contained in printed
documents or in any tangible form;
SECTION 25 - Non-prejudicial Disclosure;
SECTION 28 - Right to a Patent;
SECTION 29 - First to File Rule;
SECTION 30 - Inventions Created Pursuant to a Commission;
SECTION 31 - Right of Priority: Provided, That the application for industrial design
shall be filed within six (6) months from the earliest filing date of the corresponding
foreign application;
SECTION 33 - Appointment of Agent or Representative;
SECTION 51 - Refusal of the Application;
SECTION 56 to 60 - Surrender, Correction of and Changes in Patent;
CHAPTER VII - Remedies of a Person with a Right to Patent;
CHAPTER VIII - Rights of Patentees and Infringement of Patents; and
CHAPTER XI - Assignment and Transmission of Rights
119.2. If the essential elements of an industrial design which is the subject of an
application have been obtained from the creation of another person without his
consent, protection under this Chapter cannot be invoked against the injured party.
119.3. The following provisions relating to patents shall apply mutatis mutandis to a
layout -design of integrated circuits registration:
284
SECTION 28 - Right to a Patent;
SECTION 29 - First to File Rule;
SECTION 30 - Inventions Created Pursuant to a Commission;
SECTION 33 - Appointment of Agent or Representative;
SECTION 56 - Surrender of Patent;
SECTION 57 - Correction of Mistakes of the Office;
SECTION 58 - Correction of Mistakes in the Application;
SECTION 59 - Changes in Patents;
SECTION 60 - Form and Publication of Amendment;
CHAPTER VII - Remedies of a Person with a Right to Patent;
CHAPTER VIII - Rights of Patentees and Infringement of Patents: Provided, That the
layout-design rights and limitation of layout-design rights provided hereunder shall
govern:
CHAPTER X - Compulsory Licensing;
CHAPTER XI - Assignment and Transmission of Rights
119.4. Rights Conferred to the Owner of a Layout-Design Registration. - The owner
of a layout-design registration shall enjoy the following rights:
(1) to reproduce, whether by incorporation in an integrated circuit or otherwise,
the registered layout-design in its entirety or any part thereof, except the act of
reproducing any part that does not comply with the requirement of originality;
and
(2) to sell or otherwise distribute for commercial purposes the registered layout
design, an article or an integrated circuit in which the registered layout-design
is incorporated.
119.5. Limitations of Layout Rights. - The owner of a layout design has no right to
prevent third parties from reproducing, selling or otherwise distributing for
commercial purposes the registered layout-design in the following circumstances:
(1) Reproduction of the registered layout-design for private purposes or for the
sole purpose of evaluation, analysis, research or teaching;
(2) Where the act is performed in respect of a layout-design created on the basis
of such analysis or evaluation and which is itself original in the meaning as
provided herein;
(3) Where the act is performed in respect of a registered lay-out-design, or in
respect of an integrated circuit in which such a layout-design is incorporated,
that has been put on the market by or with the consent of the right holder;
(4) In respect of an integrated circuit where the person performing or ordering
such an act did not know and had no reasonable ground to know when
acquiring the integrated circuit or the article incorporating such an integrated
circuit, that it incorporated an unlawfully reproduced layout-design: Provided,
however, That after the time that such person has received sufficient notice
that the layout-design was unlawfully reproduced, that person may perform
any of the said acts only with respect to the stock on hand or ordered before
such time and shall be liable to pay to the right holder a sum equivalent to at
 least 5% of net sales or such other reasonable royalty as would be payable
under a freely negotiated license in respect of such layout-design; or
(5) Where the act is performed in respect of an identical layout-design which is
original and has been created independently by a third party."
SECTION 120. Cancellation of Design Registration. - 120.1. At any time during the
term of the industrial design registration, any person upon payment of the required fee,
may petition the Director of Legal Affairs to cancel the industrial design on any of the
following grounds:
(a) If the subject matter of the industrial design is not registerable within the
terms of Sections 112 and 113;
(b) If the subject matter is not new; or
(c) If the subject matter of the industrial design extends beyond the content of
the applic.'1tion as originally filed.
120.2. Where the grounds for cancellation relate to a part of the industrial design,
cancellation may be effected to such extent only. The restriction may be effected in
the form of an alteration of the effected features of the design.
120.3. Grounds for Cancellation of Layout-Design of Integrated Circuits.- Any
interested person may petition that the registration of a layout-design be cancelled on
the ground that:
(i) the layout-design is not protectable under this Act;
(ii) the right holder is not entitled to protection under this Act; or
(iii) where the application for registration of the layout-design, was not filed
within two (2) years from its first commercial exploitation anywhere in the
world.
Where the grounds for cancellation are established with respect only to a part of the
layout-design, only the corresponding part of the registration shall be cancelled.
Any cancelled layout-design registration or part thereof, shall be regarded as null and
void from the beginning and may be expunged from the records of the Intellectual
Property Office. Reference to all cancelled layout-design registration shall be
published in the IPO Gazette.
PART III
THE LAW ON TRADEMARKS, SERVICE MARKS AND TRADE NAMES
SECTION 121. Definitions. — As used in Part III, the following terms have the
following meanings:
285
121.1. "Mark" means any visible sign capable of distinguishing the goods (trademark)
or services (service mark) of an enterprise and shall include a stamped or marked
container of goods; (Sec. 38, R.A. No. 166a)
121.2. "Collective mark" means any visible sign designated as such in the application
for registration and capable of distinguishing the origin or any other common
characteristic, including the quality of goods or services of different enterprises which
use the sign under the control of the registered owner of the collective mark; (Sec.
40, R.A. No. 166a)
121.3. "Trade name" means the name or designation identifying or distinguishing an
enterprise; (Sec. 38, R.A. No. 166a)
121.4. "Bureau" means the Bureau of Trademarks;
121.5. "Director" means the Director of Trademarks;
121.6. "Regulations" means the Rules of Practice in Trademarks and Service Marks
formulated by the Director of Trademarks and approved by the Director General; and
121.7. "Examiner" means the trademark examiner. (Sec. 38, R.A. No. 166a)
SECTION 122. How Marks are Acquired. — The rights in a mark shall be acquired
through registration made validly in accordance with the provisions of this law. (Sec.
2-A, R.A. No. 166a)
SECTION 123. Registrability. — 123.1. A mark cannot be registered if it:
(a) Consists of immoral, deceptive or scandalous matter, or matter which may
disparage or falsely suggest a connection with persons, living or dead,
institutions, beliefs, or national symbols, or bring them into contempt or
disrepute;
(b) Consists of the flag or coat of arms or other insignia of the Philippines or any
of its political subdivisions, or of any foreign nation, or any simulation
thereof;
(c) Consists of a name, portrait or signature identifying a particular living
individual except by his written consent, or the name, signature, or portrait of
a deceased President of the Philippines, during the life of his widow, if any,
except by written consent of the widow;
(d) Is identical with a registered mark belonging to a different proprietor or a
mark with an earlier filing or priority date, in respect of:
(i) The same goods or services, or
(ii) Closely related goods or services, or
(iii) If it nearly resembles such a mark as to be likely to deceive or cause
confusion;
 (e) Is identical with, or confusingly similar to, or constitutes a translation of a
mark which is considered by the competent authority of the Philippines to be
well-known internationally and in the Philippines, whether or not it is
registered here, as being already the mark of a person other than the applicant
for registration, and used for identical or similar goods or services: Provided,
That in determining whether a mark is well-known, account shall be taken of
the knowledge of the relevant sector of the public, rather than of the public at
large, including knowledge in the Philippines which has been obtained as a
result of the promotion of the mark;
(f) Is identical with, or confusingly similar to, or constitutes a translation of a
mark considered well-known in accordance with the preceding paragraph,
which is registered in the Philippines with respect to goods or services which
are not similar to those with respect to which registration is applied
for: Provided, That use of the mark in relation to those goods or services
would indicate a connection between those goods or services, and the owner
of the registered mark: Provided, further, That the interests of the owner of
the registered mark are likely to be damaged by such use;
(g) Is likely to mislead the public, particularly as to the nature, quality,
characteristics or geographical origin of the goods or services;
(h) Consists exclusively of signs that are generic for the goods or services that
they seek to identify;
(i) Consists exclusively of signs or of indications that have become customary
or usual to designate the goods or services in everyday language or in bona
fide and established trade practice;
(j) Consists exclusively of signs or of indications that may serve in trade to
designate the kind, quality, quantity, intended purpose, value, geographical
origin, time or production of the goods or rendering of the services, or other
characteristics of the goods or services;
(k) Consists of shapes that may be necessitated by technical factors or by the
nature of the goods themselves or factors that affect their intrinsic value;
(l) Consists of color alone, unless defined by a given form; or
(m) Is contrary to public order or morality.
123.2. As regards signs or devices mentioned in paragraphs (j), (k), and (l), nothing
shall prevent the registration of any such sign or device which has become distinctive
in relation to the goods for which registration is requested as a result of the use that
have been made of it in commerce in the Philippines. The Office may accept as prima
facie evidence that the mark has become distinctive, as used in connection with the
applicant's goods or services in commerce, proof of substantially exclusive and
continuous use thereof by the applicant in commerce in the Philippines for five (5)
years before the date on which the claim of distinctiveness is made.
123.3. The nature of the goods to which the mark is applied will not constitute an
obstacle to registration. (Sec. 4, R.A. No. 166a)
286
SECTION 124. Requirements of Application. — 124.1. The application for the
registration of the mark shall be in Filipino or in English and shall contain the
following:
(a) A request for registration;
(b) The name and address of the applicant;
(c) The name of a State of which the applicant is a national or where he has
domicile; and the name of a State in which the applicant has a real and
effective industrial or commercial establishment, if any;
(d) Where the applicant is a juridical entity, the law under which it is organized
and existing;
(e) The appointment of an agent or representative, if the applicant is not
domiciled in the Philippines;
(f) Where the applicant claims the priority of an earlier application, an indication
of:
i) The name of the State with whose national office the earlier application
was filed or if filed with an office other than a national office, the name of
that office,
ii) The date on which the earlier application was filed, and
iii) Where available, the application number of the earlier application;
(g) Where the applicant claims color as a distinctive feature of the mark, a
statement to that effect as well as the name or names of the color or colors
claimed and an indication, in respect of each color, of the principal parts of
the mark which are in that color;
(h) Where the mark is a three-dimensional mark, a statement to that effect;
(i) One or more reproductions of the mark, as prescribed in the Regulations;
(j) A transliteration or translation of the mark or of some parts of the mark, as
prescribed in the Regulations;
(k) The names of the goods or services for which the registration is sought,
grouped according to the classes of the Nice Classification, together with the
number of the class of the said Classification to which each group of goods
or services belongs; and
(l) A signature by, or other self-identification of, the applicant or his
representative.
124.2. The applicant or the registrant shall file a declaration of actual use of the mark
with evidence to that effect, as prescribed by the Regulations within three (3) years
from the filing date of the application. Otherwise, the application shall be refused or
the mark shall be removed from the Register by the Director.
124.3. One (1) application may relate to several goods and/or services, whether they
belong to one (1) class or to several classes of the Nice Classification.
124.4. If during the examination of the application, the Office finds factual basis to
reasonably doubt the veracity of any indication or element in the application, it may
require the applicant to submit sufficient evidence to remove the doubt. (Sec. 5, R.A.
No. 166a)
SECTION 125. Representation; Address for Service. — If the applicant is not
domiciled or has no real and effective commercial establishment in the Philippines, he
shall designate by a written document filed in the Office, the name and address of a
Philippine resident who may be served notices or process in proceedings affecting the
mark. Such notices or services may be served upon the person so designated by leaving
a copy thereof at the address specified in the last designation filed. If the person so
designated cannot be found at the address given in the last designation, such notice or
process may be served upon the Director. (Sec. 3, R.A. No. 166a)
SECTION 126. Disclaimers. — The Office may allow or require the applicant to
disclaim an unregistrable component of an otherwise registrable mark but such
disclaimer shall not prejudice or affect the applicant's or owner's rights then existing
or thereafter arising in the disclaimed matter, nor such shall disclaimer prejudice or
affect the applicant's or owner's right on another application of later date if the
disclaimed matter became distinctive of the applicant's or owner's goods, business or
services. (Sec. 13, R.A. No. 166a)
SECTION 127. Filing Date. — 127.1. Requirements. — The filing date of an
application shall be the date on which the Office received the following indications
and elements in English or Filipino:
(a) An express or implicit indication that the registration of a mark is sought;
(b) The identity of the applicant;
(c) Indications sufficient to contact the applicant or his representative, if any;
(d) A reproduction of the mark whose registration is sought; and
(e) The list of the goods or services for which the registration is sought.
(a) 127.2. No filing date shall be accorded until the required fee is paid. (n)
SECTION 128. Single Registration for Goods and/or Services. — Where goods
and/or services belonging to several classes of the Nice Classification have been
included in one (1) application, such an application shall result in one registration. (n)
SECTION 129. Division of Application. — Any application referring to several goods
or services, hereafter referred to as the "initial application," may be divided by the
applicant into two (2) or more applications, hereafter referred to as the "divisional
applications," by distributing among the latter the goods or services referred to in the
initial application. The divisional applications shall preserve the filing date of the
initial application or the benefit of the right of priority. (n)
SECTION 130. Signature and Other Means of Self-Identification. — 130.1. Where a
signature is required, the Office shall accept:
(a) A hand-written signature; or
287
(b) The use of other forms of signature, such as a printed or stamped signature,
or the use of a seal, instead of a hand-written signature: Provided, That where
a seal is used, it should be accompanied by an indication in letters of the name
of the signatory.
130.2. The Office shall accept communications to it by telecopier, or by electronic
means subject to the conditions or requirements that will be prescribed by the
Regulations. When communications are made by telefacsimile, the reproduction of the
signature, or the reproduction of the seal together with, where required, the indication
in letters of the name of the natural person whose seal is used, appears. The original
communications must be received by the Office within thirty (30) days from date of
receipt of the telefacsimile.
130.3. No attestation, notarization, authentication, legalization or other certification of
any signature or other means of self-identification referred to in the preceding
paragraphs, will be required, except, where the signature concerns the surrender of a
registration. (n)
SECTION 131. Priority Right. — 131.1. An application for registration of a mark
filed in the Philippines by a person referred to in Section 3, and who previously duly
filed an application for registration of the same mark in one of those countries, shall
be considered as filed as of the day the application was first filed in the foreign country.
131.2. No registration of a mark in the Philippines by a person described in this section
shall be granted until such mark has been registered in the country of origin of the
applicant.
131.3. Nothing in this section shall entitle the owner of a registration granted under
this section to sue for acts committed prior to the date on which his mark was registered
in this country: Provided, That, notwithstanding the foregoing, the owner of a well-
known mark as defined in Section 123.1(e) of this Act, that is not registered in the
Philippines, may, against an identical or confusingly similar mark, oppose its
registration, or petition the cancellation of its registration or sue for unfair competition,
without prejudice to availing himself of other remedies provided for under the law.
131.4. In like manner and subject to the same conditions and requirements, the right
provided in this section may be based upon a subsequent regularly filed application in
the same foreign country: Provided, That any foreign application filed prior to such
subsequent application has been withdrawn, abandoned, or otherwise disposed of,
without having been laid open to public inspection and without leaving any rights
outstanding, and has not served, nor thereafter shall serve, as a basis for claiming a
right of priority. (Sec. 37, R.A. No. 166a)
SECTION 132. Application Number and Filing Date. — 132.1. The Office shall
examine whether the application satisfies the requirements for the grant of a filing date
as provided in Section 127 and Regulations relating thereto. If the application does not
satisfy the filing requirements, the Office shall notify the applicant who shall within a
period fixed by the Regulations complete or correct the application as required,
otherwise, the application shall be considered withdrawn.
132.2 Once an application meets the filing requirements of Section 127, it shall be
numbered in the sequential order, and the applicant shall be informed of the application
number and the filing date of the application will be deemed to have been abandoned.
SECTION 133. Examination and Publication. — 133.1. Once the application meets
the filing requirements of Section 127, the Office shall examine whether the
application meets the requirements of Section 124 and the mark as defined in Section
121 is registrable under Section 123.
133.2. Where the Office finds that the conditions referred to in Subsection 133.1 are
fulfilled, it shall, upon payment of the prescribed fee, forthwith cause the application,
as filed, to be published in the prescribed manner.
133.3. If after the examination, the applicant is not entitled to registration for any
reason, the Office shall advise the applicant thereof and the reasons therefor. The
applicant shall have a period of four (4) months in which to reply or amend his
application, which shall then be re-examined. The Regulations shall determine the
procedure for the re-examination or revival of an application as well as the appeal to
the Director of Trademarks from any final action by the Examiner.
133.4. An abandoned application may be revived as a pending application within three
(3) months from the date of abandonment, upon good cause shown and the payment
of the required fee.
133.5. The final decision of refusal of the Director of Trademarks shall be appealable
to the Director General in accordance with the procedure fixed by the Regulations.
(Sec. 7, R.A. No. 166a)
SECTION 134. Opposition. — Any person who believes that he would be damaged
by the registration of a mark may, upon payment of the required fee and within thirty
(30) days after the publication referred to in Subsection 133.2, file with the Office an
opposition to the application. Such opposition shall be in writing and verified by the
oppositor or by any person on his behalf who knows the facts, and shall specify the
grounds on which it is based and include a statement of the facts relied upon. Copies
of certificates of registration of marks registered in other countries or other supporting
documents mentioned in the opposition shall be filed therewith, together with the
translation in English, if not in the English language. For good cause shown and upon
payment of the required surcharge, the time for filing an opposition may be extended
by the Director of Legal Affairs, who shall notify the applicant of such extension. The
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Regulations shall fix the maximum period of time within which to file the opposition.
(Sec. 8, R.A. No. 165a)
SECTION 135. Notice and Hearing. — Upon the filing of an opposition, the Office
shall serve notice of the filing on the applicant, and of the date of the hearing thereof
upon the applicant and the oppositor and all other persons having any right, title or
interest in the mark covered by the application, as appear of record in the Office. (Sec.
9, R.A. No. 165)
SECTION 136. Issuance and Publication of Certificate. — When the period for filing
the opposition has expired, or when the Director of Legal Affairs shall have denied the
opposition, the Office upon payment of the required fee, shall issue the certificate of
registration. Upon issuance of a certificate of registration, notice thereof making
reference to the publication of the application shall be published in the IPO Gazette.
(Sec. 10, R.A. No. 165)
SECTION 137. Registration of Mark and Issuance of a Certificate to the Owner or
his Assignee. — 137.1. The Office shall maintain a Register in which shall be
registered marks, numbered in the order of their registration, and all transactions in
respect of each mark, required to be recorded by virtue of this law.
137.2. The registration of a mark shall include a reproduction of the mark and shall
mention: its number; the name and address of the registered owner and, if the
registered owner's address is outside the country, his address for service within the
country; the dates of application and registration; if priority is claimed, an indication
of this fact, and the number, date and country of the application, basis of the priority
claims; the list of goods or services in respect of which registration has been granted,
with the indication of the corresponding class or classes; and such other data as the
Regulations may prescribe from time to time.
137.3. A certificate of registration of a mark may be issued to the assignee of the
applicant: Provided, That the assignment is recorded in the Office. In case of a change
of ownership, the Office shall at the written request signed by the owner, or his
representative, or by the new owner, or his representative and upon a proper showing
and the payment of the prescribed fee, issue to such assignee a new certificate of
registration of the said mark in the name of such assignee, and for the unexpired part
of the original period.
137.4. The Office shall record any change of address, or address for service, which
shall be notified to it by the registered owner.
137.5. In the absence of any provision to the contrary in this Act, communications to
be made to the registered owner by virtue of this Act shall be sent to him at his last
recorded address and, at the same, at his last recorded address for service. (Sec.
19, R.A. No. 166a)
SECTION 138. Certificates of Registration. — A certificate of registration of a mark
shall be prima facie evidence of the validity of the registration, the registrant's
ownership of the mark, and of the registrant's exclusive right to use the same in
connection with the goods or services and those that are related thereto specified in the
certificate. (Sec. 20, R.A. No. 165)
SECTION 139. Publication of Registered Marks; Inspection of Register. — 139.1.
The Office shall publish, in the form and within the period fixed by the Regulations,
the marks registered, in the order of their registration, reproducing all the particulars
referred to in Subsection 137.2.
139.2. Marks registered at the Office may be inspected free of charge and any person
may obtain copies thereof at his own expense. This provision shall also be applicable
to transactions recorded in respect of any registered mark. (n)
SECTION 140. Cancellation upon Application by Registrant; Amendment or
Disclaimer of Registration. — Upon application of the registrant, the Office may
permit any registration to be surrendered for cancellation, and upon cancellation the
appropriate entry shall be made in the records of the Office. Upon application of the
registrant and payment of the prescribed fee, the Office for good cause may permit any
registration to be amended or to be disclaimed in part: Provided, That the amendment
or disclaimer does not alter materially the character of the mark. Appropriate entry
shall be made in the records of the Office upon the certificate of registration or, if said
certificate is lost or destroyed, upon a certified copy thereof. (Sec. 14, R.A. No. 166)
SECTION 141. Sealed and Certified Copies as Evidence. — Copies of any records,
books, papers, or drawings belonging to the Office relating to marks, and copies of
registrations, when authenticated by the seal of the Office and certified by the Director
of the Administrative, Financial and Human Resource Development Service Bureau
or in his name by an employee of the Office duly authorized by said Director, shall be
evidence in all cases wherein the originals would be evidence; and any person who
applies and pays the prescribed fee shall secure such copies. (n)
SECTION 142. Correction of Mistakes Made by the Office. — Whenever a material
mistake in a registration incurred through the fault of the Office is clearly disclosed by
the records of the Office, a certificate stating the fact and nature of such mistake shall
be issued without charge, recorded and a printed copy thereof shall be attached to each
printed copy of the registration. Such corrected registration shall thereafter have the
same effect as the original certificate; or in the discretion of the Director of the
Administrative, Financial and Human Resource Development Service Bureau a new
certificate of registration may be issued without charge. All certificates of correction
heretofore issued in accordance with the Regulations and the registration to which they
are attached shall have the same force and effect as if such certificates and their
issuance had been authorized by this Act. (n)
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SECTION 143. Correction of Mistakes Made by Applicant. — Whenever a mistake
is made in a registration and such mistake occurred in good faith through the fault of
the applicant, the Office may issue a certificate upon the payment of the prescribed
fee: Provided, That the correction does not involve any change in the registration that
requires republication of the mark. (n)
SECTION 144. Classification of Goods and Services. — 144.1. Each registration, and
any publication of the Office which concerns an application or registration effected by
the Office shall indicate the goods or services by their names, grouped according to
the classes of the Nice Classification, and each group shall be preceded by the number
of the class of that Classification to which that group of goods or services belongs,
presented in the order of the classes of the said Classification.
144.2.Goods or services may not be considered as being similar or dissimilar to each
other on the ground that, in any registration or publication by the Office, they appear
in different classes of the Nice Classification. (Sec. 6, R.A. No. 166a)
SECTION 145. Duration. — A certificate of registration shall remain in force for ten
(10) years: Provided, That the registrant shall file a declaration of actual use and
evidence to that effect, or shall show valid reasons based on the existence of obstacles
to such use, as prescribed by the Regulations, within one (1) year from the fifth
anniversary of the date of the registration of the mark. Otherwise, the mark shall be
removed from the Register by the Office. (Sec. 12, R.A. No. 166a)
SECTION 146. Renewal. — 146.1. A certificate of registration may be renewed for
periods of ten (10) years at its expiration upon payment of the prescribed fee and upon
filing of a request. The request shall contain the following indications:
(a) An indication that renewal is sought;
(b) The name and address of the registrant or his successor-in-interest, hereafter
referred to as the "right holder";
(c) The registration number of the registration concerned;
(d) The filing date of the application which resulted in the registration concerned
to be renewed;
(a) (e )Where the right holder has a representative, the name and address of that
representative;
(e) The names of the recorded goods or services for which the renewal is
requested or the names of the recorded goods or services for which the
renewal is not requested, grouped according to the classes of the Nice
Classification to which that group of goods or services belongs and presented
in the order of the classes of the said Classification; and
(f) A signature by the right holder or his representative.
146.2. Such request shall be in Filipino or English and may be made at any time within
six (6) months before the expiration of the period for which the registration was issued
or renewed, or it may be made within six (6) months after such expiration on payment
of the additional fee herein prescribed.

146.3. If the Office refuses to renew the registration, it shall notify the registrant of his
refusal and the reasons therefor.
146.4.An applicant for renewal not domiciled in the Philippines shall be subject to and
comply with the requirements of this Act. (Sec. 15, R.A. No. 166a)
SECTION 147. Rights Conferred. - 147.1. Except in cases of importation of drugs
and medicines allowed under Section 72.1 of this Act and of off-patent drugs and
medicines, the owner of a registered mark shall have the exclusive right to prevent all
third parties not having the owner's consent from using in the course of trade identical
or similar signs or containers for goods or services which are identical or similar to
those in respect of which the trademark is registered where such use would result in a
likelihood of confusion. In case of the use of an identical sign for identical goods or
services, a likelihood of confusion shall be presumed.
There shall be no infringement of trademarks or tradenames of imported or sold
patented drugs and medicines allowed under Section 72.1 of this Act, as well as
imported or sold off-patent drugs and medicines: Provided, That, said drugs and
medicines bear the registered marks that have not been tampered, unlawfully modified,
or infringed upon, under Section 155 of this Code.
147.2. The exclusive right of the owner of a well-known mark defined in Subsection
123.1(e) which is registered in the Philippines, shall extend to goods and services
which are not similar to those in respect of which the mark is registered: Provided,
That use of that mark in relation to those goods or services would indicate a connection
between those goods or services and the owner of the registered
mark: Provided, further, That the interests of the owner of the registered mark are
likely to be damaged by such use.
SECTION 148. Use of Indications by Third Parties for Purposes Other than those for
which the Mark is Used. — Registration of the mark shall not confer on the registered
owner the right to preclude third parties from using bona fide their names, addresses,
pseudonyms, a geographical name, or exact indications concerning the kind, quality,
quantity, destination, value, place of origin, or time of production or of supply, of their
goods or services: Provided, That such use is confined to the purposes of mere
identification or information and cannot mislead the public as to the source of the
goods or services. (n)
SECTION 149. Assignment and Transfer of Application and Registration. — 149.1.
An application for registration of a mark, or its registration, may be assigned or
transferred with or without the transfer of the business using the mark. (n)
149.2. Such assignment or transfer shall, however, be null and void if it is liable to
mislead the public, particularly as regards the nature, source, manufacturing process,
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characteristics, or suitability for their purpose, of the goods or services to which the
mark is applied.
149.3. The assignment of the application for registration of a mark, or of its
registration, shall be in writing and require the signatures of the contracting parties.
Transfers by mergers or other forms of succession may be made by any document
supporting such transfer.
149.4. Assignments and transfers of registrations of marks shall be recorded at the
Office on payment of the prescribed fee; assignment and transfers of applications for
registration shall, on payment of the same fee, be provisionally recorded, and the mark,
when registered, shall be in the name of the assignee or transferee.
149.5. Assignments and transfers shall have no effect against third parties until they
are recorded at the Office. (Sec. 31, R.A. No. 166a)
SECTION 150. License Contracts. — 150.1. Any license contract concerning the
registration of a mark, or an application therefor, shall provide for effective control by
the licensor of the quality of the goods or services of the licensee in connection with
which the mark is used. If the license contract does not provide for such quality control,
or if such quality control is not effectively carried out, the license contract shall not be
valid.
150.2. A license contract shall be submitted to the Office which shall keep its contents
confidential but shall record it and publish a reference thereto. A license contract shall
have no effect against third parties until such recording is effected. The Regulations
shall fix the procedure for the recording of the license contract. (n)
SECTION 151. Cancellation. — 151.1. A petition to cancel a registration of a mark
under this Act may be filed with the Bureau of Legal Affairs by any person who
believes that he is or will be damaged by the registration of a mark under this Act as
follows:
(a) Within five (5) years from the date of the registration of the mark under this
Act.
(b) At any time, if the registered mark becomes the generic name for the goods
or services, or a portion thereof, for which it is registered, or has been
abandoned, or its registration was obtained fraudulently or contrary to the
provisions of this Act, or if the registered mark is being used by, or with the
permission of, the registrant so as to misrepresent the source of the goods or
services on or in connection with which the mark is used. If the registered
mark becomes the generic name for less than all of the goods or services for
which it is registered, a petition to cancel the registration for only those goods
or services may be filed. A registered mark shall not be deemed to be the
generic name of goods or services solely because such mark is also used as a
name of or to identify a unique product or service. The primary significance
 of the registered mark to the relevant public rather than purchaser motivation
shall be the test for determining whether the registered mark has become the
generic name of goods or services on or in connection with which it has been
used. (n)
(c) At any time, if the registered owner of the mark without legitimate reason
fails to use the mark within the Philippines, or to cause it to be used in the
Philippines by virtue of a license during an uninterrupted period of three (3)
years or longer.
151.2. Notwithstanding the foregoing provisions, the court or the administrative
agency vested with jurisdiction to hear and adjudicate any action to enforce the rights
to a registered mark shall likewise exercise jurisdiction to determine whether the
registration of said mark may be cancelled in accordance with this Act. The filing of a
suit to enforce the registered mark with the proper court or agency shall exclude any
other court or agency from assuming jurisdiction over a subsequently filed petition to
cancel the same mark. On the other hand, the earlier filing of petition to cancel the
mark with the Bureau of Legal Affairs shall not constitute a prejudicial question that
must be resolved before an action to enforce the rights to same registered mark may
be decided. (Sec. 17, R.A. No. 166a)
SECTION 152. Non-use of a Mark When Excused. — 152.1. Non-use of a mark may
be excused if caused by circumstances arising independently of the will of the
trademark owner. Lack of funds shall not excuse non-use of a mark.
152.2. The use of the mark in a form different from the form in which it is registered,
which does not alter its distinctive character, shall not be ground for cancellation or
removal of the mark and shall not diminish the protection granted to the mark.
152.3. The use of a mark in connection with one or more of the goods or services
belonging to the class in respect of which the mark is registered shall prevent its
cancellation or removal in respect of all other goods or services of the same class. cd
152.4. The use of a mark by a company related with the registrant or applicant shall
inure to the latter's benefit, and such use shall not affect the validity of such mark or
of its registration: Provided, That such mark is not used in such manner as to deceive
the public. If use of a mark by a person is controlled by the registrant or applicant with
respect to the nature and quality of the goods or services, such use shall inure to the
benefit of the registrant or applicant. (n)
SECTION 153. Requirements of Petition; Notice and Hearing. — Insofar as
applicable, the petition for cancellation shall be in the same form as that provided in
Section 134 hereof, and notice and hearing shall be as provided in Section 135 hereof.
SECTION 154. Cancellation of Registration. — If the Bureau of Legal Affairs finds
that a case for cancellation has been made out, it shall order the cancellation of the
registration. When the order or judgment becomes final, any right conferred by such
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registration upon the registrant or any person in interest of record shall terminate.
Notice of cancellation shall be published in the IPO Gazette. (Sec. 19, R.A. No. 166a)
SECTION 155. Remedies; Infringement. — Any person who shall, without the
consent of the owner of the registered mark:
155.1. Use in commerce any reproduction, counterfeit, copy, or colorable imitation of
a registered mark or the same container or a dominant feature thereof in connection
with the sale, offering for sale, distribution, advertising of any goods or services
including other preparatory steps necessary to carry out the sale of any goods or
services on or in connection with which such use is likely to cause confusion, or to
cause mistake, or to deceive; or
155.2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a
dominant feature thereof and apply such reproduction, counterfeit, copy or colorable
imitation to labels, signs, prints, packages, wrappers, receptacles or advertisements
intended to be used in commerce upon or in connection with the sale, offering for sale,
distribution, or advertising of goods or services on or in connection with which such
use is likely to cause confusion, or to cause mistake, or to deceive, shall be liable in a
civil action for infringement by the registrant for the remedies hereinafter set
forth: Provided, That the infringement takes place at the moment any of the acts stated
in Subsection 155.1 or this subsection are committed regardless of whether there is
actual sale of goods or services using the infringing material. (Sec. 22, R.A. No. 166a)
SECTION 156. Actions, and Damages and Injunction for Infringement. — 156.1. The
owner of a registered mark may recover damages from any person who infringes his
rights, and the measure of the damages suffered shall be either the reasonable profit
which the complaining party would have made, had the defendant not infringed his
rights, or the profit which the defendant actually made out of the infringement, or in
the event such measure of damages cannot be readily ascertained with reasonable
certainty, then the court may award as damages a reasonable percentage based upon
the amount of gross sales of the defendant or the value of the services in connection
with which the mark or trade name was used in the infringement of the rights of the
complaining party. (Sec. 23, first par., R.A. No. 166a)
156.2. On application of the complainant, the court may impound during the pendency
of the action, sales invoices and other documents evidencing sales. (n)
156.3. In cases where actual intent to mislead the public or to defraud the complainant
is shown, in the discretion of the court, the damages may be doubled. (Sec. 23, first
par., R.A. No. 166)
156.4. The complainant, upon proper showing, may also be granted injunction. (Sec.
23, second par., R.A. No. 166a)
SECTION 157. Power of Court to Order Infringing Material Destroyed. — 157.1 In
any action arising under this Act, in which a violation of any right of the owner of the
registered mark is established, the court may order that goods found to be infringing
be, without compensation of any sort, disposed of outside the channels of commerce
in such a manner as to avoid any harm caused to the right holder, or destroyed; and all
labels, signs, prints, packages, wrappers, receptacles and advertisements in the
possession of the defendant, bearing the registered mark or trade name or any
reproduction, counterfeit, copy or colorable imitation thereof, all plates, molds,
matrices and other means of making the same, shall be delivered up and destroyed.
157.2.In regard to counterfeit goods, the simple removal of the trademark affixed shall
not be sufficient other than in exceptional cases which shall be determined by the
Regulations, to permit the release of the goods into the channels of commerce. (Sec.
24, R.A. No. 166a)
SECTION 158. Damages; Requirement of Notice. — In any suit for infringement, the
owner of the registered mark shall not be entitled to recover profits or damages unless
the acts have been committed with knowledge that such imitation is likely to cause
confusion, or to cause mistake, or to deceive. Such knowledge is presumed if the
registrant gives notice that his mark is registered by displaying with the mark the words
“Registered Mark" or the letter R within a circle or if the defendant had otherwise
actual notice of the registration. (Sec. 21, R.A. No. 166a)
SECTION 158. Damages; Requirement of Notice. — In any suit for infringement, the
owner of the registered mark shall not be entitled to recover profits or damages unless
the acts have been committed with knowledge that such imitation is likely to cause
confusion, or to cause mistake, or to deceive. Such knowledge is presumed if the
registrant gives notice that his mark is registered by displaying with the mark the words
'"Registered Mark" or the letter R within a circle or if the defendant had otherwise
actual notice of the registration. (Sec. 21, R.A. No. 166a)
SECTION 159. Limitations to Actions for Infringement. - Notwithstanding any other
provision of this Act, the remedies given to the owner of a right infringed under this
Act shall be limited as follows
159.1. Notwithstanding the provisions of Section 155 hereof, a registered mark shall
have no effect against any person who, in good faith, before the filing date or the
priority date, was using the mark for the purposes of his business or
enterprise: Provided, That his right may only be transferred or assigned together with
his enterprise or business or with that part of his enterprise or business in which the
mark is used.
159.2. Where an infringer who is engaged solely in the business of printing the mark
or other infringing materials for others is an innocent infringer, the owner of the right
292
infringed shall be entitled as against such infringer only to an injunction against future
printing.
159.3. Where the infringement complained of is contained in or is part of paid
advertisement in a newspaper, magazine, or other similar periodical or in an electronic
communication, the remedies of the owner of the right infringed as against the
publisher or distributor of such newspaper, magazine, or other similar periodical or
electronic communication shall be limited to an injunction against the presentation of
such advertising matter in future issues of such newspapers, magazines, or other
similar periodicals or in future transmissions of such electronic communications. The
limitations of this subparagraph shall apply only to innocent infringers: Provided, That
such injunctive relief shall not be available to the owner of the right infringed with
respect to an issue of a newspaper, magazine, or other similar periodical or an
electronic communication containing infringing matter where restraining the
dissemination of such infringing matter in any particular issue of such periodical or in
an electronic communication would delay the delivery of such issue or transmission
of such electronic communication is customarily conducted in accordance with the
sound business practice, and not due to any method or device adopted to evade this
section or to prevent or delay the issuance of an injunction or restraining order with
respect to such infringing matter.
159.4 There shall be no infringement of trademarks or tradenames of imported or sold
drugs and medicines allowed under Section 72.1 of this Act, as well as imported or
sold off-patent drugs and medicines: Provided, That said drugs and medicines bear the
registered marks that have not been tampered, unlawfully modified, or infringed upon
as defined under Section 155 of this Code.
SECTION 160. Right of Foreign Corporation to Sue in Trademark or Service Mark
Enforcement Action. — Any foreign national or juridical person who meets the
requirements of Section 3 of this Act and does not engage in business in the Philippines
may bring a civil or administrative action hereunder for opposition, cancellation,
infringement, unfair competition, or false designation of origin and false description,
whether or not it is licensed to do business in the Philippines under existing laws. (Sec.
21-A, R.A. No. 166a)
SECTION 161. Authority to Determine Right to Registration. — In any action
involving a registered mark, the court may determine the right to registration, order
the cancellation of a registration, in whole or in part, and otherwise rectify the register
with respect to the registration of any party to the action in the exercise of this.
Judgment and orders shall be certified by the court to the Director, who shall make
appropriate entry upon the records of the Bureau, and shall be controlled thereby. (Sec.
25, R.A. No. 166a)
SECTION 162. Action for False or Fraudulent Declaration. — Any person who shall
procure registration in the Office of a mark by a false or fraudulent declaration or
representation, whether oral or in writing, or by any false means, shall be liable in a
civil action by any person injured thereby for any damages sustained in consequence
thereof (Sec. 26, R.A. No. 166)
SECTION 163. Jurisdiction of Court. — All actions under Sections 150, 155, 164,
and 166 to 169 shall be brought before the proper courts with appropriate jurisdiction
under existing laws. (Sec. 27, R.A. No. 166)
SECTION 164. Notice of Filing Suit Given to the Director. — It shall be the duty of
the clerks of such courts within one (1) month after the filing of any action, suit, or
proceeding involving a mark registered under the provisions of this Act, to notify the
Director in writing setting forth: the names and addresses of the litigants and
designating the number of the registration or registrations and within one (1) month
after the judgment is entered or an appeal is taken, the clerk of court shall give notice
thereof to the Office, and the latter shall endorse the same upon the filewrapper of the
said registration or registrations and incorporate the same as a part of the contents of
said filewrapper. (n)
SECTION 165. Trade Names or Business Names. — 165.1. A name or designation
may not be used as a trade name if by its nature or the use to which such name or
designation may be put, it is contrary to public order or morals and if, in particular, it
is liable to deceive trade circles or the public as to the nature of the enterprise identified
by that name.
165.2. (a)Notwithstanding any laws or regulations providing for any obligation to
register trade names, such names shall be protected, even prior to or without
registration, against any unlawful act committed by third parties.
(b) In particular, any subsequent use of the trade name by a third party, whether as a
trade name or a mark or collective mark, or any such use of a similar trade name or
mark, likely to mislead the public, shall be deemed unlawful.
165.3. The remedies provided for in Sections 153 to 156 and Sections 166 and 167
shall apply mutatis mutandis.
165.4. Any change in the ownership of a trade name shall be made with the transfer of
the enterprise or part thereof identified by that name. The provisions of Subsections
149.2 to 149.4 shall apply mutatis mutandis.
SECTION 166. Goods Bearing Infringing Marks or Trade Names. — No article of
imported merchandise which shall copy or simulate the name of any domestic product,
or manufacturer, or dealer, or which shall copy or simulate a mark registered in
accordance with the provisions of this Act, or shall bear a mark or trade name
calculated to induce the public to believe that the article is manufactured in the
Philippines, or that it is manufactured in any foreign country or locality other than the
country or locality where it is in fact manufactured, shall be admitted to entry at any
293
customhouse of the Philippines. In order to aid the officers of the customs service in
enforcing this prohibition, any person who is entitled to the benefits of this Act, may
require that his name and residence, and the name of the locality in which his goods
are manufactured, a copy of the certificate of registration of his mark or trade name,
to be recorded in books which shall be kept for this purpose in the Bureau of Customs,
under such regulations as the Collector of Customs with the approval of the Secretary
of Finance shall prescribe, and may furnish to the said Bureau facsimiles of his name,
the name of the locality in which his goods are manufactured, or his registered mark
or trade name, and thereupon the Collector of Customs shall cause one (1) or more
copies of the same to be transmitted to each collector or to other proper officer of the
Bureau of Customs. (Sec. 35, R.A. No. 166)
SECTION 167. Collective Marks. — 167.1. Subject to Subsections 167.2 and 167.3,
Sections 122 to 164 and 166 shall apply to collective marks, except that references
therein to "mark" shall be read as "collective mark".
167.2. (a) An application for registration of a collective mark shall designate the mark
as a collective mark and shall be accompanied by a copy of the agreement, if any,
governing the use of the collective mark.
(b) The registered owner of a collective mark shall notify the Director of any changes
made in respect of the agreement referred to in paragraph (a).
167.3. In addition to the grounds provided in Section 149, the Court shall cancel the
registration of a collective mark if the person requesting the cancellation proves that
only the registered owner uses the mark, or that he uses or permits its use in
contravention of the agreements referred to in Subsection 166.2 or that he uses or
permits its use in a manner liable to deceive trade circles or the public as to the origin
or any other common characteristics of the goods or services concerned.
167.4. The registration of a collective mark, or an application therefor shall not be the
subject of a license contract. (Sec. 40, R.A. No. 166a)
SECTION 168. Unfair Competition, Rights, Regulation and Remedies. — 168.1. A
person who has identified in the mind of the public the goods he manufactures or deals
in, his business or services from those of others, whether or not a registered mark is
employed, has a property right in the goodwill of the said goods, business or services
so identified, which will be protected in the same manner as other property rights.
168.2. Any person who shall employ deception or any other means contrary to good
faith by which he shall pass off the goods manufactured by him or in which he deals,
or his business, or services for those of the one having established such goodwill, or
who shall commit any acts calculated to produce said result, shall be guilty of unfair
competition, and shall be subject to an action therefor.
168.3. In particular, and without in any way limiting the scope of protection against
unfair competition, the following shall be deemed guilty of unfair competition:
 (a) Any person, who is selling his goods and gives them the general appearance
of goods of another manufacturer or dealer, either as to the goods themselves
or in the wrapping of the packages in which they are contained, or the devices
or words thereon, or in any other feature of their appearance, which would be
likely to influence purchasers to believe that the goods offered are those of a
manufacturer or dealer, other than the actual manufacturer or dealer, or who
otherwise clothes the goods with such appearance as shall deceive the public
and defraud another of his legitimate trade, or any subsequent vendor of such
goods or any agent of any vendor engaged in selling such goods with a like
purpose;
(b) Any person who by any artifice, or device, or who employs any other means
calculated to induce the false belief that such person is offering the services
of another who has identified such services in the mind of the public; or
(c) Any person who shall make any false statement in the course of trade or who
shall commit any other act contrary to good faith of a nature calculated to
discredit the goods, business or services of another.
168.4. The remedies provided by Sections 156, 157 and 161 shall apply mutatis
mutandis. (Sec. 29, R.A. No. 166a)
SECTION 169. False Designations of Origin; False Description or Representation.
— 169.1. Any person who, on or in connection with any goods or services, or any
container for goods, uses in commerce any word, term, name, symbol, or device, or
any combination thereof, or any false designation of origin, false or misleading
description of fact, or false or misleading representation of fact, which:
(a) Is likely to cause confusion, or to cause mistake, or to deceive as to the
affiliation, connection, or association of such person with another person, or
as to the origin, sponsorship, or approval of his or her goods, services, or
commercial activities by another person; or
(b) In commercial advertising or promotion, misrepresents the nature,
characteristics, qualities, or geographic origin of his or her or another person's
goods, services, or commercial activities, shall be liable to a civil action for
damages and injunction provided in Sections 156 and 157 of this Act by any
person who believes that he or she is or is likely to be damaged by such act.
169.2. Any goods marked or labelled in contravention of the provisions of this Section
shall not be imported into the Philippines or admitted entry at any customhouse of the
Philippines. The owner, importer, or consignee of goods refused entry at any
customhouse under this section may have any recourse under the customs revenue
laws or may have the remedy given by this Act in cases involving goods refused entry
or seized. (Sec. 30, R.A. No. 166a)
SECTION 170. Penalties. — Independent of the civil and administrative sanctions
imposed by law, a criminal penalty of imprisonment from two (2) years to five (5)
years and a fine ranging from Fifty thousand pesos (P50,000) to Two hundred
thousand pesos (P200,000), shall be imposed on any person who is found guilty of
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committing any of the acts mentioned in Section 155, Section 168 and Subsection
169.1. (Arts. 188 and 189, Revised Penal Code)
PART IV
THE LAW ON COPYRIGHT
CHAPTER I
Preliminary Provisions
SECTION 171. Definitions. — For the purpose of this Act, the following terms have
the following meaning:
171.1. "Author" is the natural person who has created the work;
171.2. A "collective work" is a work which has been created by two (2) or more natural
persons at the initiative and under the direction of another with the understanding that
it will be disclosed by the latter under his own name and that contributing natural
persons will not be identified;
171.3. ‘Communication to the public’ or ‘communicate to the public’ means any
communication to the public, including broadcasting, rebroadcasting, retransmitting
by cable, broadcasting and retransmitting by satellite, and includes the making of a
work available to the public by wire or wireless means in such a way that members of
the public may access these works from a place and time individually chosen by them
171.4. A "computer" is an electronic or similar device having information-processing
capabilities, and a "computer program" is a set of instructions expressed in words,
codes, schemes or in any other form, which is capable when incorporated in a medium
that the computer can read, of causing the computer to perform or achieve a particular
task or result;
171.5. "Public lending" is the transfer of possession of the original or a copy of a work
or sound recording for a limited period, for non-profit purposes, by an institution the
services of which are available to the public, such as public library or archive;
171.6. "Public performance", in the case of a work other than an audiovisual work, is
the recitation, playing, dancing, acting or otherwise performing the work, either
directly or by means of any device or process; in the case of an audiovisual work, the
showing of its images in sequence and the making of the sounds accompanying it
audible; and, in the case of a sound recording, making the recorded sounds audible at
a place or at places where persons outside the normal circle of a family and that
family's closest social acquaintances are or can be present, irrespective of whether they
are or can be present at the same place and at the same time, or at different places
and/or at different times, and where the performance can be perceived without the need
for communication within the meaning of Subsection 171.3;
171.7. "Published works" means works, which, with the consent of the authors, are
made available to the public by wire or wireless means in such a way that members of
the public may access these works from a place and time individually chosen by
them: Provided, That availability of such copies has been such, as to satisfy the
reasonable requirements of the public, having regard to the nature of the work;
171.8. "Rental" is the transfer of the possession of the original or a copy of a work or
a sound recording for a limited period of time, for profit-making purposes;
171.9. ‘Reproduction’ is the making of one (1) or more copies, temporary or
permanent, in whole or in part, of a work or a sound recording in any manner or form
without prejudice to the provisions of Section 185 of this Act (Sec. 41[E], P.D. No.
49a);
171.10. A "work of applied art" is an artistic creation with utilitarian functions or
incorporated in a useful article, whether made by hand or produced on an industrial
scale;
171.11. A "work of the Government of the Philippines" is a work created by an officer
or employee of the Philippine Government or any of its subdivisions and
instrumentalities, including government-owned or controlled corporations as a part of
his regularly prescribed official duties.
171.12. ‘Technological measure’ means any technology, device or component that, in
the normal course of its operation, restricts acts in respect of a work, performance or
sound recording, which are not authorized by the authors, performers or producers of
sound recordings concerned or permitted by law;
171.13. ‘Rights management information’ means information which identifies the
work, sound recording or performance; the author of the work, producer of the sound
recording or performer of the performance; the owner of any right in the work, sound
recording or performance; or information about the terms and conditions of the use of
the work, sound recording or performance; and any number or code that represent such
information, when any of these items is attached to a copy of the work, sound recording
or fixation of performance or appears in conjunction with the communication to the
public of a work, sound recording or performance.
CHAPTER II
Original Works
SECTION 172. Literary and Artistic Works. — 172.1. Literary and artistic works,
hereinafter referred to as "works", are original intellectual creations in the literary and
artistic domain protected from the moment of their creation and shall include in
particular:
(a) Books, pamphlets, articles and other writings;
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(b) Periodicals and newspapers;
(c) Lectures, sermons, addresses, dissertations prepared for oral delivery,
whether or not reduced in writing or other material form;
(d) Letters;
(e) Dramatic or dramatico-musical compositions; choreographic works or
entertainment in dumb shows;
(f) Musical compositions, with or without words;
(g) Works of drawing, painting, architecture, sculpture, engraving, lithography
or other works of art; models or designs for works of art;
(h) Original ornamental designs or models for articles of manufacture, whether
or not registrable as an industrial design, and other works of applied art;
(i) Illustrations, maps, plans, sketches, charts and three-dimensional works
relative to geography, topography, architecture or science;
(j) Drawings or plastic works of a scientific or technical character;
(k) Photographic works including works produced by a process analogous to
photography; lantern slides;
(l) Audiovisual works and cinematographic works and works produced by a
process analogous to cinematography or any process for making audio-visual
recordings;
(m) Pictorial illustrations and advertisements;
(n) Computer programs; and
(o) Other literary, scholarly, scientific and artistic works.
(a) 172.2. Works are protected by the sole fact of their creation, irrespective of
their mode or form of expression, as well as of their content, quality and
purpose. (Sec. 2, P.D. No. 49a)
(b)
CHAPTER III
Derivative Works
SECTION 173. Derivative Works. — 173.1. The following derivative works shall
also be protected by copyright:
(a) Dramatizations, translations, adaptations, abridgments, arrangements, and
other alterations of literary or artistic works; and
(b) Collections of literary, scholarly or artistic works, and compilations of data
and other materials which are original by reason of the selection or
coordination or arrangement of their contents. (Sec. 2, (P) and (Q), P.D. No.
49)
173.2. The works referred to in paragraphs (a) and (b) of Subsection 173.1 shall be
protected as new works: Provided, however, That such new work shall not affect the
force of any subsisting copyright upon the original works employed or any part
thereof, or be construed to imply any right to such use of the original works, or to
secure or extend copyright in such original works. (Sec. 8, P.D. 49; Art. 10, TRIPS)
SECTION 174. Published Edition of Work. — In addition to the right to publish
granted by the author, his heirs, or assigns, the publisher shall have a copyright
consisting merely of the right of reproduction of the typographical arrangement of the
published edition of the work. (n)
CHAPTER IV
Works Not Protected
SECTION 175. Unprotected Subject Matter. — Notwithstanding the provisions of
Sections 172 and 173, no protection shall extend, under this law, to any idea,
procedure, system, method or operation, concept, principle, discovery or mere data as
such, even if they are expressed, explained, illustrated or embodied in a work; news of
the day and other miscellaneous facts having the character of mere items of press
information; or any official text of a legislative, administrative or legal nature, as well
as any official translation thereof. (n)
SECTION 176. Works of the Government. — 176.1. No copyright shall subsist in any
work of the Government of the Philippines. However, prior approval of the
government agency or office wherein the work is created shall be necessary for
exploitation of such work for profit. Such agency or office may, among other things,
impose as a condition the payment of royalties. No prior approval or conditions shall
be required for the use for any purpose of statutes, rules and regulations, and speeches,
lectures, sermons, addresses, and dissertations, pronounced, read or rendered in courts
of justice, before administrative agencies, in deliberative assemblies and in meetings
of public character. (Sec. 9, first par., P.D. No. 49)
176.2. The author of speeches, lectures, sermons, addresses, and dissertations
mentioned in the preceding paragraphs shall have the exclusive right of making a
collection of his works. (n)
176.3. Notwithstanding the foregoing provisions, the Government is not precluded
from receiving and holding copyrights transferred to it by assignment, bequest or
otherwise; nor shall publication or republication by the Government in a public
document of any work in which copyright is subsisting be taken to cause any
abridgment or annulment of the copyright or to authorize any use or appropriation of
such work without the consent of the copyright owner. (Sec. 9, third par., P.D. No. 49)
CHAPTER V
Copyright Or Economic Rights
SECTION 177. Copyright or Economic Rights. — Subject to the provisions of
Chapter VIII, copyright or economic rights shall consist of the exclusive right to carry
out, authorize or prevent the following acts:
177.1. Reproduction of the work or substantial portion of the work;
296
177.2. Dramatization, translation, adaptation, abridgment, arrangement or other
transformation of the work;
177.3. The first public distribution of the original and each copy of the work by sale
or other forms of transfer of ownership;
177.4. Rental of the original or a copy of an audiovisual or cinematographic work, a
work embodied in a sound recording, a computer program, a compilation of data and
other materials or a musical work in graphic form, irrespective of the ownership of the
original or the copy which is the subject of the rental; (n)
177.5. Public display of the original or a copy of the work;
177.6. Public performance of the work; and
177.7. Other communication to the public of the work. (Sec. 5, P.D. No. 49a)
CHAPTER VI
Ownership Of Copyright
SECTION 178. Rules on Copyright Ownership. — Copyright ownership shall be
governed by the following rules:
178.1. Subject to the provisions of this section, in the case of original literary and
artistic works, copyright shall belong to the author of the work;
178.2. In the case of works of joint authorship, the co-authors shall be the original
owners of the copyright and in the absence of agreement, their rights shall be governed
by the rules on co-ownership. If, however, a work of joint authorship consists of parts
that can be used separately and the author of each part can be identified, the author of
each part shall be the original owner of the copyright in the part that he has created;
178.3. In the case of work created by an author during and in the course of his
employment, the copyright shall belong to:
(a) The employee, if the creation of the object of copyright is not a part of his
regular duties even if the employee uses the time, facilities and materials of
the employer.
(b) The employer, if the work is the result of the performance of his regularly-
assigned duties, unless there is an agreement, express or implied, to the
contrary.
178.4. In the case of a work commissioned by a person other than an employer of the
author and who pays for it and the work is made in pursuance of the commission, the
person who so commissioned the work shall have ownership of the work, but the
copyright thereto shall remain with the creator, unless there is a written stipulation to
the contrary;

178.5. In the case of audiovisual work, the copyright shall belong to the producer, the
author of the scenario, the composer of the music, the film director, and the author of
the work so adapted. However, subject to contrary or other stipulations among the
creators, the producer shall exercise the copyright to an extent required for the
exhibition of the work in any manner, except for the right to collect performing license
fees for the performance of musical compositions, with or without words, which are
incorporated into the work; and
178.6. In respect of letters, the copyright shall belong to the writer subject to the
provisions of Article 723 of the Civil Code. (Sec. 6, P.D. No. 49a)
SECTION 179. Anonymous and Pseudonymous Works. — For purposes of this Act,
the publishers shall be deemed to represent the authors of articles and other writings
published without the names of the authors or under pseudonyms, unless the contrary
appears, or the pseudonyms or adopted name leaves no doubt as to the author's identity,
or if the author of the anonymous works discloses his identity. (Sec. 7, P.D. 49)
CHAPTER VII
Transfer, Assignment And Licensing Of Copyright
SECTION 180. Rights of Assignee or Licensee. – 180.1. the copyright may be
assigned or licensed in whole or in part. Within the scope of the assignment or license,
the assignee or licensee is entitled to all the rights and remedies which the assignor or
licensor had with respect to the copyright.
180.2. the copyright is not deemed assigned or licensed inter vivos, in whole or in part,
unless there is a written indication of such intention.
180.3. The submission of a literary, photographic or artistic work to a newspaper,
magazine or periodical for publication shall constitute only a license to make a single
publication unless a greater right is expressly granted. If two (2) or more persons
jointly own a copyright or any part thereof, neither of the owners shall be entitled to
grant licenses without the prior written consent of the other owner or owners.
180.4. Any exclusivity in the economic rights in a work may be exclusively licensed.
Within the scope of the exclusive license, the licensee is entitled to all the rights and
remedies which the licensor had with respect to the copyright.
180.5. the copyright owner has the right to regular statements of accounts from the
assignee or the licensee with regard to assigned or licensed work."
SECTION 181. Copyright and Material Object. – the copyright is distinct from the
property in the material object subject to it. Consequently, the transfer, assignment or
licensing of the copyright shall not itself constitute a transfer of the material object.
297
Nor shall a transfer or assignment of the sole copy or of one or several copies of the
work imply transfer, assignment or licensing of the copyright. (Sec. 16, P.D. No. 49)
SECTION 182. Filing of Assignment or License. — An assignment or exclusive
license may be filed in duplicate with the National Library upon payment of the
prescribed fee for registration in books and records kept for the purpose. Upon
recording, a copy of the instrument shall be returned to the sender with a notation of
the fact of record. Notice of the record shall be published in the IPO Gazette. (Sec. 19,
P.D. No. 49a)
SECTION 183. Designation of Society. – the owners of copyright and related rights
or their heirs may designate a society of artists, writers, composers and other right-
holders to collectively manage their economic or moral rights on their behalf. For the
said societies to enforce the rights of their members, they shall first secure the
necessary accreditation from the Intellectual Property Office. (Sec. 32, P.D. No. 49a)
SECTION 184. Limitations on Copyright. — 184.1. The reproduction or distribution
of published articles or materials in a specialized format exclusively for the use of the
blind, visually- and reading-impaired persons: Provided, That such copies and
distribution shall be made on a nonprofit basis and shall indicate the copyright owner
and the date of the original publication.
(a) The recitation or performance of a work, once it has been lawfully made
accessible to the public, if done privately and free of charge or if made strictly
for a charitable or religious institution or society; (Sec. 10(1), P.D. No. 49)
(b) The making of quotations from a published work if they are compatible with
fair use and only to the extent justified for the purpose, including quotations
from newspaper articles and periodicals in the form of press
summaries: Provided, That the source and the name of the author, if
appearing on the work, are mentioned; (Sec. 11, third par., P.D. No. 49)
(c) The reproduction or communication to the public by mass media of articles
on current political, social, economic, scientific or religious topic, lectures,
addresses and other works of the same nature, which are delivered in public
if such use is for information purposes and has not been expressly
reserved: Provided, That the source is clearly indicated; (Sec. 11, P.D. No.
49)
(d) The reproduction and communication to the public of literary, scientific or
artistic works as part of reports of current events by means of photography,
cinematography or broadcasting to the extent necessary for the purpose; (Sec.
12, P.D. No. 49)
(e) The inclusion of a work in a publication, broadcast, or other communication
to the public, sound recording or film, if such inclusion is made by way of
illustration for teaching purposes and is compatible with fair use: Provided,
That the source and the name of the author, if appearing in the work, are
mentioned;
 (f) The recording made in schools, universities, or educational institutions of a
work included in a broadcast for the use of such schools, universities or
educational institutions: Provided, That such recording must be deleted
within a reasonable period after they were first broadcast: Provided, further,
That such recording may not be made from audiovisual works which are part
of the general cinema repertoire of feature films except for brief excerpts of
the work;
(g) The making of ephemeral recordings by a broadcasting organization by
means of its own facilities and for use in its own broadcast;
(h) The use made of a work by or under the direction or control of the
Government, by the National Library or by educational, scientific or
professional institutions where such use is in the public interest and is
compatible with fair use;
(i) The public performance or the communication to the public of a work, in a
place where no admission fee is charged in respect of such public
performance or communication, by a club or institution for charitable or
educational purpose only, whose aim is not profit making, subject to such
other limitations as may be provided in the Regulations; (n)
(j) Public display of the original or a copy of the work not made by means of a
film, slide, television image or otherwise on screen or by means of any other
device or process: Provided, That either the work has been published, or, that
the original or the copy displayed has been sold, given away or otherwise
transferred to another person by the author or his successor in title; and
(k) Any use made of a work for the purpose of any judicial proceedings or for
the giving of professional advice by a legal practitioner.
184.2. The provisions of this section shall be interpreted in such a way as to allow the
work to be used in a manner which does not conflict with the normal exploitation of
the work and does not unreasonably prejudice the right holder's legitimate interests.
SECTION 185. Fair Use of a Copyrighted Work. – 185.1. the fair use of a copyrighted
work for criticism, comment, news reporting, teaching including limited number of
copies for classroom use, scholarship, research, and similar purposes is not an
infringement of copyright. Decompilation, which is understood here to be the
reproduction of the code and translation of the forms of a computer program to achieve
the interoperability of an independently created computer program with other
programs may also constitute fair use under the criteria established by this section, to
the extent that such decompilation is done for the purpose of obtaining the information
necessary to achieve such interoperability.
(a) The purpose and character of the use, including whether such use is of a
commercial nature or is for non-profit educational purposes;
(b) The nature of the copyrighted work;
(c) The amount and substantiality of the portion used in relation to the
copyrighted work as a whole; and
298
(d) The effect of the use upon the potential market for or value of the copyrighted
work.
185.2. The fact that a work is unpublished shall not by itself bar a finding of fair use
if such finding is made upon consideration of all the above factors.
SECTION 186. Work of Architecture. — Copyright in a work of architecture shall
include the right to control the erection of any building which reproduces the whole or
a substantial part of the work either in its original form or in any form recognizably
derived from the original: Provided, That the copyright in any such work shall not
include the right to control the reconstruction or rehabilitation in the same style as the
original of a building to which that copyright relates. (n)
SECTION 187. Reproduction of Published Work. — 187.1. Notwithstanding the
provision of Section 177, and subject to the provisions of Subsection 187.2, the private
reproduction of a published work in a single copy, where the reproduction is made by
a natural person exclusively for research and private study, shall be permitted, without
the authorization of the owner of copyright in the work.
187.2. The permission granted under Subsection 187.1 shall not extend to the
reproduction of:
(a) A work of architecture in the form of building or other construction;
(b) An entire book, or a substantial part thereof, or of a musical work in graphic
form by reprographic means;
(c) A compilation of data and other materials;
(d) A computer program except as provided in Section 189; and
(e) Any work in cases where reproduction would unreasonably conflict with a
normal exploitation of the work or would otherwise unreasonably prejudice
the legitimate interests of the author.
SECTION 188. Reprographic Reproduction by Libraries. – 188.1. Notwithstanding
the provisions of Subsection 177.1., any library or archive whose activities are not for
profit may, without the authorization of the author or copyright owner, make a limited
number of copies of the work, as may be necessary for such institutions to fulfill their
mandate, by reprographic reproduction:
(a) Where the work by reason of its fragile character or rarity cannot be lent to
user in its original form;
(b) Where the works are isolated articles contained in composite works or brief
portions of other published works and the reproduction is necessary to supply
them, when this is considered expedient, to persons requesting their loan for
purposes of research or study instead of lending the volumes or booklets
which contain them; and
(c) Where the making of such limited copies is in order to preserve and, if
necessary in the event that it is lost, destroyed or rendered unusable, replace
a copy, or to replace, in the permanent collection of another similar library or
 archive, a copy which has been lost, destroyed or rendered unusable and
copies are not available with the publisher.
188.2. Notwithstanding the above provisions, it shall not be permissible to produce a
volume of a work published in several volumes or to produce missing tomes or pages
of magazines or similar works, unless the volume, tome or part is out of
stock: Provided, That every library which, by law, is entitled to receive copies of a
printed work, shall be entitled, when special reasons so require, to reproduce a copy
of a published work which is considered necessary for the collection of the library but
which is out of stock. (Sec. 13, P.D. 49a)
SECTION 189. Reproduction of Computer Program. — 189.1. Notwithstanding the
provisions of Section 177, the reproduction in one (1) back-up copy or adaptation of a
computer program shall be permitted, without the authorization of the author of, or
other owner of copyright in, a computer program, by the lawful owner of that computer
program: Provided, That the copy or adaptation is necessary for:
(a) The use of the computer program in conjunction with a computer for the
purpose, and to the extent, for which the computer program has been
obtained; and
(b) Archival purposes, and, for the replacement of the lawfully owned copy of
the computer program in the event that the lawfully obtained copy of the
computer program is lost, destroyed or rendered unusable.
189.2. No copy or adaptation mentioned in this Section shall be used for any purpose
other than the ones determined in this Section, and any such copy or adaptation shall
be destroyed in the event that continued possession of the copy of the computer
program ceases to be lawful.
189.3. This provision shall be without prejudice to the application of Section 185
whenever appropriate. (n)
SECTION 190. Importation and Exportation of Infringing Materials. – Subject to the
approval of the Secretary of Finance, the Commissioner of Customs is hereby
empowered to make rules and regulations for preventing the importation or exportation
of infringing articles prohibited under Part IV of this Act and under relevant treaties
and conventions to which the Philippines may be a party and for seizing and
condemning and disposing of the same in case they are discovered after they have been
imported or before they are exported.
CHAPTER IX
Deposit And Notice
SECTION 191. Deposit and Notice of Deposit with the National Library and the
Supreme Court Library. – At any time during the subsistence of the copyright, the
owner of the copyright or of any exclusive right in the work may, for the purpose of
299
completing the records of the National Library and the Supreme Court Library, register
and deposit with them, by personal delivery or by registered mail, two (2) complete
copies or reproductions of the work in such form as the Directors of the said libraries
may prescribe in accordance with regulations: Provided, That only works in the field
of law shall be deposited with the Supreme Court Library. Such registration and
deposit is not a condition of copyright protection.
SECTION 192. Notice of Copyright. — Each copy of a work published or offered for
sale may contain a notice bearing the name of the copyright owner, and the year of its
first publication, and, in copies produced after the creator's death, the year of such
death.
CHAPTER X
Moral Rights
SECTION 193. Scope of Moral Rights. — The author of a work shall, independently
of the economic rights in Section 177 or the grant of an assignment or license with
respect to such right, have the right:
193.1. To require that the authorship of the works be attributed to him, in particular,
the right that his name, as far as practicable, be indicated in a prominent way on the
copies, and in connection with the public use of his work;
193.2. To make any alterations of his work prior to, or to withhold it from publication;
193.3. To object to any distortion, mutilation or other modification of, or other
derogatory action in relation to, his work which would be prejudicial to his honor or
reputation; and
193.4. To restrain the use of his name with respect to any work not of his own creation
or in a distorted version of his work. (Sec. 34, P.D. No. 49)
SECTION 194. Breach of Contract. — An author cannot be compelled to perform his
contract to create a work or for the publication of his work already in existence.
However, he may be held liable for damages for breach of such contract. (Sec. 35, P.D.
No. 49)
SECTION 195. Waiver of Moral Rights. — An author may waive his rights
mentioned in Section 193 by a written instrument, but no such waiver shall be valid
where its effects is to permit another:
195.1. To use the name of the author, or the title of his work, or otherwise to make use
of his reputation with respect to any version or adaptation of his work which, because
of alterations therein, would substantially tend to injure the literary or artistic
reputation of another author; or
195.2. To use the name of the author with respect to a work he did not create. (Sec.
36, P.D. No. 49)
SECTION 196. Contribution to Collective Work. — When an author contributes to a
collective work, his right to have his contribution attributed to him is deemed waived
unless he expressly reserves it. (Sec. 37, P.D. No. 49)
SECTION 197. Editing, Arranging and Adaptation of Work. — In the absence of a
contrary stipulation at the time an author licenses or permits another to use his work,
the necessary editing, arranging or adaptation of such work, for publication, broadcast,
use in a motion picture, dramatization, or mechanical or electrical reproduction in
accordance with the reasonable and customary standards or requirements of the
medium in which the work is to be used, shall not be deemed to contravene the author's
rights secured by this chapter. Nor shall complete destruction of a work
unconditionally transferred by the author be deemed to violate such rights.
SECTION 198. Term of Moral Rights. – 198.1. the right of an author under Section
193.1. shall last during the lifetime of the author and in perpetuity after his death while
the rights under Sections 193.2. 193.3. and 193.4. shall be coterminous with the
economic rights, the moral rights shall not be assignable or subject to license. the
person or persons to be charged with the posthumous enforcement of these rights shall
be named in a written instrument which shall be filed with the National Library. In
default of such person or persons, such enforcement shall devolve upon either the
author’s heirs, and in default of the heirs, the Director of the National Library
SECTION 199. Enforcement Remedies. — Violation of any of the rights conferred by
this Chapter shall entitle those charged with their enforcement to the same rights and
remedies available to a copyright owner. In addition, damages which may be availed
of under the Civil Code may also be recovered. Any damage recovered after the
creator's death shall be held in trust for and remitted to his heirs, and in default of the
heirs, shall belong to the government. (Sec. 40, P.D. No. 49)
CHAPTER XI
Rights to Proceeds in Subsequent Transfers
SECTION 200. Sale or Lease of Work. — In every sale or lease of an original work
of painting or sculpture or of the original manuscript of a writer or composer,
subsequent to the first disposition thereof by the author, the author or his heirs shall
have an inalienable right to participate in the gross proceeds of the sale or lease to the
extent of five percent (5%). This right shall exist during the lifetime of the author and
for fifty (50) years after his death. (Sec. 31, P.D. No. 49)
SECTION 201. Works Not Covered. — The provisions of this Chapter shall not apply
to prints, etchings, engravings, works of applied art, or works of similar kind wherein
the author primarily derives gain from the proceeds of reproductions.
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CHAPTER XII
Rights of Performers, Producers of Sounds Recordings and Broadcasting
Organizations
SECTION 202. Definitions. — For the purpose of this Act, the following terms shall
have the following meanings:
202.1. "Performers" are actors, singers, musicians, dancers, and other persons who act,
sing, declaim, play in, interpret, or otherwise perform literary and artistic work;
202.2. "Sound recording" means the fixation of the sounds of a performance or of other
sounds, or representation of sound, other than in the form of a fixation incorporated in
a cinematographic or other audiovisual work;
202.3. An "audiovisual work or fixation" is a work that consists of a series of related
images which impart the impression of motion, with or without accompanying sounds,
susceptible of being made visible and, where accompanied by sounds, susceptible of
being made audible;
202.4. "Fixation" means the embodiment of sounds, or of the representations thereof,
from which they can be perceived, reproduced or communicated through a device;
202.5. "Producer of a sound recording" means the person, or the legal entity, who or
which takes the initiative and has the responsibility for the first fixation of the sounds
of a performance or other sounds, or the representation of sounds; cd
202.6. "Publication of a fixed performance or a sound recording" means the offering
of copies of the fixed performance or the sound recording to the public, with the
consent of the right holder: Provided, That copies are offered to the public in
reasonable quality;
202.7. "Broadcasting" means the transmission by wireless means for the public
reception of sounds or of images or of representations thereof; such transmission by
satellite is also "broadcasting" where the means for decrypting are provided to the
public by the broadcasting organization or with its consent;
202.8. "Broadcasting organization" shall include a natural person or a juridical entity
duly authorized to engage in broadcasting; and
202.9. "Communication to the public of a performance or a sound recording" means
the transmission to the public, by any medium, otherwise than by broadcasting, of
sounds of a performance or the representations of sounds fixed in a sound recording.
For purposes of Section 209, "communication to the public" includes making the
sounds or representations of sounds fixed in a sound recording audible to the public.
SECTION 203. Scope of Performers' Rights. — Subject to the provisions of Section
212, performers shall enjoy the following exclusive rights:
203.1. As regards their performances, the right of authorizing:
(a) The broadcasting and other communication to the public of their
performance; and
(b) The fixation of their unfixed performance.
203.2. the right of authorizing the direct or indirect reproduction of their performances
fixed in sound recordings or audiovisual works or fixations in any manner or form;
203.3. Subject to the provisions of Section 206, the right of authorizing the first public
distribution of the original and copies of their performance fixed in sound recordings
or audiovisual works or fixations through sale or rental of other forms of transfer of
ownership;
203.4. the right of authorizing the commercial rental to the public of the original and
copies of their performances fixed in sound recordings or audiovisual works or
fixations, even after distribution of them by, or pursuant to the authorization by the
performer; and
203.5. the right of authorizing the making available to the public of their performances
fixed in sound recordings or audiovisual works or fixations, by wire or wireless means,
in such a way that members of the public may access them from a place and time
individually chosen by them.
SECTION 204. Moral Rights of Performers. — 204.1. Independently of a
performer’s economic rights, the performer shall, as regards his live aural
performances or performances fixed in sound recordings or in audiovisual works or
fixations, have the right to claim to be identified as the performer of his performances,
except where the omission is dictated by the manner of the use of the performance,
and to object to any distortion, mutilation or other modification of his performances
that would be prejudicial to his reputation.
204.2. The rights granted to a performer in accordance with Subsection 203.1 shall be
maintained and exercised fifty (50) years after his death, by his heirs, and in default of
heirs, the government, where protection is claimed. (Sec. 43, P.D. No. 49)
SECTION 205. Limitation on Right. — 205.1. Subject to the provisions of Section
206, once the performer has authorized the broadcasting or fixation of his
performance, the provisions of Sections 203 shall have no further application.
205.2.The provisions of Section 184 and Section 185 shall apply mutatis mutandis to
performers. (n)
SECTION 206. Additional Remuneration for Subsequent Communications or
Broadcasts. — Unless otherwise provided in the contract, in every communication to
301
the public or broadcast of a performance subsequent to the first communication or
broadcast thereof by the broadcasting organization, the performer shall be entitled to
an additional remuneration equivalent to at least five percent (5%) of the original
compensation he or she received for the first communication or broadcast. (n)
SECTION 207. Contract Terms. — Nothing in this Chapter shall be construed to
deprive performers of the right to agree by contracts on terms and conditions more
favorable for them in respect of any use of their performance.
CHAPTER XIII
Producers of Sound Recordings
SECTION 208. Scope of Right. — Subject to the provisions of Section 212, producers
of sound recordings shall enjoy the following exclusive rights:
208.1. The right to authorize the direct or indirect reproduction of their sound
recordings, in any manner or form; the placing of these reproductions in the market
and the right of rental or lending;
208.2. The right to authorize the first public distribution of the original and copies of
their sound recordings through sale or rental or other forms of transferring ownership;
and
208.3. The right to authorize the commercial rental to the public of the original and
copies of their sound recordings, even after distribution by them by or pursuant to
authorization by the producer.
208.4. the right to authorize the making available to the public of their sound
recordings in such a way that members of the public may access the sound recording
from a place and at a time individually chosen or selected by them, as well as other
transmissions of a sound recording with like effect.
SECTION 209. Communication to the Public. — If a sound recording published for
commercial purposes, or a reproduction of such sound recording, is used directly for
broadcasting or for other communication to the public, or is publicly performed with
the intention of making and enhancing profit, a single equitable remuneration for the
performer or performers, and the producer of the sound recording shall be paid by the
user to both the performers and the producer, who, in the absence of any agreement
shall share equally. (Sec. 47, P.D. No. 49a)
SECTION 210. Limitation of Right. — Sections 184 and 185 shall apply mutatis
mutandis to the producer of sound recordings. (Sec. 48, P.D. No. 49a)
CHAPTER XIV
Broadcasting Organizations

SECTION 211. Scope of Right. — Subject to the provisions of Section 212,
broadcasting organizations shall enjoy the exclusive right to carry out, authorize or
prevent any of the following acts:
211.1. The rebroadcasting of their broadcasts;
211.2. The recording in any manner, including the making of films or the use of video
tape, of their broadcasts for the purpose of communication to the public of television
broadcasts of the same; and
211.3. The use of such records for fresh transmissions or for fresh recording.
CHAPTER XV
Limitations on Protection
SECTION 212. Limitations on Rights— the provisions of Chapter VIII shall
apply mutatis mutandis to the rights of performers, producers of sound recordings and
broadcasting organizations.
CHAPTER XVI
Term of Protection
SECTION 213. Term of Protection. — 213.1. Subject to the provisions of Subsections
213.2 to 213.5, the copyright in works under Sections 172 and 173 shall be protected
during the life of the author and for fifty (50) years after his death. This rule also
applies to posthumous works. (Sec. 21, first sentence, P.D. No. 49a)
213.2. In case of works of joint authorship, the economic rights shall be protected
during the life of the last surviving author and for fifty (50) years after his death. (Sec.
21, second sentence, P.D. No. 49)
213.3. In case of anonymous or pseudonymous works, the copyright shall be protected
for fifty (50) years from the date on which the work was first lawfully
published: Provided, That where, before the expiration of the said period, the author's
identity is revealed or is no longer in doubt, the provisions of Subsections 213.1. and
213.2 shall apply, as the case may be: Provided, further, That such works if not
published before shall be protected for fifty (50) years counted from the making of the
work. (Sec. 23, P.D. No. 49)
213.4. In case of works of applied art the protection shall be for a period of twenty-
five (25) years from the date of making. (Sec. 24(B), P.D. No. 49a)
302
213.5. In case of photographic works, the protection shall be for fifty (50) years from
publication of the work and, if unpublished, fifty (50) years from the making. (Sec.
24(C), P.D. 49a)
213.6. In case of audio-visual works including those produced by process analogous
to photography or any process for making audio-visual recordings, the term shall be
fifty (50) years from date of publication and, if unpublished, from the date of making.
(Sec. 24(C), P.D. No. 49a)
SECTION 214. Calculation of Term. — The term of protection subsequent to the
death of the author provided in the preceding Section shall run from the date of his
death or of publication, but such terms shall always be deemed to begin on the first
day of January of the year following the event which gave rise to them. (Sec. 25, P.D.
No. 49)
SECTION 215. Term of Protection for Performers, Producers and Broadcasting
Organizations. — 215.1. The rights granted to performers and producers of sound
recordings under this law shall expire:
(a) For performances not incorporated in recordings, fifty (50) years from the
end of the year in which the performance took place; and
(b) For sound or image and sound recordings and for performances incorporated
therein, fifty (50) years from the end of the year in which the recording took
place.
215.2. In case of broadcasts, the term shall be twenty (20) years from the date the
broadcast took place. The extended term shall be applied only to old works with
subsisting protection under the prior law.
CHAPTER XVII
Infringement
SECTION 216. Infringement. – A person infringes a right protected under this Act
when one:
(a) Directly commits an infringement;
(b) Benefits from the infringing activity of another person who commits an
infringement if the person benefiting has been given notice of the infringing
activity and has the right and ability to control the activities of the other
person;
(c) With knowledge of infringing activity, induces, causes or materially
contributes to the infringing conduct of another.
216.1. Remedies for Infringement. – Any person infringing a right protected under this
law shall be liable:
(a) To an injunction restraining such infringement. The court may also order the
defendant to desist from an infringement, among others, to prevent the entry
 into the channels of commerce of imported goods that involve an
infringement, immediately after customs clearance of such goods.
(b) To pay to the copyright proprietor or his assigns or heirs such actual damages,
including legal costs and other expenses, as he may have incurred due to the
infringement as well as the profits the infringer may have made due to such
infringement, and in proving profits the plaintiff shall be required to prove
sales only and the defendant shall be required to prove every element of cost
which he claims, or, in lieu of actual damages and profits, such damages
which to the court shall appear to be just and shall not be regarded as
penalty: Provided, That the amount of damages to be awarded shall be
doubled against any person who:
(i) Circumvents effective technological measures; or
(ii) Having reasonable grounds to know that it will induce, enable,
facilitate or conceal the infringement, remove or alter any electronic
rights management information from a copy of a work, sound
recording, or fixation of a performance, or distribute, import for
distribution, broadcast, or communicate to the public works or
copies of works without authority, knowing that electronic rights
management information has been removed or altered without
authority.
(c) Deliver under oath, for impounding during the pendency of the action, upon
such terms and conditions as the court may prescribe, sales invoices and other
documents evidencing sales, all articles and their packaging alleged to
infringe a copyright and implements for making them.
(d) Deliver under oath for destruction without any compensation all infringing
copies or devices, as well as all plates, molds, or other means for making such
infringing copies as the court may order.
(e) Such other terms and conditions, including the payment of moral and
exemplary damages, which the court may deem proper, wise and equitable
and the destruction of infringing copies of the work even in the event of
acquittal in a criminal case.
The copyright owner may elect, at any time before final judgment is rendered, to
recover instead of actual damages and profits, an award of statutory damages for all
infringements involved in an action in a sum equivalent to the filing fee of the
infringement action but not less than Fifty thousand pesos (Php50,000.00). In
awarding statutory damages, the court may consider the following factors:
(1) the nature and purpose of the infringing act;
(2) the flagrancy of the infringement;
(3) Whether the defendant acted in bad faith;
(4) the need for deterrence;
(5) Any loss that the plaintiff has suffered or is likely to suffer by reason of the
infringement; and
(6) Any benefit shown to have accrued to the defendant by reason of the
infringement.
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In case the infringer was not aware and had no reason to believe that his acts constitute
an infringement of copyright, the court in its discretion may reduce the award of
statutory damages to a sum of not more than Ten thousand pesos
(Php10,000.00): Provided, That the amount of damages to be awarded shall be
doubled against any person who:
(a) Circumvents effective technological measures; or
(b) Having reasonable grounds to know that it will induce, enable, facilitate or
conceal the infringement, remove or alter any electronic rights management
information from a copy of a work, sound recording, or fixation of a
performance, or distribute, import for distribution, broadcast, or
communicate to the public works or copies of works without authority,
knowing that electronic rights management information has been removed or
altered without authority.
216.2. In an infringement action, the court shall also have the power to order the
seizure and impounding of any article which may serve as evidence in the court
proceedings, in accordance with the rules on search and seizure involving violations
of intellectual property rights issued by the Supreme Court. (Sec. 28, P.D. No. 49a)
The foregoing shall not preclude an independent suit for relief by the injured party by
way of damages, injunction, accounts or otherwise.
SECTION 217. Criminal Penalties. — 217.1. Any person infringing any right
secured by provisions of Part IV of this Act or aiding or abetting such infringement
shall be guilty of a crime punishable by:
(a) Imprisonment of one (1) year to three (3) years plus a fine ranging from Fifty
thousand pesos (P50,000) to One hundred fifty thousand pesos (P150,000)
for the first offense.
(b) Imprisonment of three (3) years and one (1) day to six (6) years plus a fine
ranging from One hundred fifty thousand pesos (P150,000) to Five hundred
thousand pesos (P500,000) for the second offense.
(c) Imprisonment of six (6) years and one (1) day to nine (9) years plus a fine
ranging from Five hundred thousand pesos (P500,000) to One million five
hundred thousand pesos (P1,500,000) for the third and subsequent offenses.
(d) In all cases, subsidiary imprisonment in cases of insolvency.
217.2. In determining the number of years of imprisonment and the amount of fine,
the court shall consider the value of the infringing materials that the defendant has
produced or manufactured and the damage that the copyright owner has suffered by
reason of the infringement: Provided, That the respective maximum penalty stated in
Section 217.1. (a), (b) and (c) herein for the first, second, third and subsequent offense,
shall be imposed when the infringement is committed by:
(a) the circumvention of effective technological measures;
 (b) the removal or alteration of any electronic rights management information
from a copy of a work, sound recording, or fixation of a performance, by a
person, knowingly and without authority; or
(c) the distribution, importation for distribution, broadcast, or communication to
the public of works or copies of works, by a person without authority,
knowing that electronic rights management information has been removed or
altered without authority.
217.3. Any person who at the time when copyright subsists in a work has in his
possession an article which he knows, or ought to know, to be an infringing copy of
the work for the purpose of:
(a) Selling, letting for hire, or by way of trade offering or exposing for sale, or
hire, the article;
(b) Distributing the article for purpose of trade, or for any other purpose to an
extent that will prejudice the rights of the copyright owner in the work; or
(c) Trade exhibit of the article in public, shall be guilty of an offense and shall
be liable on conviction to imprisonment and fine as above mentioned.
SECTION 218. Affidavit Evidence. — 218.1. In an action under this Chapter, an
affidavit made before a notary public by or on behalf of the owner of the copyright in
any work or other subject matter and stating that:
(a) At the time specified therein, copyright subsisted in the work or other subject
matter;
(b) He or the person named therein is the owner of the copyright; and
(c) the copy of the work or other subject matter annexed thereto is a true copy
thereof.
The affidavit shall be admitted in evidence in any proceedings under this Chapter and
shall be prima facie proof of the matters therein stated until the contrary is proved, and
the court before which such affidavit is produced shall assume that the affidavit was
made by or on behalf of the owner of the copyright.
218.2. In an action under this Chapter:
(a) Copyright shall be presumed to subsist in the work or other subject matter to
which the action relates if the defendant does not put in issue the question
whether copyright subsists in the work or other subject matter; and
(b) Where the subsistence of the copyright is established, the plaintiff shall be
presumed to be the owner of the copyright if he claims to be the owner of the
copyright and the defendant does not put in issue the question of his
ownership.
(c) Where the defendant, without good faith, puts in issue the questions of
whether copyright subsists in a work or other subject matter to which the
action relates, or the ownership of copyright in such work or subject matter,
thereby occasioning unnecessary costs or delay in the proceedings, the court
may direct that any costs to the defendant in respect of the action shall not be
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allowed by him and that any costs occasioned by the defendant to other
parties shall be paid by him to such other parties. (n)
SECTION 219. Presumption of Authorship. — 219.1. The natural person whose name
is indicated on a work in the usual manner as the author shall, in the absence of proof
to the contrary, be presumed to be the author of the work. This provision shall be
applicable even if the name is a pseudonym, where the pseudonym leaves no doubt as
to the identity of the author.
219.2. The person or body corporate whose name appears on an audio-visual work in
the usual manner shall, in the absence of proof to the contrary, be presumed to be the
maker of said work. (n)
SECTION 220. International Registration of Works. — A statement concerning a
work, recorded in an international register in accordance with an international treaty
to which the Philippines is or may become a party, shall be construed as true until the
contrary is proved except:
220.1. Where the statement cannot be valid under this Act or any other law concerning
intellectual property.
220.2. Where the statement is contradicted by another statement recorded in the
international register. (n)
SECTION 220A. Disclosure of Information. – Where any article or its packaging or
an implement for making it is seized or detained under a valid search and seizure under
this Act is, or is reasonably suspected to be, by an authorized enforcement officer, in
violation of this Act, the said officer, shall, wherever reasonably practicable, notify the
owner of the copyright in question or his authorized agent of the seizure or detention,
as the case may be.
CHAPTER XVIII
Scope of Application
SECTION 221. Points of Attachment for Works under Sections 172 and 173. —
221.1. The protection afforded by this Act to copyrightable works under Sections 172
and 173 shall apply to:
(a) Works of authors who are nationals of, or have their habitual residence in, the
Philippines;
(b) Audio-visual works the producer of which has his headquarters or habitual
residence in the Philippines;
 (c) Works of architecture erected in the Philippines or other artistic works
incorporated in a building or other structure located in the Philippines;
(d) Works first published in the Philippines; and
(e) Works first published in another country but also published in the Philippines
within thirty days, irrespective of the nationality or residence of the authors.
221.2. The provisions of this Act shall also apply to works that are to be protected by
virtue of and in accordance with any international convention or other international
agreement to which the Philippines is a party. (n)
SECTION 222. Points of Attachment for Performers. — The provisions of this Act
on the protection of performers shall apply to:
222.1. Performers who are nationals of the Philippines;
222.2. Performers who are not nationals of the Philippines but whose performances:
(a) Take place in the Philippines; or
(b) Are incorporated in sound recordings that are protected under this Act; or
(c) Which has not been fixed in sound recording but are carried by broadcast
qualifying for protection under this Act. (n)
SECTION 223. Points of Attachment for Sound Recordings. — The provisions of this
Act on the protection of sound recordings shall apply to:
223.1. sound recordings the producers of which are nationals of the Philippines; and
223.2. sound recordings that were first published in the Philippines. (n)
SECTION 224. Points of Attachment for Broadcasts. — 224.1. The provisions of this
Act on the protection of broadcasts shall apply to:
(a) Broadcasts of broadcasting organizations the headquarters of which are
situated in the Philippines; and
(b) Broadcasts transmitted from transmitters situated in the Philippines.
(a) 224.2. The provisions of this Act shall also apply to performers who, and to
producers of sound recordings and broadcasting organizations which, are to
be protected by virtue of and in accordance with any international convention
or other international agreement to which the Philippines is a party.
CHAPTER XIX
Institution of Actions
SECTION 225. Jurisdiction. — Without prejudice to the provisions of Subsection
7.1(c), actions under this Act shall be cognizable by the courts with appropriate
jurisdiction under existing law. (Sec. 57, P.D. No. 49a)
305
SECTION 226. Damages. – No damages may be recovered under this Act after the
lapse of four (4) years from the time the cause of action arose. (Sec. 58, P.D. No. 49).
CHAPTER XX
Miscellaneous Provisions
SECTION 227. Ownership of Deposit and Instruments. — All copies deposited and
instruments in writing filed with the National Library and the Supreme Court Library
in accordance with the provisions of this Act shall become the property of the
Government. (Sec. 60, P.D. No. 49)
SECTION 228. Public Records. — The section or division of the National Library
and the Supreme Court Library charged with receiving copies and instruments
deposited and with keeping records required under this Act and everything in it shall
be opened to public inspection. The Director of the National Library is empowered to
issue such safeguards and regulations as may be necessary to implement this Section
and other provisions of this Act. (Sec. 61, P.D. No. 49)
SECTION 229. Copyright Division; Fees. — The Copyright Section of the National
Library shall be classified as a Division upon the effectivity of this Act. The National
Library shall have the power to collect, for the discharge of its services under this Act,
such fees as may be promulgated by it from time to time subject to the approval of the
Department Head.
SECTION 230. Adoption of Intellectual Property (IP) Policies. – Schools and
universities shall adopt intellectual property policies that would govern the use and
creation of intellectual property with the purpose of safeguarding the intellectual
creations of the learning institution and its employees, and adopting locally-established
industry practice fair use guidelines. These policies may be developed in relation to
licensing agreements entered into by the learning institution with a collective licensing
organization.
PART V
FINAL PROVISIONS
SECTION 231. Equitable Principles to Govern Proceedings. — In all inter
partes proceedings in the Office under this Act, the equitable principles of laches,
estoppel, and acquiescence where applicable, may be considered and applied. (Sec. 9-
A, R.A. No. 166)
SECTION 232. Reverse Reciprocity of Foreign Laws. — Any condition, restriction,
limitation, diminution, requirement, penalty or any similar burden imposed by the law
of a foreign country on a Philippine national seeking protection of intellectual property
rights in that country, shall reciprocally be enforceable upon nationals of said country,
within Philippine jurisdiction. (n)
SECTION 233. Appeals. — 233.1. Appeals from decisions of regular courts shall be
governed by the Rules of Court. Unless restrained by a higher court, the judgment of
the trial court shall be executory even pending appeal under such terms and conditions
as the court may prescribe.
233.2. Unless expressly provided in this Act or other statutes, appeals from decisions
of administrative officials shall be provided in the Regulations. (n)
SECTION 234. Organization of the Office; Exemption from the Salary
Standardization Law and the Attrition Law. — 233.1. The Office shall be organized
within one (1) year after the approval of this Act. It shall not be subject to the
provisions of Republic Act No. 7430.
233.4. The Office shall institute its own compensation structure: Provided, That the
Office shall make its own system conform as closely as possible with the principles
provided for under Republic Act No. 6758. (n)
SECTION 235. Abolition of the Bureau of Patents, Trademarks, and Technology
Transfer. — The Bureau of Patents, Trademarks, and Technology Transfer under the
Department of Trade and Industry is hereby abolished. All unexpended funds and fees,
fines, royalties and other charges collected for the calendar year, properties, equipment
and records of the Bureau of Patents, Trademarks and Technology Transfer, and such
personnel as may be necessary are hereby transferred to the Office. Personnel not
absorbed or transferred to the Office shall enjoy the retirement benefits granted under
existing law, otherwise, they shall be paid the equivalent of one month basic salary for
every year of service, or the equivalent nearest fractions thereof favorable to them on
the basis of the highest salary received. (n)
SECTION 2356 Applications Pending on Effective Date of Act. — 235.1. All
applications for patents pending in the Bureau of Patents, Trademarks and Technology
Transfer shall be proceeded with and patents thereon granted in accordance with the
Acts under which said applications were filed, and said Acts are hereby continued to
be enforced, to this extent and for this purpose only, notwithstanding the foregoing
general repeal thereof: Provided, That applications for utility models or industrial
designs pending at the effective date of this Act, shall be proceeded with in accordance
with the provisions of this Act, unless the applicants elect to prosecute said
applications in accordance with the Acts under which they were filed.
236.2. All applications for registration of marks or trade names pending in the Bureau
of Patents, Trademarks and Technology Transfer at the effective date of this Act may
306
be amended, if practicable to bring them under the provisions of this Act. The
prosecution of such applications so amended and the grant of registrations thereon
shall be proceeded with in accordance with the provisions of this Act. If such
amendments are not made, the prosecution of said applications shall be proceeded with
and registrations thereon granted in accordance with the Acts under which said
applications were filed, and said Acts are hereby continued in force to this extent for
this purpose only, notwithstanding the foregoing general repeal thereof. (n)
SECTION 237. Preservation of Existing Rights. — Nothing herein shall adversely
affect the rights on the enforcement of rights in patents, utility models, industrial
designs, marks and works, acquired in good faith prior to the effective date of this Act.
(n)
SECTION 238. Notification on Berne Appendix. — The Philippines shall by proper
compliance with the requirements set forth under the Appendix of the Berne
Convention (Paris Act, 1971) avail itself of the special provisions regarding
developing countries, including provisions for licenses grantable by competent
authority under the Appendix. (n)
SECTION 239. Appropriations. — The funds needed to carry out the provisions of
this Act shall be charged to the appropriations of the Bureau of Patents, Trademarks,
and Technology Transfer under the current General Appropriations Act and the fees,
fines, royalties and other charges collected by the Bureau for the calendar year
pursuant to Sections 14.1 and 234 of this Act. Thereafter such sums as may be
necessary for its continued implementations shall be included in the annual General
Appropriations Act. (n)
SECTION 240. Repeals. — 240.1. All Acts and parts of Acts inconsistent herewith,
more particularly Republic Act No. 165, as amended; Republic Act No. 166, as
amended; and Articles 188 and 189 of the Revised Penal Code; Presidential Decree
No. 49, including Presidential Decree No. 285, as amended, are hereby repealed.
240.2. Marks registered under Republic Act No. 166 shall remain in force but shall be
deemed to have been granted under this Act and shall be due for renewal within the
period provided for under this Act and, upon renewal, shall be reclassified in
accordance with the International Classification. Trade names and marks registered in
the Supplemental Register under Republic Act No. 166 shall remain in force but shall
no longer be subject to renewal.
240.3. The provisions of this Act shall apply to works in which copyright protection
obtained prior to the effectivity of this Act is subsisting: Provided, That the application
of this Act shall not result in the diminution of such protection. (n)
SECTION 241. Separability. — If any provision of this Act or the application of such
provision to any circumstances is held invalid, the remainder of the Act shall not be
affected thereby. (n)

SECTION 242. Effectivity. — This Act shall take effect on 1 January 1998.

307
 USE OF DULY-STAMPED AND MARKED CONTAINERS SECTION 6. The provision of this Act shall not be interpreted as prohibiting the use
REPUBLIC ACT No. 623 AS AMENDED BY REPUBLIC ACT No. of bottles as containers for "sisi", "bagoong", "patis", and similar native products.
SECTION 7. This Act shall take effect upon its approval.
5700
SECTION 1. Persons engaged or licensed to engage in the manufacture, bottling, or
selling of soda water, mineral or aerated waters, cider, milk, cream or other lawful
beverages in bottles, boxes, casks, kegs, or barrels, and other similar containers, or in
the manufacture, compressing or selling of gases such as oxygen, acetylene, nitrogen,
carbon dioxide, ammonia, hydrogen, chloride, helium, sulphur dioxide, butane,
propane, freon, methyl chloride or similar gases contained in steel cylinders, tanks,
flasks, accumulators or similar containers, with their names or the names of their
principals of products, or other marks of ownership stamped or marked thereon, may
register with the Philippines Patent Office a description of the names or marks, and the
purpose for which the containers so marked are used by them, under the same
conditions, rules, and regulations, made applicable by law or regulation to the issuance
of trademarks."

SECTION 2. It shall be unlawful for any person, without the written consent of the
manufacturer, bottle, or seller, who has successfully registered the marks of ownership
in accordance with the provisions of the next preceding section, to fill such bottles,
boxes, kegs, barrels, steel cylinders, tanks, flasks, accumulators, or other similar
containers so marked or stamped, for the purpose of sale, or to sell, dispose of, buy or
traffic in, or wantonly destroy the same, whether filled or not to use the same for
drinking vessels or glasses or drain pipes, foundation pipes, for any other purpose than
that registered by the manufacturer, bottler or seller. Any violation of this section shall
be punished by a fine of not more than one thousand pesos or imprisonment of not
more than one year or both."

SECTION. 3. The use by any person other than the registered manufacturer, bottler
or seller, without written permission of the latter of any such bottler, cask, barrel, keg,
box, steel cylinders, tanks, flasks, accumulators, or other similar containers, or the
possession thereof without written permission of the manufacturer, by any junk dealer
or dealer in casks, barrels, kegs, boxes, steel cylinders, tanks, flasks, accumulators, or
other similar containers, the same being duly marked or stamped and registered as
herein provided, shall give rise to a prima facie presumption that such use or
possession is unlawful.

SECTION 4. The criminal action provided in this Act shall is no way affect any civil
action to which the registered manufacturer, bottler, or seller, may be entitled by law
or contract.

SECTION 5. No action shall be brought under this Act against any person to whom
the registered manufacturer, bottler, or seller, has transferred by way of sale, any of
the containers herein referred to, but the sale of the beverage contained in the said
containers shall not include the sale of the containers unless specifically so provided.
308
 PHILIPPINE REGULATIONS IMPLEMENTING THE
PROTOCOL RELATING TO THE MADRID AGREEMENT
CONCERNING THE INTERNATIONAL REGISTRATION OF
MARKS OF 2017
IPOPHL MEMORANDUM CIRCULAR No. 011-17
PART 1
GENERAL PROVISIONS
RULE 1. Title. — These regulations shall be known as the "Philippine Regulations
Implementing the Protocol Relating to the Madrid Agreement Concerning the
International Registration of Marks" or the "Philippine Madrid Regulations."
RULE 2. Definitions. — For the purpose of these regulations:
(a) "Madrid Protocol" means the Protocol Relating to the Madrid Agreement
Concerning the International Registration of Marks, adopted in Madrid, Spain
on June 27, 1989;
(b) "Common Regulations" means the Common Regulations under the Madrid
Agreement and Madrid Protocol promulgated by the WIPO, as may be
updated from time to time;
(c) "International application" means an application to obtain registration of a
mark under the Madrid Protocol;
(d) "International registration" means the registration of a mark effected under
the Madrid Protocol;
(e) "Applicant" refers to the natural person or legal entity in whose name the
international application is filed; CAIHTE
(f) "Holder" refers to the natural person or legal entity in whose name the
international registration is recorded in the International Register;
(g) "IPOPHL" means the Intellectual Property Office of the Philippines, and
shall pertain to the Bureau of Trademarks when reference is made to the
processing of all international applications with the IPOPHL as Office of
Origin and international registrations designating the Philippines, as well as
to communicating with the International Bureau;
(h) "IP Code" refers to Republic Act No. 8293, otherwise known as
the Intellectual Property Code of the Philippines, as amended;
(i) "TM Regulations" refers to the "Rules and Regulations on Trademarks,
Service Marks, Trade Names and Marked or Stamped Containers, as
amended," governing the registration of marks;
(j) "BLA Regulations" refers to the "Rules and Regulations on Administrative
Complaints for Violation of Law Involving Intellectual Property Rights," as
amended, "Rules and Regulations on Inter Partes Proceedings," as amended;
(k) "International Bureau" means the International Bureau of WIPO;
(l) "International Register" means the official collection of data concerning
international registration of marks maintained by the International Bureau;
309
(m) "Basic application" means an application for the registration of a mark, filed
with the IPOPHL, and which is used as the basis for the filing of an
international application under the Madrid Protocol;
(n) "Basic registration" means a mark registered by the IPOPHL under the IP
Code, and which is used as the basis for the filing of an international
application under the Madrid Protocol;
(o) "IPO eGazette or eGazette" pertains to the official online publication of data
concerning the registration of marks maintained by the IPOPHL;
(p) "Office of Origin" means the intellectual property office of the Contracting
Party where the international application originates;
(q) "Designated Contracting Party" is the country party to the Madrid Protocol
that is designated in the international application.
RULE 3. Coverage & Applicability of the Philippine Madrid Regulations and the
Common Regulations. — The relevant provisions of the Common Regulations
pertaining to the Madrid Protocol are hereby adopted and applied in conjunction with
the Philippine Madrid Regulations. These Regulations and the Common Regulations
shall apply to all international applications filed under the Madrid Protocol where
IPOPHL is the Office of Origin, and international registrations where the Philippines
is a Designated Contracting Party.
RULE 4. Language. — International applications and any communication for
transmittal to the International Bureau through the IPOPHL shall be in English. All
other documents required to be submitted directly to the IPOPHL by the applicant or
holder shall also be in English.
PART 2
INTERNATIONAL APPLICATIONS ORIGINATING FROM THE
PHILIPPINES
RULE 5. Minimum Requirements for Acceptance of International Applications Filed
with the IPOPHL as Office of Origin. — The following minimum requirements shall
be contained in the application form:
(1) name and address and contact details of the applicant or the address and
contact details of his representative, if any;
(2) the Designated Contracting Parties;
(3) reproduction of the mark; and
(4) indication of the goods and services for which registration of the mark is
sought.
RULE 6. Examination of International Applications with the IPOPHL as Office of
Origin. — Where an international application is filed with the IPOPHL for transmittal
to the International Bureau, the IPOPHL shall verify if the Philippines may be
considered as the country of origin in respect of that application, and that the relevant
particulars appearing in the international application correspond to those appearing in
the basic application or basic registration, as the case may be, in accordance with the
provisions of the Common Regulations.
RULE 7. Certification. —
(1) Where the international application complies with the prescribed
requirements, the IPOPHL shall so certify in the international application,
indicating also the date on which the international application was received,
and shall forward the international application to the International Bureau.
(2) Where the international application does not meet the prescribed requirements,
the IPOPHL shall not forward it to the International Bureau, and shall inform
the applicant accordingly.
RULE 8. Handling Fee. — Aside from the fees collected by the International Bureau,
a non-refundable handling fee shall be payable to IPOPHL upon the filing of an
international application for the processing, certification, and transmittal of the
application to the International Bureau. The application will not be processed unless
the handling fee is paid in full.
PART 3
INTERNATIONAL REGISTRATIONS DESIGNATING THE PHILIPPINES
AS CONTRACTING PARTY
RULE 9. Allowance of a Mark; Publication for Opposition. — Where the Philippines
has been designated in an international registration, the IPOPHL shall undertake the
substantive examination of the mark in accordance with the IP Code and the TM
Regulations. Upon completion of the substantive examination and the mark is allowed,
the mark shall be published for purposes of opposition in the IPOPHL's e-Gazette.
Opposition proceedings shall be governed by the provisions of the IP Code, the TM
Regulations, the BLA Regulations, and the Uniform Rules on Appeal.
RULE 10. Ex-Officio Provisional Refusal of Protection. — Where the IPOPHL finds
that, in accordance with the IP Code and the TM Regulations, the mark that is the
subject of an international registration designating the Philippines cannot be protected,
the IPOPHL shall, before the expiry of the refusal period under Article 5 (2) (b) of the
Madrid Protocol, notify the International Bureau of a provisional refusal of protection
following the requirements of the Madrid Protocol and the Common Regulations. The
holder of that international registration shall enjoy the same remedies as if the mark
had been filed for registration directly with the IPOPHL.
RULE 11. Provisional Refusal Based on an Opposition. — Where an opposition is
filed with the IPOPHL in respect of an international registration designating the
Philippines, the IPOPHL shall, before the expiry of the refusal period under Article 5
(2) (c) of the Madrid Protocol, notify the International Bureau of a provisional refusal
based on an opposition following the requirements of the Madrid Protocol and the
Common Regulations. The holder of that international registration shall enjoy the
310
same remedies as if the mark had been filed for registration directly with the IPOPHL
under the IP Code and the TM Regulations.
RULE 12. No Grounds for Refusal; Statement of Grant of Protection. — Where all
procedures, including publication for opposition, before the IPOPHL have been
completed, and there is no ground for the IPOPHL to refuse protection, the IPOPHL
shall, as soon as possible and before the expiry of the refusal period under Article 5
(2) of the Madrid Protocol, send to the International Bureau a statement to the effect
that protection is granted to the mark in the Philippines.
RULE 13. Final Decision Following the Notification of a Provisional Refusal. —
(1) Statement of Grant of Protection. Where the IPOPHL has notified to the
International Bureau a provisional refusal of protection in accordance with
Rule 10 or Rule 11, with all the procedures before the IPOPHL having been
completed and such provisional refusal has been either totally or partially
withdrawn, the IPOPHL shall send to the International Bureau either:
(a) a statement to the effect that the provisional refusal is withdrawn, and
that protection of the mark is granted in the Philippines for all the goods
and services for which protection has been requested; or
(b) a statement to the effect that the provisional refusal is withdrawn, and
that protection of the mark is granted in the Philippines for some of the
goods and services for which protection has been requested, and
specifying therein the goods and services for which protection is granted.
(2) Confirmation of Total Refusal. Where the IPOPHL has sent to the
International Bureau a notification of provisional refusal in accordance with
Rule 10 or Rule 11, with all the procedures before the IPOPHL having been
completed, and the IPOPHL has decided to confirm such refusal of protection
of the mark in the Philippines for all the goods and services for which
protection has been requested or the opposition to the registration of the mark
has been upheld by the Director of the Bureau of Legal Affairs of the IPOPHL
or by the Director General of IPOPHL upon an appeal, but regardless of any
appeal to the regular courts, the IPOPHL shall send to the International Bureau
a statement to the effect that there is total refusal of protection of the mark.
RULE 14. Further Decision Affecting Protection of a Mark. — Notwithstanding the
statements sent to the International Bureau in accordance with Rule 13, the IPOPHL
shall notify the International Bureau of any subsequent decision affecting the
protection of the mark in the Philippines as soon as it receives any such information
from the applicant, the court, or any interested party. The notification shall contain a
statement indicating the goods or services for which the mark is protected in the
Philippines.
RULE 15. Effects of an International Registration. —
(1) An international registration designating the Philippines shall have the same
effect, from the date of the international registration, as if an application for
 the registration of the mark had been filed directly with the IPOPHL under
the IP Code and the TM Regulations.
(2) If no refusal is notified by the IPOPHL to the International Bureau in
accordance with the Madrid Protocol and the Common Regulations, or if a
refusal has been so notified but has been subsequently withdrawn, or if a
statement of grant of protection is sent by the IPOPHL, the protection of the
mark in the Philippines shall be the same as if the mark had been registered
directly by the IPOPHL on the date of the international registration.
RULE 16. Cancellation or Invalidation. — Where the effects of an international
registration are cancelled or invalidated in the Philippines, and the cancellation or
invalidation is no longer subject to appeal, the IPOPHL shall, as soon as it is informed
of that decision, notify accordingly the International Bureau in accordance with the
relevant provisions of the Madrid Protocol and the Common Regulations.
RULE 17. Ceasing of Effect of the Basic Application or Basic Registration. — Where,
in accordance with Article 6 of the Madrid Protocol, the basic application, the
registration resulting from such application, or the basic registration, ceases to have
effect, the IPOPHL, as the Office of Origin, shall inform the International Bureau
accordingly, and shall request the cancellation of the international registration in
respect of the goods and services affected.
RULE 18. Recordings in the International Register. — Any recording made in the
International Register in respect of an international registration, shall, to the extent that
it applies to the Philippines as a Designated Contracting Party, have the same effect as
if it had been recorded by the IPOPHL in its register of marks. In the case of license
contracts, publication by the International Bureau shall have the effect of national
publication stipulated in Section 150.2 of the IP Code. However, within 2 months from
the recording of the license contract with the International Bureau, the holder must
provide a copy of the license contract directly to the IPOPHL showing compliance
with Sections 87, 88, and 150.1 of the IP Code, otherwise the recording of the license
contract shall not have effect in the Philippines. The license contract shall be reviewed
and a certification of compliance with the IP Code provisions shall be issued in
accordance with the TM Regulations, otherwise the contract shall not be enforceable.
RULE 19. Collective Marks. — Where an international registration designating the
Philippines is a collective mark, a copy of the agreement governing the use of such
collective mark shall be submitted directly by the holder of the international
registration to the IPOPHL within two months from the date of international
registration with the International Bureau. The international registration will not be
examined unless the agreement is received by the IPOPHL.
RULE 20. Declaration of Actual Use. —
(1) All holders of international registrations that designate the Philippines shall
file a Declaration of Actual Use of the mark directly with the IPOPHL, with
311
the required evidence attached thereto, or shall show valid reasons for non-use
based on the existence of obstacles to such use, as prescribed by the TM
Regulations, within three years from the date of the international registration
or the date of recording of the territorial extension to the Philippines made
subsequently to the international registration, as appropriate. The holder may,
within the same three-year period, request a non-extendible period of six
months within which to file the declaration of actual use. The actual use of the
mark may commence within the extension period. In the event that the holder
fails to submit the declaration of actual use within the period, the mark shall
be removed by the IPOPHL from its register, unless a Declaration of Non-Use
has been submitted. The IPOPHL shall inform the International Bureau
accordingly.
(2) All holders of international registrations shall file a declaration of actual use
and evidence to that effect, or shall show valid reasons for non-use based on
the existence of obstacles to such use, as prescribed by the TM Regulations,
within one (1) year from the fifth anniversary of the date of statement of grant
of protection of the mark and within one (1) year from the fifth anniversary of
the date of renewal of registration of the mark. If the declaration of actual use
is not submitted within the prescribed period, the IPOPHL shall remove the
mark from the Register and notify the International Bureau accordingly.
Except in cases where when use of a registered mark or mark subject of an
active application has been interrupted or discontinued by a pending litigation,
non-use of the mark shall not be allowed for a total of more than six (6) years
from the date of the statement of grant of protection. For this purpose, actual
use must commence and the DAU filed within one (1) year from the 5th
anniversary of the statement of grant of protection, otherwise, the Office shall
remove the mark from the Register.
(3) All holders of international registrations shall file a declaration of actual use
and evidence to that effect within one (1) year from the date of renewal of
registration of the mark. If the declaration of actual use is not submitted within
the prescribed period, the IPOPHL shall remove the mark from the Register
and notify the International Bureau accordingly.
The requirements for the filing of the declaration of actual use under paragraphs 1, 2
and 3 shall be the same as those prescribed in the TM Regulations.
RULE 21. Replacement. —
(1) (a) The holder of an international registration may request the IPOPHL to take note
of that international registration in the register where:
(i) a mark registered in the Philippines is also the subject of an international
registration, and the protection resulting therefrom extends to the Philippines;
(ii) the same person is recorded as holder of the registration in the Philippines and of
the international registration;
(iii) all the goods and services listed in the registration in the Philippines are also listed
in the international registration in respect of the Philippines; and
(iv) the extension of that international registration to Philippines took effect after the
date of registration of the mark in Philippines.
(b) The request for replacement filed with the IPOPHL in accordance with paragraph
1 (a), shall be made in the prescribed form and shall be subject to the payment of the
prescribed fee.
(c) Replacement is without prejudice to any rights acquired by virtue of the earlier
national registration.
(2) Where the IPOPHL has taken note of an international registration in accordance
with paragraph (1) (a), the IPOPHL shall notify the International Bureau accordingly.
Such notification shall indicate the following:
(a) the number of the international registration;
(b) where only some of the goods and services listed in the international registration
are concerned, those goods and services;
(c) the filing date and number of the application for registration of the mark in the
Philippines;
(d) the registration date and number of the registration in the Philippines; and
(e) the priority date, if any, of the registration in the Philippines.
RULE 22. Transformation. —
(1) (a) Where an international registration designating the Philippines is cancelled at
the request of the Office of Origin, in accordance with Article 6 (4) of the Madrid
Protocol, in respect of all or some of the goods and services listed in the international
registration, an application may be made to the IPOPHL, within three months from the
date on which the international registration was cancelled, by the person who was the
holder of the international registration at the date of its cancellation, for registration of
the same mark ("an application resulting from transformation"), in respect of goods
and services covered by the list of goods and services contained in the international
registration.
(b) Subject to paragraphs (2) and (3), the provisions applicable to a trademark
application filed directly with the IPOPHL shall apply mutatis mutandis to an
application resulting from transformation.
(1) (b) An application resulting from transformation shall be made in the prescribed
form and shall, in addition, include the following:
(i) a statement that the application is made by way of transformation;
(ii) the international registration number of the international registration which has
been cancelled;
(iii) the date of the said international registration, or the date of recording of the
territorial extension made subsequently to the international registration, as appropriate;
(iv) the date on which the cancellation of the international registration was recorded;
and
312
(v) where applicable, the date of any priority claimed in the international application
and recorded in the International Register;
(b) An application resulting from transformation shall be subject to the payment of the
prescribed transformation fee.
(2) (b) Where an international mark has become protected in the Philippines on or
before the date on which the international registration was cancelled and, provided that
all the requirements relating to an application resulting from transformation have been
met, that mark shall be registered by the IPOPHL without need to undergo another
substantive examination. The date of registration shall be the date of the cancelled
international registration, or the date of recording of the territorial extension to the
Philippines made subsequently to the international registration, as appropriate, and that
registration shall enjoy any priority enjoyed by the cancelled international registration.
(b) Where an international mark has not yet become protected in the Philippines on or
before the date on which the international registration was cancelled, any procedures
or measures already undertaken on or before the date on which an application resulting
from transformation is filed for the purpose of the international registration shall be
considered as having been undertaken for the purposes of the application resulting
from transformation. The filing date of the application resulting from transformation
shall be the date of the international registration or the date of recording of territorial
extension to the Philippines made subsequently to the international registration, as
appropriate.
PART 4
FINAL PROVISIONS
RULE 23. Repealing Clause. — All rules and regulations, orders, circulars and
memoranda or parts thereof that are inconsistent with these Regulations are hereby
repealed or modified accordingly.
RULE 24. Separability. — In the event that any provision of these regulations or the
application of any provision is declared invalid, the remaining provisions of the
regulations will not be affected by such declaration.
RULE 25. Effectivity. — These Regulations shall take effect on 02 August 2017, after
publication in a newspaper of general circulation. The Office of the National
Administrative Register at the UP Law Center, University of the Philippines, shall be
furnished with three (3) copies hereof within one (1) week after its publication.
 REAL ESTATE MORTGAGE LAW
ACT No. 3135 AS AMENDED BY ACT No, 4118
SECTION 1. When a sale is made under a special power inserted in or attached to any
real-estate mortgage hereafter made as security for the payment of money or the
fulfillment of any other obligation, the provisions of the following sections shall
govern as to the manner in which the sale and redemption shall be effected, whether
or not provision for the same is made in the power.
SECTION 2. Said sale cannot be made legally outside of the province in which the
property sold is situated; and in case the place within said province in which the sale
is to be made is the subject of stipulation, such sale shall be made in said place or in
the municipal building of the municipality in which the property or part thereof is
situated.
SECTION 3. Notice shall be given by posting notices of the sale for not less than
twenty days in at least three public places of the municipality or city where the property
is situated, and if such property is worth more than four hundred pesos, such notice
shall also be published once a week for at least three consecutive weeks in a newspaper
of general circulation in the municipality or city.
SECTION 4. The sale shall be made at public auction, between the hours of nine in
the morning and four in the afternoon; and shall be under the direction of the sheriff
of the province, the justice or auxiliary justice of the peace of the municipality in which
such sale has to be made, or a notary public of said municipality, who shall be entitled
to collect a fee of five pesos for each day of actual work performed, in addition to his
expenses.
SECTION 5. At any sale, the creditor, trustee, or other persons authorized to act for
the creditor, may participate in the bidding and purchase under the same conditions as
any other bidder, unless the contrary has been expressly provided in the mortgage or
trust deed under which the sale is made.
SECTION. 6. In all cases in which an extrajudicial sale is made under the special
power hereinbefore referred to, the debtor, his successors in interest or any judicial
creditor or judgment creditor of said debtor, or any person having a lien on the property
subsequent to the mortgage or deed of trust under which the property is sold, may
redeem the same at any time within the term of one year from and after the date of the
sale; and such redemption shall be governed by the provisions of sections four hundred
and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure,
in so far as these are not inconsistent with the provisions of this Act.
SECTION. 7. In any sale made under the provisions of this Act, the purchaser may
petition the Court of First Instance of the province or place where the property or any
part thereof is situated, to give him possession thereof during the redemption period,
313
furnishing bond in an amount equivalent to the use of the property for a period of
twelve months, to indemnify the debtor in case it be shown that the sale was made
without violating the mortgage or without complying with the requirements of this
Act. Such petition shall be made under oath and filed in form of an ex parte motion in
the registration or cadastral proceedings if the property is registered, or in special
proceedings in the case of property registered under the Mortgage Law or under
section one hundred and ninety-four of the Administrative Code, or of any other real
property encumbered with a mortgage duly registered in the office of any register of
deeds in accordance with any existing law, and in each case the clerk of the court shall,
upon the filing of such petition, collect the fees specified in paragraph eleven of section
one hundred and fourteen of Act Numbered Four hundred and ninety-six, as amended
by Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon
approval of the bond, order that a writ of possession issue, addressed to the sheriff of
the province in which the property is situated, who shall execute said order
immediately.
SECTION 8. The debtor may, in the proceedings in which possession was requested,
but not later than thirty days after the purchaser was given possession, petition that the
sale be set aside and the writ of possession cancelled, specifying the damages suffered
by him, because the mortgage was not violated or the sale was not made in accordance
with the provisions hereof, and the court shall take cognizance of this petition in
accordance with the summary procedure provided for in section one hundred and
twelve of Act Numbered Four hundred and ninety-six; and if it finds the complaint of
the debtor justified, it shall dispose in his favor of all or part of the bond furnished by
the person who obtained possession. Either of the parties may appeal from the order
of the judge in accordance with section fourteen of Act Numbered Four hundred and
ninety-six; but the order of possession shall continue in effect during the pendency of
the appeal.
SECTION 9. When the property is redeemed after the purchaser has been given
possession, the redeemer shall be entitled to deduct from the price of redemption any
rentals that said purchaser may have collected in case the property or any part thereof
was rented; if the purchaser occupied the property as his own dwelling, it being town
property, or used it gainfully, it being rural property, the redeemer may deduct from
the price the interest of one per centum per month provided for in section four hundred
and sixty-five of the Code of Civil Procedure.
SECTION 10. This Act shall take effect on its approval.
 ANTI-MONEY LAUNDERING ACT OF 2001
REPUBLIC ACT No. 9160 AS AMENDED BY REPUBLIC ACT Nos.
9194, 10365
SECTION 1. Short Title.— This Act shall be known as the "Anti-Money Laundering
Act of 2001."
SECTION 2. Declaration of Policy.— It is hereby declared the policy of the State to
protect and preserve the integrity and confidentiality of bank accounts and to ensure
that the Philippines shall not be used as a money laundering site for the proceeds of
any unlawful activity. Consistent with its foreign policy, the State shall extend
cooperation in transnational investigations and prosecutions of persons involved in
money laundering activities wherever committed.
SECTION 3. Definitions.— For purposes of this Act, the following terms are hereby
defined as follows:
(a) ‘Covered persons’, natural or juridical, refer to:
(1) banks, non-banks, quasi-banks, trust entities, foreign exchange dealers,
pawnshops, money changers, remittance and transfer companies and
other similar entities and all other persons and their subsidiaries and
affiliates supervised or regulated by the Bangko Sentral ng Pilipinas
(BSP);
(2) insurance companies, pre-need companies and all other persons
supervised or regulated by the Insurance Commission (IC);
(3) (i) securities dealers, brokers, salesmen, investment houses and other
similar persons managing securities or rendering services as investment
agent, advisor, or consultant, (ii) mutual funds, close-end investment
companies, common trust funds, and other similar persons, and (iii)
other entities administering or otherwise dealing in currency,
commodities or financial derivatives based thereon, valuable objects,
cash substitutes and other similar monetary instruments or property
supervised or regulated by the Securities and Exchange Commission
(SEC);
(4) jewelry dealers in precious metals, who, as a business, trade in precious
metals, for transactions in excess of One million pesos (P1,000,000.00);
(5) jewelry dealers in precious stones, who, as a business, trade in precious
stones, for transactions in excess of One million pesos (P1,000,000.00);
(6) company service providers which, as a business, provide any of the
following services to third parties: (i) acting as a formation agent of
juridical persons; (ii) acting as (or arranging for another person to act as)
a director or corporate secretary of a company, a partner of a partnership,
or a similar position in relation to other juridical persons; (iii) providing
a registered office, business address or accommodation, correspondence
or administrative address for a company, a partnership or any other legal
314
person or arrangement; and (iv) acting as (or arranging for another
person to act as) a nominee shareholder for another person; and
(7) persons who provide any of the following services:(i) managing of client
money, securities or other assets; (ii) management of bank, savings or
securities accounts;
(a) (iii) organization of contributions for the creation, operation or
management of companies; and (iv) creation, operation or management
of juridical persons or arrangements, and buying and selling business
entities.
Notwithstanding the foregoing, the term ‘covered persons’ shall exclude
lawyers and accountants acting as independent legal professionals in relation
to information concerning their clients or where disclosure of information
would compromise client confidences or the attorney-client relationship:
Provided, That these lawyers and accountants are authorized to practice in
the Philippines and shall continue to be subject to the provisions of their
respective codes of conduct and/or professional responsibility or any of its
amendments.”
(b) ‘Covered transaction’ is a transaction in cash or other equivalent monetary
instrument involving a total amount in excess of Five hundred thousand pesos
(P500,000.00) within one (1) banking day
(b-1) ‘Suspicious transaction’ are transactions with covered institutions,
regardless of the amounts involved, where any of the following circumstances
exist:
1. there is no underlying legal or trade obligation, purpose or economic
justification;
2. the client is not properly identified;
3. the amount involved is not commensurate with the business or financial
capacity of the client;
4. taking into account all known circumstances, it may be perceived that the
client’s transaction is structured in order to avoid being the subject of
reporting requirements under the Act;
5. any circumstance relating to the transaction which is observed to deviate
from the profile of the client and/or the client’s past transactions with the
covered institution;
6. the transaction is in any way related to an unlawful activity or offense
under this Act that is about to be, is being or has been committed; or
7. any transaction that is similar or analogous to any of the foregoing.
(c) "Monetary instrument" refers to:
(1) coins or currency of legal tender of the Philippines, or of any other
country;
(2) drafts, checks and notes;
 (3) securities or negotiable instruments, bonds, commercial papers, deposit
certificates, trust certificates, custodial receipts or deposit substitute
instruments, trading orders, transaction tickets and confirmations of sale
or investments and money market instruments; and
(4) other similar instruments where title thereto passes to another by
endorsement, assignment or delivery.
(d) "Offender" refers to any person who commits a money laundering offense.
(e) "Person" refers to any natural or juridical person.
(f) "Proceeds" refers to an amount derived or realized from an unlawful activity.
(g) "Supervising Authority" refers to the appropriate supervisory or regulatory
agency, department or office supervising or regulating the covered
institutions enumerated in Section 3(a).
(h) "Transaction" refers to any act establishing any right or obligation or giving
rise to any contractual or legal relationship between the parties thereto. It also
includes any movement of funds by any means with a covered institution.
(i) ‘Unlawful activity’ refers to any act or omission or series or combination
thereof involving or having direct relation to the following:
(1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise
known as the Revised Penal Code, as amended;
(2) Sections 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15 and 16 of Republic Act No.
9165, otherwise known as the Comprehensive Dangerous Drugs Act of
2002;
(3) Section 3 paragraphs B, C, E, G, H and I of Republic Act No. 3019, as
amended, otherwise known as the Anti-Graft and Corrupt Practices Act;
(4) Plunder under Republic Act No. 7080, as amended;
(5) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and
302 of the Revised Penal Code, as amended;
(6) Jueteng and Masiao punished as illegal gambling under Presidential
Decree No. 1602;
(7) Piracy on the high seas under the Revised Penal Code, as amended and
Presidential Decree No. 532;
(8) Qualified theft under Article 310 of the Revised Penal Code, as amended;
(9) Swindling under Article 315 and Other Forms of Swindling under Article
316 of the Revised Penal Code, as amended;
(10) Smuggling under Republic Act Nos. 455 and 1937;
(11) Violations of Republic Act No. 8792, otherwise known as the Electronic
Commerce Act of 2000;
(12) Hijacking and other violations under Republic Act No. 6235; destructive
arson and murder, as defined under the Revised Penal Code, as amended;
(13) Terrorism and conspiracy to commit terrorism as defined and penalized
under Sections 3 and 4 of Republic Act No. 9372;
(14) Financing of terrorism under Section 4 and offenses punishable under
Sections 5, 6, 7 and 8 of Republic Act No. 10168, otherwise known as
the Terrorism Financing Prevention and Suppression Act of 2012:
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(15) Bribery under Articles 210, 211 and 211-A of the Revised Penal Code,
as amended, and Corruption of Public Officers under Article 212 of the
Revised Penal Code, as amended;
(16) Frauds and Illegal Exactions and Transactions under Articles 213, 214,
215 and 216 of the Revised Penal Code, as amended;
(17) Malversation of Public Funds and Property under Articles 217 and 222
of the Revised Penal Code, as amended;
(18) Forgeries and Counterfeiting under Articles 163, 166, 167, 168, 169 and
176 of the Revised Penal Code, as amended;
(19) Violations of Sections 4 to 6 of Republic Act No. 9208, otherwise known
as the Anti-Trafficking in Persons Act of 2003;
(20) Violations of Sections 78 to 79 of Chapter IV, of Presidential Decree No.
705, otherwise known as the Revised Forestry Code of the Philippines,
as amended;
(21) Violations of Sections 86 to 106 of Chapter VI, of Republic Act No.
8550, otherwise known as the Philippine Fisheries Code of 1998;
(22) Violations of Sections 101 to 107, and 110 of Republic Act No. 7942,
otherwise known as the Philippine Mining Act of 1995;
(23) Violations of Section 27(c), (e), (f), (g) and (i), of Republic Act No. 9147,
otherwise known as the Wildlife Resources Conservation and Protection
Act;
(24) Violation of Section 7(b) of Republic Act No. 9072, otherwise known as
the National Caves and Cave Resources Management Protection Act;
(25) Violation of Republic Act No. 6539, otherwise known as the Anti-
Carnapping Act of 2002, as amended;
(26) Violations of Sections 1, 3 and 5 of Presidential Decree No. 1866, as
amended, otherwise known as the decree Codifying the Laws on
Illegal/Unlawful Possession, Manufacture, Dealing In, Acquisition or
Disposition of Firearms, Ammunition or Explosives;
(27) Violation of Presidential Decree No. 1612, otherwise known as the Anti-
Fencing Law;
(28) Violation of Section 6 of Republic Act No. 8042, otherwise known as
the Migrant Workers and Overseas Filipinos Act of 1995, as amended by
Republic Act No. 10022;
(29) Violation of Republic Act No. 8293, otherwise known as the Intellectual
Property Code of the Philippines;
(30) Violation of Section 4 of Republic Act No. 9995, otherwise known as
the Anti-Photo and Video Voyeurism Act of 2009;
(31) Violation of Section 4 of Republic Act No. 9775, otherwise known as
the Anti-Child Pornography Act of 2009;
(32) Violations of Sections 5, 7, 8, 9, 10(c), (d) and (e), 11, 12 and 14 of
Republic Act No. 7610, otherwise known as the Special Protection of
Children Against Abuse, Exploitation and Discrimination;
(33) Fraudulent practices and other violations under Republic Act No. 8799,
otherwise known as the Securities Regulation Code of 2000; and
 (34) Felonies or offenses of a similar nature that are punishable under the
penal laws of other countries.
(j) Precious metals’ shall mean gold, silver, platinum, palladium, rhodium,
ruthenium, iridium and osmium. These include alloys of precious metals,
solders and plating chemicals such as rhodium and palladium plating
solutions and potassium gold cyanide and potassium silver cyanide and silver
cyanide in salt solution.
(k) ‘Precious stones’ shall mean diamond, ruby, emerald, sapphire, opal,
amethyst, beryl, topaz, and garnet that are used in jewelry making, including
those formerly classified as semi-precious stones
SECTION 4. Money Laundering Offense. – Money laundering is committed by any
person who, knowing that any monetary instrument or property represents, involves,
or relates to the proceeds of any unlawful activity:
(a) transacts said monetary instrument or property;
(b) converts, transfers, disposes of, moves, acquires, possesses or uses said
monetary instrument or property;
(c) conceals or disguises the true nature, source, location, disposition, movement
or ownership of or rights with respect to said monetary instrument or
property;
(d) attempts or conspires to commit money laundering offenses referred to in
paragraphs (a), (b) or (c);
(e) aids, abets, assists in or counsels the commission of the money laundering
offenses referred to in paragraphs (a), (b) or (c) above; and
(f) performs or fails to perform any act as a result of which he facilitates the
offense of money laundering referred to in paragraphs (a), (b) or (c) above.
Money laundering is also committed by any covered person who, knowing that a
covered or suspicious transaction is required under this Act to be reported to the Anti-
Money Laundering Council (AMLC), fails to do so
SECTION 6. Prosecution of Money Laundering.—
(a) Any person may be charged with and convicted of both the offense of money
laundering and the unlawful activity as herein defined.
(b) The prosecution of any offense or violation under this Act shall proceed
independently of any proceeding relating to the unlawful activity
SECTION 7. Creation of Anti-Money Laundering Council (AMLC). – The Anti-
Money Laundering Council is hereby created and shall be composed of the Governor
of the Bangko Sentral ng Pilipinas as Chairman, the Commissioner of the Insurance
Commission and the Chairman of the Securities and Exchange Commission, as
members. The AMLC shall act unanimously in the discharge of its functions as defined
hereunder:
(1) to require and receive covered or suspicious transaction reports from covered
institutions;
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(2) to issue orders addressed to the appropriate Supervising Authority or the
covered institution to determine the true identity of the owner of any
monetary instrument or property subject of a covered transaction or
suspicious transaction report or request for assistance from a foreign State, or
believed by the Council, on the basis of substantial evidence, to be, in whole
or in part, wherever located, representing, involving, or related to, directly or
indirectly, in any manner or by any means, the proceeds of an unlawful
activity.
(3) to institute civil forfeiture proceedings and all other remedial proceedings
through the Office of the Solicitor General;
(4) to cause the filing of complaints with the Department of Justice or the
Ombudsman for the prosecution of money laundering offenses;
(5) to investigate suspicious transactions and covered transactions deemed
suspicious after an investigation by AMLC, money laundering activities, and
other violations of this Act;
(6) to apply before the Court of Appeals, ex parte, for the freezing of any
monetary instrument or property alleged to be laundered, proceeds from, or
instrumentalities used in or intended for use in any unlawful activity as
defined in Section 3(i) hereof
(7) to implement such measures as may be necessary and justified under this Act
to counteract money laundering;
(8) to receive and take action in respect of, any request from foreign states for
assistance in their own anti-money laundering operations provided in this
Act;
(9) to develop educational programs on the pernicious effects of money
laundering, the methods and techniques used in money laundering, the viable
means of preventing money laundering and the effective ways of prosecuting
and punishing offenders;
(10) to enlist the assistance of any branch, department, bureau, office, agency or
instrumentality of the government, including government-owned and -
controlled corporations, in undertaking any and all anti-money laundering
operations, which may include the use of its personnel, facilities and
resources for the more resolute prevention, detection and investigation of
money laundering offenses and prosecution of offenders; and
(11) to impose administrative sanctions for the violation of laws, rules, regulations
and orders and resolutions issued pursuant thereto.”
(12) to require the Land Registration Authority and all its Registries of Deeds to
submit to the AMLC, reports on all real estate transactions involving an
amount in excess of Five hundred thousand pesos (P500,000.00) within
fifteen (15) days from the date of registration of the transaction, in a form to
be prescribed by the AMLC. The AMLC may also require the Land
Registration Authority and all its Registries of Deeds to submit copies of
relevant documents of all real estate transactions
SECTION 8. Creation of a Secretariat.— The AMLC is hereby authorized to
establish a secretariat to be headed by an Executive Director who shall be appointed
by the Council for a term of five (5) years. He must be a member of the Philippine Bar,
at least thirty-five (35) years of age and of good moral character, unquestionable
integrity and known probity. All members of the Secretariat must have served for at
least five (5) years either in the Insurance Commission, the Securities and Exchange
Commission or the Bangko Sentral ng Pilipinas (BSP) and shall hold full-time
permanent positions within the BSP.
SECTION 9. Prevention of Money Laundering; Customer Identification
Requirements and Record Keeping.—
(a) Customer Identification.— Covered institutions shall establish and record the
true identity of its clients based on official documents. They shall maintain a
system of verifying the true identity of their clients and, in case of corporate
clients, require a system of verifying their legal existence and organizational
structure, as well as the authority and identification of all persons purporting
to act on their behalf.
The provisions of existing laws to the contrary notwithstanding, anonymous
accounts, accounts under fictitious names, and all other similar accounts shall
be absolutely prohibited. Peso and foreign currency non-checking numbered
accounts shall be allowed. The BSP may conduct annual testing solely limited
to the determination of the existence and true identity of the owners of such
accounts.
(b) Record Keeping.— All records of all transactions of covered institutions shall
be maintained and safely stored for five (5) years from the dates of
transactions. With respect to closed accounts, the records on customer
identification, account files and business correspondence, shall be preserved
and safely stored for at least five (5) years from the dates when they were
closed.
(c) Reporting of Covered and Suspicious Transactions. – Covered persons shall
report to the AMLC all covered transactions and suspicious transactions
within five (5) working days from occurrence thereof, unless the AMLC
prescribes a different period not exceeding fifteen (15) working days.
Lawyers and accountants acting as independent legal professionals are not
required to report covered and suspicious transactions if the relevant
information was obtained in circumstances where they are subject to
professional secrecy or legal professional privilege.
Should a transaction be determined to be both a covered transaction and a suspicious
transaction, the covered institution shall be required to report the same as a suspicious
transaction.
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When reporting covered or suspicious transactions to the AMLC, covered institutions
and their officers and employees shall not be deemed to have violated Republic Act
No. 1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791
and other similar laws, but are prohibited from communicating, directly or indirectly,
in any manner or by any means, to any person, the fact that a covered or suspicious
transaction report was made, the contents thereof, or any other information in relation
thereto. In case of violation thereof, the concerned officer and employee of the covered
institution shall be criminally liable. However, no administrative, criminal or civil
proceedings, shall lie against any person for having made a covered or suspicious
transaction report in the regular performance of his duties in good faith, whether or not
such reporting results in any criminal prosecution under this Act or any other law.
When reporting covered or suspicious transactions to the AMLC, covered persons and
their officers and employees are prohibited from communicating, directly or indirectly,
in any manner or by any means, to any person or entity, the media, the fact that a
covered or suspicious transaction has been reported or is about to be reported, the
contents of the report, or any other information in relation thereto. Neither may such
reporting be published or aired in any manner or form by the mass media”, electronic
mail, or other similar devices. In case of violation thereof, the concerned officer and
employee of the covered person and media shall be held criminally liable.
SECTION 10. Freezing of Monetary Instrument or Property. – Upon a verified ex
parte petition by the AMLC and after determination that probable cause exists that any
monetary instrument or property is in any way related to an unlawful activity as
defined in Section 3(i) hereof, the Court of Appeals may issue a freeze order which
shall be effective immediately, and which shall not exceed six (6) months depending
upon the circumstances of the case: Provided, That if there is no case filed against a
person whose account has been frozen within the period determined by the court, the
freeze order shall be deemed ipso facto lifted: Provided, further, That this new rule
shall not apply to pending cases in the courts. In any case, the court should act on the
petition to freeze within twenty-four (24) hours from filing of the petition. If the
application is filed a day before a nonworking day, the computation of the twenty-four
(24)-hour period shall exclude the nonworking days.
A person whose account has been frozen may file a motion to lift the freeze order and
the court must resolve this motion before the expiration of the freeze order.
No court shall issue a temporary restraining order or a writ of injunction against any
freeze order, except the Supreme Court
SECTION 11. Authority to Inquire into Bank Deposits. — Notwithstanding the
provisions of Republic Act No. 1405, as amended, Republic Act No. 6426, as
amended, Republic Act No. 8791, and other laws, the AMLC may inquire into or
examine any particular deposit or investment with any banking institution or non-bank
financial institution upon order of any competent court in cases of violation of this Act,
when it has been established that there is probable cause that the deposits or
investments are related to an unlawful activity as defined in Section 3(i) hereof or a
money laundering offense under Section 4 hereof; except that no court order shall be
required in cases involving unlawful activities defined in Sections 3(i)(1), (2) and (12).
To ensure compliance with this Act, the Bangko Sentral ng Pilipinas (BSP) may
inquire into or examine any deposit or investment with any banking institution or non-
bank financial institution when the examination is made in the course of a periodic or
special examination, in accordance with the rules of examination of the BSP
SECTION 12. Forfeiture Provisions.—
(a) Civil Forfeiture. – Upon determination by the AMLC that probable cause
exists that any monetary instrument or property is in any way related to an
unlawful activity as defined in Section 3(i) or a money laundering offense
under Section 4 hereof, the AMLC shall file with the appropriate court
through the Office of the Solicitor General, a verified ex parte petition for
forfeiture, and the Rules of Court on Civil Forfeiture shall apply.
The forfeiture shall include those other monetary instrument or property having
an equivalent value to that of the monetary instrument or property found to be
related in any way to an unlawful activity or a money laundering offense, when
with due diligence, the former cannot be located, or it has been substantially
altered, destroyed, diminished in value or otherwise rendered worthless by any
act or omission, or it has been concealed, removed, converted, or otherwise
transferred, or it is located outside the Philippines or has been placed or brought
outside the jurisdiction of the court, or it has been commingled with other
monetary instrument or property belonging to either the offender himself or a
third person or entity, thereby rendering the same difficult to identify or be
segregated for purposes of forfeiture.
(b) Claim on Forfeited Assets. – Where the court has issued an order of
forfeiture of the monetary instrument or property in a criminal prosecution
for any money laundering offense defined under Section 4 of this Act, the
offender or any other person claiming an interest therein may apply, by
verified petition, for a declaration that the same legitimately belongs to him
and for segregation or exclusion of the monetary instrument or property
corresponding thereto. The verified petition shall be filed with the court
which rendered the judgment of forfeiture, within fifteen (15) days from the
date of the finality of the order of forfeiture, in default of which the said
order shall become final and executor. This provision shall apply in both
civil and criminal forfeiture.
(c) Payment in Lieu of Forfeiture. – Where the court has issued an order of
forfeiture of the monetary instrument or property subject of a money
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laundering offense defined under Section 4, and said order cannot be
enforced because any particular monetary instrument or property cannot,
with due diligence, be located, or it has been substantially altered, destroyed,
diminished in value or otherwise rendered worthless by any act or omission,
directly or indirectly, attributable to the offender, or it has been concealed,
removed, converted, or otherwise transferred to prevent the same from being
found or to avoid forfeiture thereof, or it is located outside the Philippines or
has been placed or brought outside the jurisdiction of the court, or it has been
commingled with other monetary instruments or property belonging to either
the offender himself or a third person or entity, thereby rendering the same
difficult to identify or be segregated for purposes of forfeiture, the court may,
instead of enforcing the order of forfeiture of the monetary instrument or
property or part thereof or interest therein, accordingly order the convicted
offender to pay an amount equal to the value of said monetary instrument or
property. This provision shall apply in both civil and criminal forfeiture.
SECTION 13. Mutual Assistance among States.—
(a) Request for Assistance from a Foreign State.— Where a foreign State makes
a request for assistance in the investigation or prosecution of a money
laundering offense, the AMLC may execute the request or refuse to execute
the same and inform the foreign State of any valid reason for not executing the
request or for delaying the execution thereof. The principles of mutuality and
reciprocity shall, for this purpose, be at all times recognized.
(b) Powers of the AMLC to Act on a Request for Assistance from a Foreign
State.— The AMLC may execute a request for assistance from a foreign State
by: (1) tracking down, freezing, restraining and seizing assets alleged to be
proceeds of any unlawful activity under the procedures laid down in this Act;
(2) giving information needed by the foreign State within the procedures laid
down in this Act; and (3) applying for an order of forfeiture of any monetary
instrument or property in the court: Provided,That the court shall not issue
such an order unless the application is accompanied by an authenticated copy
of the order of a court in the requesting State ordering the forfeiture of said
monetary instrument or property of a person who has been convicted of a
money laundering offense in the requesting State, and a certification or an
affidavit of a competent officer of the requesting State stating that the
conviction and the order of forfeiture are final and that no further appeal lies
in respect of either. AEDISC
(c) Obtaining Assistance from Foreign States.— The AMLC may make a request
to any foreign State for assistance in (1) tracking down, freezing, restraining
and seizing assets alleged to be proceeds of any unlawful activity; (2)
obtaining information that it needs relating to any covered transaction, money
laundering offense or any other matter directly or indirectly related thereto;
(3) to the extent allowed by the law of the foreign State, applying with the
proper court therein for an order to enter any premises belonging to or in the
possession or control of, any or all of the persons named in said request, and/or
 search any or all such persons named therein and/or remove any document,
material or object named in said request: Provided,That the documents
accompanying the request in support of the application have been duly
authenticated in accordance with the applicable law or regulation of the
foreign State; and (4) applying for an order of forfeiture of any monetary
instrument or property in the proper court in the foreign State: Provided,That
the request is accompanied by an authenticated copy of the order of the
regional trial court ordering the forfeiture of said monetary instrument or
property of a convicted offender and an affidavit of the clerk of court stating
that the conviction and the order of forfeiture are final and that no further
appeal lies in respect of either.
(d) Limitations on Request for Mutual Assistance.— The AMLC may refuse to
comply with any request for assistance where the action sought by the request
contravenes any provision of the Constitution or the execution of a request is
likely to prejudice the national interest of the Philippines unless there is a
treaty between the Philippines and the requesting State relating to the
provision of assistance in relation to money laundering offenses.
(e) Requirements for Requests for Mutual Assistance from Foreign States.— A
request for mutual assistance from a foreign State must (1) confirm that an
investigation or prosecution is being conducted in respect of a money
launderer named therein or that he has been convicted of any money
laundering offense; (2) state the grounds on which any person is being
investigated or prosecuted for money laundering or the details of his
conviction; (3) give sufficient particulars as to the identity of said person; (4)
give particulars sufficient to identify any covered institution believed to have
any information, document, material or object which may be of assistance to
the investigation or prosecution; (5) ask from the covered institution
concerned any information, document, material or object which may be of
assistance to the investigation or prosecution; (6) specify the manner in which
and to whom said information, document, material or object obtained pursuant
to said request, is to be produced; (7) give all the particulars necessary for the
issuance by the court in the requested State of the writs, orders or processes
needed by the requesting State; and (8) contain such other information as may
assist in the execution of the request.
(f) Authentication of Documents.— For purposes of this Section, a document is
authenticated if the same is signed or certified by a judge, magistrate or
equivalent officer in or of, the requesting State, and authenticated by the oath
or affirmation of a witness or sealed with an official or public seal of a
minister, secretary of State, or officer in or of, the government of the
requesting State, or of the person administering the government or a
department of the requesting territory, protectorate or colony. The certificate
of authentication may also be made by a secretary of the embassy or legation,
consul general, consul, vice consul, consular agent or any officer in the foreign
service of the Philippines stationed in the foreign State in which the record is
kept, and authenticated by the seal of his office.
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(g) Extradition.— The Philippines shall negotiate for the inclusion of money
laundering offenses as herein defined among extraditable offenses in all future
treaties.
SECTION 14. Penal Provisions. –
(a) Penalties for the Crime of Money Laundering. The penalty of imprisonment
ranging from seven (7) to fourteen (14) years and a fine of not less than Three
million Philippine pesos (Php3,000,000.00) but not more than twice the value
of the monetary instrument or property involved in the offense, shall be
imposed upon a person convicted under Section 4(a), (b), (c) and (d) of this
Act.
The penalty of imprisonment from four (4) to seven (7) years and a fine of
not less than One million five hundred thousand Philippine pesos
(Php1,500,000.00) but not more than Three million Philippine pesos
(Php3,000,000.00), shall be imposed upon a person convicted under Section
4(e) and (f) of this Act.
The penalty of imprisonment from six (6) months to four (4) years or a fine
of not less than One hundred thousand Philippine pesos (Php100,000.00) but
not more than Five hundred thousand Philippine pesos (Php500,000.00), or
both, shall be imposed on a person convicted under the last paragraph of
Section 4 of this Act.
(b) Penalties for Failure to Keep Records.The penalty of imprisonment from six
(6) months to one (1) year or a fine of not less than One hundred thousand
Philippine pesos (Php100,000.00) but not more than Five hundred thousand
Philippine pesos (Php500,000.00),or both, shall be imposed on a person
convicted under Section 9(b) of this Act.
(c) Malicious Reporting. Any person who, with malice, or in bad faith, reports
or files a completely unwarranted or false information relative to money
laundering transaction against any person shall be subject to a penalty of six
(6) months to four (4) years imprisonment and a fine of not less than One
hundred thousand Philippine pesos (Php 100,000.00) but not more than Five
hundred thousand Philippine pesos (Php 500,000.00), at the discretion of the
court: Provided, That the offender is not entitled to avail the benefits of the
Probation Law.
If the offender is a corporation, association, partnership or any juridical
person, the penalty shall be imposed upon the responsible officers, as the case
may be, who participated in, or allowed by their gross negligence, the
commission of the crime. If the offender is a juridical person, the court may
suspend or revoke its license. If the offender is an alien, he shall, in addition
to the penalties herein prescribed, be deported without further proceedings
after serving the penalties herein prescribed. If the offender is a public official
 or employee, he shall, in addition to the penalties prescribed herein, suffer
perpetual or temporary absolute disqualification from office, as the case may
be.
Any public official or employee who is called upon to testify and refuses to
do the same or purposely fails to testify shall suffer the same penalties
prescribed herein.
(d) Breach of Confidentiality. The punishment of imprisonment ranging from
three (3) to eight (8) years and a fine of not less than Five hundred thousand
Philippine pesos (Php 500,000.00) but not more than One million Philippine
pesos (Php 1,000,000.00) shall be imposed on a person convicted for a
violation under Section 9(c). In the case of a breach of confidentiality that is
published or reported by media, the responsible reporter, writer, president,
publisher, manager and editor-in-chief shall be liable under this Act.
(e) The penalty of imprisonment ranging from four (4) to seven (7) years and a
fine corresponding to not more than two hundred percent (200%) of the value
of the monetary instrument or property laundered shall be imposed upon the
covered person, its directors, officers or pesonnel who knowingly participated
in the commission of the crime of money laundering.
(f) Imposition of Administrative Sanctions. The imposition of the administrative
sanctions shall be without prejudice to the filing of criminal charges against
the persons responsible for the violation.
After due notice and hearing, the AMLC shall, at its discretion, impose
sanctions, including monetary penalties, warning or reprimand, upon any
covered person, its directors, officers, employees or any other person for the
violation of this Act, its implementing rules and regulations, or for failure or
refusal to comply with AMLC orders, resolutions and other issuances. Such
monetary penalties shall be in amounts as may be determined by the AMLC
to be appropriate, which shall not be more than Five hundred thousand
Philippine pesos (P500,000.00) per violation.
The AMLC may promulgate rules on fines and penalties taking into
consideration the attendant circumstances, such as the nature and gravity of
the violation or irregularity.
(g) The provision of this law shall not be construed or implemented in a manner
that will discriminate against certain customer types, such as politically-
exposed persons, as well as their relatives, or against a certain religion, race
or ethnic origin, or such other attributes or profiles when used as the only
basis to deny these persons access to the services provided by the covered
persons. Whenever a bank, or quasi-bank, financial institution or whenever
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any person or entity commits said discriminatory act, the person or persons
responsible for such violation shall be subject to sanctions as may be deemed
appropriate by their respective regulators.
SECTION 15. DELETED
SECTION 16. Prohibitions Against Political Harassment.— This Act shall not be
used for political persecution or harassment or as an instrument to hamper competition
in trade and commerce.
No case for money laundering may be filed against and no assets shall be frozen,
attached or forfeited to the prejudice of a candidate for an electoral office during an
election period.
SECTION 17. Restitution. — Restitution for any aggrieved party shall be governed
by the provisions of the New Civil Code.
SECTION 18. Implementing Rules and Regulations. — Within thirty (30) days from
the effectivity of this Act, the Bangko Sentral ng Pilipinas, the Insurance Commission
and the Securities and Exchange Commission shall promulgate the rules and
regulations to implement effectively the provisions of this Act. Said rules and
regulations shall be submitted to the Congressional Oversight Committee for approval.
Covered institutions shall formulate their respective money laundering prevention
programs in accordance with this Act including, but not limited to, information
dissemination on money laundering activities and its prevention, detection and
reporting, and the training of responsible officers and personnel of covered institutions.
SECTION 19. Congressional Oversight Committee.— There is hereby created a
Congressional Oversight Committee composed of seven (7) members from the Senate
and seven (7) members from the House of Representatives. The members from the
Senate shall be appointed by the Senate President based on the proportional
representation of the parties or coalitions therein with at least two (2) Senators
representing the minority. The members from the House of Representatives shall be
appointed by the Speaker also based on proportional representation of the parties or
coalitions therein with at least two (2) members representing the minority.
The Oversight Committee shall have the power to promulgate its own rules, to oversee
the implementation of this Act, and to review or revise the implementing rules issued
by the Anti-Money Laundering Council within thirty (30) days from the promulgation
of the said rules.
SECTION 20. Non-intervention in the Bureau of Internal Revenue (BIR) Operations.
– Nothing contained in this Act nor in related antecedent laws or existing agreements
shall be construed to allow the AMLC to participate in any manner in the operations
of the BIR.”
SECTION 21. The authority to inquire into or examine the main account and the
related accounts shall comply with the requirements of Article III, Sections 2 and 3 of
the 1987 Constitution, which are hereby incorporated by reference. Likewise, the
constitutional injunction against ex post facto laws and bills of attainder shall be
respected in the implementation of this Act

SECTION 22. Appropriations Clause.— The AMLC shall be provided with an initial
appropriation of Twenty-five million Philippine pesos (Php25,000,000.00) to be
drawn from the national government. Appropriations for the succeeding years shall be
included in the General Appropriations Act.
SECTION 23. Separability Clause.— If any provision or section of this Act or the
application thereof to any person or circumstance is held to be invalid, the other
provisions or sections of this Act, and the application of such provision or section to
other persons or circumstances, shall not be affected thereby.

SECTION 24. Repealing Clause. — All laws, decrees, executive orders, rules and
regulations or parts thereof, including the relevant provisions of Republic Act No.
1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, as
amended and other similar laws, as are inconsistent with this Act, are hereby repealed,
amended or modified accordingly.

SECTION 23. Effectivity. — This Act shall take effect fifteen (15) days after its
complete publication in the Official Gazette or in at least two (2) national newspapers
of general circulation.

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FINANCIAL REHABILITATION AND INSOLVENCY ACT OF
2010
REPUBLIC ACT No. 10142
CHAPTER I
GENERAL PROVISIONS
SECTION 1. Title. — This Act shall be known as the "Financial Rehabilitation and
Insolvency Act (FRIA) of 2010".
SECTION 2. Declaration of Policy. — It is the policy of the State to encourage
debtors, both juridical and natural persons, and their creditors to collectively and
realistically resolve and adjust competing claims and property rights. In furtherance
thereof, the State shall ensure a timely, fair, transparent, effective and efficient
rehabilitation or liquidation of debtors. The rehabilitation or liquidation shall be made
with a view to ensure or maintain certainty and predictability in commercial affairs,
preserve and maximize the value of the assets of these debtors, recognize creditor
rights and respect priority of claims, and ensure equitable treatment of creditors who
are similarly situated. When rehabilitation is not feasible, it is in the interest of the
State to facilitate a speedy and orderly liquidation of these debtors' assets and the
settlement of their obligations.
SECTION 3. Nature of Proceedings. — The proceedings under this Act shall be in
rem. Jurisdiction over all persons affected by the proceedings shall be considered as
acquired upon publication of the notice of the commencement of the proceedings in
any newspaper of general circulation in the Philippines in the manner prescribed by
the rules of procedure to be promulgated by the Supreme Court.
The proceedings shall be conducted in a summary and non-adversarial manner
consistent with the declared policies of this Act and in accordance with the rules of
procedure that the Supreme Court may promulgate.
SECTION 4. Definition of Terms. — As used in this Act, the term:
(a) Administrative expenses shall refer to those reasonable and necessary
expenses:
(1) incurred or arising from the filing of a petition under the provisions of
this Act;
(2) arising from, or in connection with, the conduct of the proceedings under
this Act, including those incurred for the rehabilitation or liquidation of
the debtor;
(3) incurred in the ordinary course of business of the debtor after the
commencement date;
(4) for the payment of new obligations obtained after the commencement
date to finance the rehabilitation of the debtor;
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(5) incurred for the fees of the rehabilitation receiver or liquidator and of the
professionals engaged by them; and
(6) that are otherwise authorized or mandated under this Act or such other
expenses as may be allowed by the Supreme Court in its rules.
(b) Affiliate shall refer to a corporation that directly or indirectly, through one or
more intermediaries, is controlled by, or is under the common control of
another corporation.
(c) Claim shall refer to all claims or demands of whatever nature or character
against the debtor or its property, whether for money or otherwise, liquidated
or unliquidated, fixed or contingent, matured or unmatured, disputed or
undisputed, including, but not limited to: (1) all claims of the government,
whether national or local, including taxes, tariffs and customs duties; and (2)
claims against directors and officers of the debtor arising from acts done in
the discharge of their functions falling within the scope of their
authority: Provided, That, this inclusion does not prohibit the creditors or
third parties from filing cases against the directors and officers acting in their
personal capacities.
(d) Commencement date shall refer to the date on which the court issues the
Commencement Order, which shall be retroactive to the date of filing of the
petition for voluntary or involuntary proceedings.
(e) Commencement Order shall refer to the order issued by the court under
Section 16 of this Act.
(f) Control shall refer to the power of a parent corporation to direct or govern
the financial and operating policies of an enterprise so as to obtain benefits
from its activities. Control is presumed to exist when the parent owns, directly
or indirectly through subsidiaries or affiliates, more than one-half (1/2) of the
voting power of an enterprise unless, in exceptional circumstances, it can
clearly be demonstrated that such ownership does not constitute control.
Control also exists even when the parent owns one-half (1/2) or less of the
voting power of an enterprise when there is power:
(1) over more than one-half (1/2) of the voting rights by virtue of an
agreement with investors;
(2) to direct or govern the financial and operating policies of the enterprise
under a statute or an agreement;
(3) to appoint or remove the majority of the members of the board of
directors or equivalent governing body; or
(4) to cast the majority votes at meetings of the board of directors or
equivalent governing body.
(g) Court shall refer to the court designated by the Supreme Court to hear and
determine, at the first instance, the cases brought under this Act.
(h) Creditor shall refer to a natural or juridical person which has a claim against
the debtor that arose on or before the commencement date.
(i) Date of liquidation shall refer to the date on which the court issues the
Liquidation Order.
(j) Days shall refer to calendar days unless otherwise specifically stated in this
Act.
(k) Debtor shall refer to, unless specifically excluded by a provision of this Act,
a sole proprietorship duly registered with the Department of Trade and
Industry (DTI), a partnership duly registered with the Securities and
Exchange Commission (SEC), a corporation duly organized and existing
under Philippine laws, or an individual debtor who has become insolvent as
defined herein.
(l) Encumbered property shall refer to real or personal property of the debtor
upon which a lien attaches.
(m) General unsecured creditor shall refer to a creditor whose claim or a portion
thereof is neither secured, preferred nor subordinated under this Act.
(n) Group of debtors shall refer to and can cover only: (1) corporations that are
financially related to one another as parent corporations, subsidiaries or
affiliates; (2) partnerships that are owned more than fifty percent (50%) by
the same person; and (3) single proprietorships that are owned by the same
person. When the petition covers a group of debtors, all reference under these
rules to debtor shall include and apply to the group of debtors. DSAEIT
(o) Individual debtor shall refer to a natural person who is a resident and citizen
of the Philippines that has become insolvent as defined herein.
(p) Insolvent shall refer to the financial condition of a debtor that is generally
unable to pay its or his liabilities as they fall due in the ordinary course of
business or has liabilities that are greater than its or his assets.
(q) Insolvent debtor's estate shall refer to the estate of the insolvent debtor, which
includes all the property and assets of the debtor as of commencement date,
plus the property and assets acquired by the rehabilitation receiver or
liquidator after that date, as well as all other property and assets in which the
debtor has an ownership interest, whether or not these property and assets are
in the debtor's possession as of commencement date: Provided, That trust
assets and bailment, and other property and assets of a third party that are in
the possession of the debtor as of commencement date, are excluded
therefrom.
(r) Involuntary proceedings shall refer to proceedings initiated by creditors.
(s) Liabilities shall refer to monetary claims against the debtor, including
stockholder's advances that have been recorded in the debtor's audited
financial statements as advances for future subscriptions.
(t) Lien shall refer to a statutory or contractual claim or judicial charge on real
or personal property that legally entitles a creditor to resort to said property
for payment of the claim or debt secured by such lien.
(u) Liquidation shall refer to the proceedings under Chapter V of this Act.
(v) Liquidation Order shall refer to the Order issued by the court under Section
112 of this Act.
(w) Liquidator shall refer to the natural person or juridical entity appointed as
such by the court and entrusted with such powers and duties as set forth in
this Act: Provided, That, if the liquidator is a juridical entity, it must
323
designate a natural person who possesses all the qualifications and none of
the disqualifications as its representative, it being understood that the juridical
entity and the representative are solidarily liable for all obligations and
responsibilities of the liquidator.
(x) Officer shall refer to a natural person holding a management position
described in or contemplated by a juridical entity's articles of incorporation,
bylaws or equivalent documents, except for the corporate secretary, the
assistant corporate secretary and the external auditor.
(y) Ordinary course of business shall refer to transactions in the pursuit of the
individual debtor's or debtor's business operations prior to rehabilitation or
insolvency proceedings and on ordinary business terms.
(z) Ownership interest shall refer to the ownership interest of third parties in
property held by the debtor, including those covered by trust receipts or
assignments of receivables.
(aa) Parent shall refer to a corporation which has control over another corporation
either directly or indirectly through one or more intermediaries. AaHTIE
(bb) Party to the proceedings shall refer to the debtor, a creditor, the unsecured
creditors' committee, a stakeholder, a party with an ownership interest in
property held by the debtor, a secured creditor, the rehabilitation receiver,
liquidator or any other juridical or natural person who stands to be benefited
or injured by the outcome of the proceedings and whose notice of appearance
is accepted by the court.
(cc) Possessory lien shall refer to a lien on property, the possession of which has
been transferred to a creditor or a representative or agent thereof.
(dd) Proceedings shall refer to judicial proceedings commenced by the court's
acceptance of a petition filed under this Act.
(ee) Property of others shall refer to property held by the debtor in which other
persons have an ownership interest.
(ff) Publication notice shall refer to notice through publication in a newspaper of
general circulation in the Philippines on a business day for two (2)
consecutive weeks.
(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of
successful operation and solvency, if it is shown that its continuance of
operation is economically feasible and its creditors can recover by way of the
present value of payments projected in the plan, more if the debtor continues
as a going concern than if it is immediately liquidated.
(hh) Rehabilitation receiver shall refer to the person or persons, natural or
juridical, appointed as such by the court pursuant to this Act and which shall
be entrusted with such powers and duties as set forth herein.
(ii) Rehabilitation Plan shall refer to a plan by which the financial well-being and
viability of an insolvent debtor can be restored using various means
including, but not limited to, debt forgiveness, debt rescheduling,
reorganization or quasi-reorganization, dacion en pago, debt-equity
conversion and sale of the business (or parts of it) as a going concern, or
 setting-up of new business entity as prescribed in Section 62 hereof, or other
similar arrangements as may be approved by the court or creditors.
(jj) Secured claim shall refer to a claim that is secured by a lien.
(kk) Secured creditor shall refer to a creditor with a secured claim.
(ll) Secured party shall refer to a secured creditor or the agent or representative
of such secured creditor.
(mm) Securities market participant shall refer to a broker, dealer,
underwriter, transfer agent or other juridical persons transacting securities in
the capital market.
(nn) Stakeholder shall refer, in addition to a holder of shares of a corporation, to a
member of a nonstock corporation or association or a partner in a partnership.
(oo) Subsidiary shall refer to a corporation more than fifty percent (50%) of the
voting stock of which is owned or controlled directly or indirectly through
one or more intermediaries by another corporation, which thereby becomes
its parent corporation.
(pp) Unsecured claim shall refer to a claim that is not secured by a lien.
(qq) Unsecured creditor shall refer to a creditor with an unsecured claim.
(rr) Voluntary proceedings shall refer to proceedings initiated by the debtor.
(ss) Voting creditor shall refer to a creditor that is a member of a class of creditors,
the consent of which is necessary for the approval of a Rehabilitation Plan
under this Act.
SECTION 5. Exclusions. — The term debtor does not include banks, insurance
companies, pre-need companies, and national and local government agencies or units.
For purposes of this section:
(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or
actually subject to conservatorship, receivership or liquidation proceedings
under the New Central Bank Act (Republic Act No. 7653) or successor
legislation;
(b) Insurance company shall refer to those companies that are potentially or
actually subject to insolvency proceedings under the Insurance
Code (Presidential Decree No. 1460) or successor legislation; and
(c) Pre-need company shall refer to any corporation authorized/licensed to sell
or offer to sell pre-need plans.
Provided, That government financial institutions other than banks and government-
owned or -controlled corporations shall be covered by this Act, unless their specific
charter provides otherwise.
SECTION 6. Designation of Courts and Promulgation of Procedural Rules. — The
Supreme Court shall designate the court or courts that will hear and resolve cases
brought under this Act and shall promulgate the rules of pleading, practice and
procedure to govern the proceedings brought under this Act.
SECTION 7. Substantive and Procedural Consolidation. — Each juridical entity
shall be considered as a separate entity under the proceedings in this Act. Under these
324
proceedings, the assets and liabilities of a debtor may not be commingled or
aggregated with those of another, unless the latter is a related enterprise that is owned
or controlled directly or indirectly by the same interests: Provided, however, That the
commingling or aggregation of assets and liabilities of the debtor with those of a
related enterprise may only be allowed where:
(a) there was commingling in fact of assets and liabilities of the debtor and the
related enterprise prior to the commencement of the proceedings;
(b) the debtor and the related enterprise have common creditors and it will be more
convenient to treat them together rather than separately;
(c) the related enterprise voluntarily accedes to join the debtor as party petitioner
and to commingle its assets and liabilities with the debtor's; and
(d) The consolidation of assets and liabilities of the debtor and the related
enterprise is beneficial to all concerned and promotes the objectives of
rehabilitation.
Provided, finally, That nothing in this section shall prevent the court from joining other
entities affiliated with the debtor as parties pursuant to the rules of procedure as may
be promulgated by the Supreme Court.
SECTION 8. Decisions of Creditors. — Decisions of creditors shall be made
according to the relevant provisions of the Corporation Code in the case of stock or
nonstock corporations or the Civil Code in the case of partnerships that are not
inconsistent with this Act.
SECTION 9. Creditors' Representatives. — Creditors may designate representatives
to vote or otherwise act on their behalf by filing notice of such representation with the
court and serving a copy on the rehabilitation receiver or liquidator. IaTSED
SECTION 10. Liability of Individual Debtor, Owner of a Sole Proprietorship,
Partners in a Partnership, or Directors and Officers. — Individual debtor, owner of a
sole proprietorship, partners in a partnership, or directors and officers of a debtor shall
be liable for double the value of the property sold, embezzled or disposed of or double
the amount of the transaction involved, whichever is higher, to be recovered for the
benefit of the debtor and the creditors, if they, having notice of the commencement of
the proceedings, or having reason to believe that proceedings are about to be
commenced, or in contemplation of the proceedings, willfully commit the following
acts:
(a) Dispose or cause to be disposed of any property of the debtor other than in
the ordinary course of business or authorize or approve any transaction in
fraud of creditors or in a manner grossly disadvantageous to the debtor and/or
creditors; or
(b) Conceal, or authorize or approve the concealment, from the creditors, or
embezzles or misappropriates, any property of the debtor.
The court shall determine the extent of the liability of an owner, partner,
director or officer under this section. In this connection, in case of
partnerships and corporations, the court shall consider the amount of the
 shareholding or partnership or equity interest of such partner, director or
officer, the degree of control of such partner, director or officer over the
debtor, and the extent of the involvement of such partner, director or debtor
in the actual management of the operations of the debtor.
SECTION 11. Authorization to Exchange Debt for Equity. — Notwithstanding
applicable banking legislation to the contrary, any bank, whether universal or not, may
acquire and hold an equity interest or investment in a debtor or its subsidiaries when
conveyed to such bank in satisfaction of debts pursuant to a Rehabilitation or
Liquidation Plan approved by the court: Provided, That such ownership shall be
subject to the ownership limits applicable to universal banks for equity investments
and: Provided, further, That any equity investment or interest acquired or held
pursuant to this section shall be disposed by the bank within a period of five (5) years
or as may be prescribed by the Monetary Board.
CHAPTER II
COURT-SUPERVISED REHABILITATION
(A) Initiation Proceedings.
(1) Voluntary Proceedings.
SECTION 12. Petition to Initiate Voluntary Proceedings by Debtor. — When
approved by the owner in case of a sole proprietorship, or by a majority of the partners
in case of a partnership, or, in case of a corporation, by a majority vote of the board of
directors or trustees and authorized by the vote of the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock, or in case of nonstock corporation,
by the vote of at least two-thirds (2/3) of the members, in a stockholder's or member's
meeting duly called for the purpose, an insolvent debtor may initiate voluntary
proceedings under this Act by filing a petition for rehabilitation with the court and on
the grounds hereinafter specifically provided. The petition shall be verified to establish
the insolvency of the debtor and the viability of its rehabilitation, and include, whether
as an attachment or as part of the body of the petition, as a minimum, the following:
(a) Identification of the debtor, its principal activities and its addresses;
(b) Statement of the fact of and the cause of the debtor's insolvency or inability
to pay its obligations as they become due;
(c) The specific relief sought pursuant to this Act;
(d) The grounds upon which the petition is based;
(e) Other information that may be required under this Act depending on the form
of relief requested;
(f) Schedule of the debtor's debts and liabilities including a list of creditors with
their addresses, amounts of claims and collaterals, or securities, if any;
(g) An inventory of all its assets including receivables and claims against third
parties;
(h) A Rehabilitation Plan;
325
(i) The names of at least three (3) nominees to the position of rehabilitation
receiver; and
(j) Other documents required to be filed with the petition pursuant to this Act
and the rules of procedure as may be promulgated by the Supreme Court.
(a) A group of debtors may jointly file a petition for rehabilitation under this Act
when one or more of its members foresee the impossibility of meeting debts
when they respectively fall due, and the financial distress would likely
adversely affect the financial condition and/or operations of the other
members of the group and/or the participation of the other members of the
group is essential under the terms and conditions of the proposed
Rehabilitation Plan.
(2) Involuntary Proceedings.
SECTION 13. Circumstances Necessary to Initiate Involuntary Proceedings. — Any
creditor or group of creditors with a claim of, or the aggregate of whose claims is, at
least One million pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the
subscribed capital stock or partners' contributions, whichever is higher, may initiate
involuntary proceedings against the debtor by filing a petition for rehabilitation with
the court if:
(a) there is no genuine issue of fact or law on the claim/s of the petitioner/s, and
that the due and demandable payments thereon have not been made for at
least sixty (60) days or that the debtor has failed generally to meet its
liabilities as they fall due; or
(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings
against the debtor that will prevent the debtor from paying its debts as they
become due or will render it insolvent.
SECTION 14. Petition to Initiate Involuntary Proceedings. — The creditor/s' petition
for rehabilitation shall be verified to establish the substantial likelihood that the debtor
may be rehabilitated, and include:
(a) identification of the debtor, its principal activities and its address;
(b) the circumstances sufficient to support a petition to initiate involuntary
rehabilitation proceedings under Section 13 of this Act;
(c) the specific relief sought under this Act;
(d) a Rehabilitation Plan;
(e) the names of at least three (3) nominees to the position of rehabilitation
receiver;
(f) other information that may be required under this Act depending on the form
of relief requested; and
(g) other documents required to be filed with the petition pursuant to this Act and
the rules of procedure as may be promulgated by the Supreme Court.
(B) Action on the Petition and Commencement of Proceedings.
SECTION 15. Action on the Petition. — If the court finds the petition for
rehabilitation to be sufficient in form and substance, it shall, within five (5) working
days from the filing of the petition, issue a Commencement Order. If, within the same
period, the court finds the petition deficient in form or substance, the court may, in its
discretion, give the petitioner/s a reasonable period of time within which to amend or
supplement the petition, or to submit such documents as may be necessary or proper
to put the petition in proper order. In such case, the five (5) working days provided
above for the issuance of the Commencement Order shall be reckoned from the date
of the filing of the amended or supplemental petition or the submission of such
documents.
SECTION 16. Commencement of Proceedings and Issuance of a Commencement
Order. — The rehabilitation proceedings shall commence upon the issuance of the
Commencement Order, which shall:
(a) identify the debtor, its principal business or activity/ies and its principal place
of business;
(b) summarize the ground/s for initiating the proceedings;
(c) state the relief sought under this Act and any requirement or procedure
particular to the relief sought;
(d) state the legal effects of the Commencement Order, including those
mentioned in Section 17 hereof;
(e) declare that the debtor is under rehabilitation;
(f) direct the publication of the Commencement Order in a newspaper of general
circulation in the Philippines once a week for at least two (2) consecutive
weeks, with the first publication to be made within seven (7) days from the
time of its issuance;
(g) if the petitioner is the debtor, direct the service by personal delivery of a copy
of the petition on each creditor holding at least ten percent (10%) of the total
liabilities of the debtor as determined from the schedule attached to the
petition within five (5) days; if the petitioner/s is/are creditor/s, direct the
service by personal delivery of a copy of the petition on the debtor within five
(5) days;
(h) appoint a rehabilitation receiver who may or may not be from among the
nominees of the petitioner/s, and who shall exercise such powers and duties
defined in this Act as well as the procedural rules that the Supreme Court will
promulgate;
(i) summarize the requirements and deadlines for creditors to establish their
claims against the debtor and direct all creditors to file their claims with the
court at least five (5) days before the initial hearing;
(j) direct the Bureau of Internal Revenue (BIR) to file and serve on the debtor its
comment on or opposition to the petition or its claim/s against the debtor
under such procedures as the Supreme Court may hereafter provide;
(k) prohibit the debtor's suppliers of goods or services from withholding the
supply of goods and services in the ordinary course of business for as long as
the debtor makes payments for the services or goods supplied after the
issuance of the Commencement Order;
326
(l) authorize the payment of administrative expenses as they become due;
(m) set the case for initial hearing, which shall not be more than forty (40) days
from the date of filing of the petition for the purpose of determining whether
there is substantial likelihood for the debtor to be rehabilitated;
(n) make available copies of the petition and rehabilitation plan for examination
and copying by any interested party;
(o) indicate the location or locations at which documents regarding the debtor
and the proceedings under this Act may be reviewed and copied;
(p) state that any creditor or debtor, who is not the petitioner, may submit the
name or nominate any other qualified person to the position of rehabilitation
receiver at least five (5) days before the initial hearing;
(q) include a Stay or Suspension Order which shall:
(1) suspend all actions or proceedings, in court or otherwise, for the
enforcement of claims against the debtor;
(2) suspend all actions to enforce any judgment, attachment or other
provisional remedies against the debtor;
(3) prohibit the debtor from selling, encumbering, transferring or disposing
in any manner any of its properties except in the ordinary course of
business; and
(4) prohibit the debtor from making any payment of its liabilities outstanding
as of the commencement date except as may be provided herein.
SECTION 17. Effects of the Commencement Order. — Unless otherwise provided for
in this Act, the court's issuance of a Commencement Order shall, in addition to the
effects of a Stay or Suspension Order described in Section 16 hereof:
(a) vest the rehabilitation receiver with all the powers and functions provided for
in this Act, such as the right to review and obtain all records to which the
debtor's management and directors have access, including bank accounts of
whatever nature of the debtor, subject to the approval by the court of the
performance bond filed by the rehabilitation receiver;
(b) prohibit, or otherwise serve as the legal basis for rendering null and void the
results of any extrajudicial activity or process to seize property, sell
encumbered property, or otherwise attempt to collect on or enforce a claim
against the debtor after the commencement date unless otherwise allowed in
this Act, subject to the provisions of Section 50 hereof;
(c) serve as the legal basis for rendering null and void any set-off after the
commencement date of any debt owed to the debtor by any of the debtor's
creditors;
(d) serve as the legal basis for rendering null and void the perfection of any lien
against the debtor's property after the commencement date; and
(e) consolidate the resolution of all legal proceedings by and against the debtor
to the court: Provided, however, That the court may allow the continuation of
cases in other courts where the debtor had initiated the suit.
Attempts to seek legal or other recourse against the debtor outside these proceedings
shall be sufficient to support a finding of indirect contempt of court.
SECTION 18. Exceptions to the Stay or Suspension Order. — The Stay or Suspension
Order shall not apply:
(a) to cases already pending appeal in the Supreme Court as of commencement
date: Provided, That any final and executory judgment arising from such
appeal shall be referred to the court for appropriate action;
(b) subject to the discretion of the court, to cases pending or filed at a specialized
court or quasi-judicial agency which, upon determination by the court, is
capable of resolving the claim more quickly, fairly and efficiently than the
court: Provided, That any final and executory judgment of such court or
agency shall be referred to the court and shall be treated as a non-disputed
claim;
(c) to the enforcement of claims against sureties and other persons solidarily liable
with the debtor, and third party or accommodation mortgagors as well as
issuers of letters of credit, unless the property subject of the third party or
accommodation mortgage is necessary for the rehabilitation of the debtor as
determined by the court upon recommendation by the rehabilitation receiver;
(d) to any form of action of customers or clients of a securities market participant
to recover or otherwise claim moneys and securities entrusted to the latter in
the ordinary course of the latter's business as well as any action of such
securities market participant or the appropriate regulatory agency or self-
regulatory organization to pay or settle such claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell pledged securities of a
debtor pursuant to a securities pledge or margin agreement for the settlement
of securities transactions in accordance with the provisions of the Securities
Regulation Code and its implementing rules and regulations;
(f) the clearing and settlement of financial transactions through the facilities of a
clearing agency or similar entities duly authorized, registered and/or
recognized by the appropriate regulatory agency like the Bangko Sentral ng
Pilipinas (BSP) and the SEC as well as any form of actions of such agencies
or entities to reimburse themselves for any transactions settled for the debtor;
and
(g) any criminal action against the individual debtor or owner, partner, director or
officer of a debtor shall not be affected by any proceeding commenced under
this Act.
SECTION 19. Waiver of Taxes and Fees Due to the National Government and to
Local Government Units (LGUs). — Upon issuance of the Commencement Order by
the court, and until the approval of the Rehabilitation Plan or dismissal of the petition,
whichever is earlier, the imposition of all taxes and fees, including penalties, interests
and charges thereof, due to the national government or to LGUs shall be considered
waived, in furtherance of the objectives of rehabilitation.
327
SECTION 20. Application of Stay or Suspension Order to Government Financial
Institutions. — The provisions of this Act concerning the effects of the
Commencement Order and the Stay or Suspension Order on the suspension of rights
to foreclose or otherwise pursue legal remedies shall apply to government financial
institutions, notwithstanding provisions in their charters or other laws to the contrary.
SECTION 21. Effectivity and Duration of Commencement Order. — Unless lifted by
the court, the Commencement Order shall be effective for the duration of the
rehabilitation proceedings for as long as there is a substantial likelihood that the debtor
will be successfully rehabilitated. In determining whether there is substantial
likelihood for the debtor to be successfully rehabilitated, the court shall ensure that the
following minimum requirements are met:
(a) The proposed Rehabilitation Plan submitted complies with the minimum
contents prescribed by this Act;
(b) There is sufficient monitoring by the rehabilitation receiver of the debtor's
business for the protection of creditors;
(c) The debtor has met with its creditors to the extent reasonably possible in
attempts to reach a consensus on the proposed Rehabilitation Plan;
(d) The rehabilitation receiver submits a report, based on preliminary evaluation,
stating that the underlying assumptions and the financial goals stated in the
petitioner's Rehabilitation Plan are realistic, feasible and reasonable; or, if
not, there is, in any case, a substantial likelihood for the debtor to be
successfully rehabilitated because, among others:
(1) there are sufficient assets with which to rehabilitate the debtor;
(2) there is sufficient cash flow to maintain the operations of the debtor;
(3) the debtor's owner/s, partners, stockholders, directors and officers have
been acting in good faith and with due diligence; IaDTES
(4) the petition is not a sham filing intended only to delay the enforcement
of the rights of the creditor/s or of any group of creditors; and
(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;
(e) The petition, the Rehabilitation Plan and the attachments thereto do not
contain any materially false or misleading statement;
(f) If the petitioner is the debtor, that the debtor has met with its creditor/s
representing at least three-fourths (3/4) of its total obligations to the extent
reasonably possible and made a good faith effort to reach a consensus on the
proposed Rehabilitation Plan; if the petitioner/s is/are a creditor or group of
creditors, that the petitioner/s has/have met with the debtor and made a good
faith effort to reach a consensus on the proposed Rehabilitation Plan; and
(g) The debtor has not committed acts of misrepresentation or in fraud of its
creditor/s or a group of creditors.
SECTION 22. Action at the Initial Hearing. — At the initial hearing, the court shall:
(a) determine the creditors who have made timely and proper filing of their notice
of claims;
 (b) hear and determine any objection to the qualifications or the appointment of
the rehabilitation receiver and, if necessary, appoint a new one in accordance
with this Act;
(c) direct the creditors to comment on the petition and the Rehabilitation Plan,
and to submit the same to the court and to the rehabilitation receiver within a
period of not more than twenty (20) days; and
(d) direct the rehabilitation receiver to evaluate the financial condition of the
debtor and to prepare and submit to the court within forty (40) days from the
initial hearing the report provided in Section 24 hereof.
SECTION 23. Effect of Failure to File Notice of Claim. — A creditor whose claim is
not listed in the schedule of debts and liabilities and who fails to file a notice of claim
in accordance with the Commencement Order but subsequently files a belated claim
shall not be entitled to participate in the rehabilitation proceedings but shall be entitled
to receive distributions arising therefrom.
SECTION 24. Report of the Rehabilitation Receiver. — Within forty (40) days from
the initial hearing, and with or without the comments of the creditors or any of them,
the rehabilitation receiver shall submit a report to the court stating his preliminary
findings and recommendations on whether:
(a) the debtor is insolvent and if so, the causes thereof and any unlawful or irregular
act or acts committed by the owner/s of a sole proprietorship, partners of a
partnership, or directors or officers of a corporation in contemplation of the
insolvency of the debtor or which may have contributed to the insolvency of the
debtor;
(b) the underlying assumptions, the financial goals and the procedures to
accomplish such goals as stated in the petitioner's Rehabilitation Plan are
realistic, feasible and reasonable;
(c) there is a substantial likelihood for the debtor to be successfully rehabilitated;
(d) the petition should be dismissed; and
(e) the debtor should be dissolved and/or liquidated.
SECTION 25. Giving Due Course to or Dismissal of Petition, or Conversion of
Proceedings. — Within ten (10) days from receipt of the report of the rehabilitation
receiver mentioned in Section 24 hereof, the court may:
(a) give due course to the petition upon a finding that:
(1) the debtor is insolvent; and
(2) there is a substantial likelihood for the debtor to be successfully
rehabilitated;
(b) dismiss the petition upon a finding that:
(1) debtor is not insolvent;
(2) the petition is a sham filing intended only to delay the enforcement of
the rights of the creditor/s or of any group of creditors;
(3) the petition, the Rehabilitation Plan and the attachments thereto contain
any materially false or misleading statements; or
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(4) the debtor has committed acts of misrepresentation or in fraud of its
creditor/s or a group of creditors;
(c) convert the proceedings into one for the liquidation of the debtor upon a
finding that:
(1) the debtor is insolvent; and
(2) there is no substantial likelihood for the debtor to be successfully
rehabilitated as determined in accordance with the rules to be
promulgated by the Supreme Court.
SECTION 26. Petition Given Due Course. — If the petition is given due course, the
court shall direct the rehabilitation receiver to review, revise and/or recommend action
on the Rehabilitation Plan and submit the same or a new one to the court within a
period of not more than ninety (90) days.
The court may refer any dispute relating to the Rehabilitation Plan or the rehabilitation
proceedings pending before it to arbitration or other modes of dispute resolution, as
provided for under Republic Act No. 9285, or the Alternative Dispute Resolution Act
of 2004, should it determine that such mode will resolve the dispute more quickly,
fairly and efficiently than the court.
SECTION 27. Dismissal of Petition. — If the petition is dismissed pursuant to
paragraph (b) of Section 25 hereof, then the court may, in its discretion, order the
petitioner to pay damages to any creditor or to the debtor, as the case may be, who may
have been injured by the filing of the petition, to the extent of any such injury.
(C) The Rehabilitation Receiver, Management Committee and Creditors'
Committee.
SECTION 28. Who May Serve as a Rehabilitation Receiver. — Any qualified natural
or juridical person may serve as a rehabilitation receiver: Provided, That if the
rehabilitation receiver is a juridical entity, it must designate a natural person/s who
possess/es all the qualifications and none of the disqualifications as its representative,
it being understood that the juridical entity and the representative/s are solidarily liable
for all obligations and responsibilities of the rehabilitation receiver.
SECTION 29. Qualifications of a Rehabilitation Receiver. — The rehabilitation
receiver shall have the following minimum qualifications:
(a) A citizen of the Philippines or a resident of the Philippines in the six (6)
months immediately preceding his nomination;
(b) Of good moral character and with acknowledged integrity, impartiality and
independence;
(c) Has the requisite knowledge of insolvency and other relevant commercial
laws, rules and procedures, as well as the relevant training and/or experience
that may be necessary to enable him to properly discharge the duties and
obligations of a rehabilitation receiver; and
 (d) Has no conflict of interest: Provided, That such conflict of interest may be
waived, expressly or impliedly, by a party who may be prejudiced thereby.
Other qualifications and disqualifications of the rehabilitation receiver shall be set
forth in procedural rules, taking into consideration the nature of the business of the
debtor and the need to protect the interest of all stakeholders concerned.
SECTION 30. Initial Appointment of the Rehabilitation Receiver. — The court shall
initially appoint the rehabilitation receiver, who may or may not be from among the
nominees of the petitioner. However, at the initial hearing of the petition, the creditors
and the debtor who are not petitioners may nominate other persons to the position. The
court may retain the rehabilitation receiver initially appointed or appoint another who
may or may not be from among those nominated.
In case the debtor is a securities market participant, the court shall give priority to the
nominee of the appropriate securities or investor protection fund.
If a qualified natural person or entity is nominated by more than fifty percent (50%)
of the secured creditors and the general unsecured creditors, and satisfactory evidence
is submitted, the court shall appoint the creditors' nominee as rehabilitation receiver.
SECTION 31. Powers, Duties and Responsibilities of the Rehabilitation Receiver. —
The rehabilitation receiver shall be deemed an officer of the court with the principal
duty of preserving and maximizing the value of the assets of the debtor during the
rehabilitation proceedings, determining the viability of the rehabilitation of the debtor,
preparing and recommending a Rehabilitation Plan to the court, and implementing the
approved Rehabilitation Plan. To this end, and without limiting the generality of the
foregoing, the rehabilitation receiver shall have the following powers, duties and
responsibilities:
(a) To verify the accuracy of the factual allegations in the petition and its annexes;
(b) To verify and correct, if necessary, the inventory of all of the assets of the
debtor, and their valuation;
(c) To verify and correct, if necessary, the schedule of debts and liabilities of the
debtor;
(d) To evaluate the validity, genuineness and true amount of all the claims against
the debtor;
(e) To take possession, custody and control, and to preserve the value of all the
property of the debtor;
(f) To sue and recover, with the approval of the court, all amounts owed to, and
all properties pertaining to the debtor;
(g) To have access to all information necessary, proper or relevant to the
operations and business of the debtor and for its rehabilitation;
(h) To sue and recover, with the approval of the court, all property or money of
the debtor paid, transferred or disbursed in fraud of the debtor or its creditors,
or which constitute undue preference of creditor/s;
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(i) To monitor the operations and the business of the debtor to ensure that no
payments or transfers of property are made other than in the ordinary course
of business;
(j) With the court's approval, to engage the services of or to employ persons or
entities to assist him in the discharge of his functions;
(k) To determine the manner by which the debtor may be best rehabilitated, to
review, revise and/or recommend action on the Rehabilitation Plan and submit
the same or a new one to the court for approval;
(l) To implement the Rehabilitation Plan as approved by the court, if so provided
under the Rehabilitation Plan;
(m) To assume and exercise the powers of management of the debtor, if directed
by the court pursuant to Section 36 hereof;
(n) To exercise such other powers as may, from time to time, be conferred upon
him by the court; and
(o) To submit a status report on the rehabilitation proceedings every quarter or as
may be required by the court motu proprio, or upon motion of any creditor, or
as may be provided, in the Rehabilitation Plan.
Unless appointed by the court, pursuant to Section 36 hereof, the rehabilitation
receiver shall not take over the management and control of the debtor but may
recommend the appointment of a management committee over the debtor in the cases
provided by this Act.
SECTION 32. Removal of the Rehabilitation Receiver. — The rehabilitation receiver
may be removed at any time by the court, either motu proprio or upon motion by any
creditor/s holding more than fifty percent (50%) of the total obligations of the debtor,
on such grounds as the rules of procedure may provide which shall include, but are not
limited to, the following:
(a) Incompetence, gross negligence, failure to perform or failure to exercise the
proper degree of care in the performance of his duties and powers;
(b) Lack of a particular or specialized competency required by the specific case;
(c) Illegal acts or conduct in the performance of his duties and powers;
(d) Lack of qualification or presence of any disqualification;
(e) Conflict of interest that arises after his appointment; and
(f) Manifest lack of independence that is detrimental to the general body of the
stakeholders.
SECTION 33. Compensation and Terms of Service. — The rehabilitation receiver
and his direct employees or independent contractors shall be entitled to compensation
for reasonable fees and expenses from the debtor according to the terms approved by
the court after notice and hearing. Prior to such hearing, the rehabilitation receiver and
his direct employees shall be entitled to reasonable compensation based on quantum
meruit. Such costs shall be considered administrative expenses.
SECTION 34. Oath and Bond of the Rehabilitation Receiver. — Prior to entering
upon his powers, duties and responsibilities, the rehabilitation receiver shall take an
oath and file a bond, in such amount to be fixed by the court, conditioned upon the
faithful and proper discharge of his powers, duties and responsibilities.
SECTION 35. Vacancy. — In case the position of rehabilitation receiver is vacated
for any reason whatsoever, the court shall direct the debtor and the creditors to submit
the name/s of their nominee/s to the position. The court may appoint any of the
qualified nominees, or any other person qualified for the position.
SECTION 36. Displacement of Existing Management by the Rehabilitation Receiver
or Management Committee. — Upon motion of any interested party, the court may
appoint and direct the rehabilitation receiver to assume the powers of management of
the debtor, or appoint a management committee that will undertake the management
of the debtor, upon clear and convincing evidence of any of the following
circumstances:
(a) Actual or imminent danger of dissipation, loss, wastage or destruction of the
debtor's assets or other properties;
(b) Paralyzation of the business operations of the debtor; or
(c) Gross mismanagement of the debtor, or fraud or other wrongful conduct on
the part of, or gross or willful violation of this Act by, existing management
of the debtor or the owner, partner, director, officer or representative/s in
management of the debtor.
In case the court appoints the rehabilitation receiver to assume the powers of
management of the debtor, the court may:
(1) require the rehabilitation receiver to post an additional bond;
(2) authorize him to engage the services or to employ persons or entities to assist
him in the discharge of his managerial functions; and
(3) authorize a commensurate increase in his compensation.
SECTION 37. Role of the Management Committee. — When appointed pursuant to
the foregoing section, the management committee shall take the place of the
management and the governing body of the debtor and assume their rights and
responsibilities.
The specific powers and duties of the management committee, whose members shall
be considered as officers of the court, shall be prescribed by the procedural rules.
SECTION 38. Qualifications of Members of the Management Committee. — The
qualifications and disqualifications of the members of the management committee
shall be set forth in the procedural rules, taking into consideration the nature of the
business of the debtor and the need to protect the interest of all stakeholders concerned.
SECTION 39. Employment of Professionals. — Upon approval of the court, and after
notice and hearing, the rehabilitation receiver or the management committee may
employ specialized professionals and other experts to assist each in the performance
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of their duties. Such professionals and other experts shall be considered either
employees or independent contractors of the rehabilitation receiver or the management
committee, as the case may be. The qualifications and disqualifications of the
professionals and experts may be set forth in procedural rules, taking into
consideration the nature of the business of the debtor and the need to protect the
interest of all stakeholders concerned.
SECTION 40. Conflict of Interest. — No person may be appointed as a rehabilitation
receiver, member of a management committee, or be employed by the rehabilitation
receiver or the management committee if he has a conflict of interest.
An individual shall be deemed to have a conflict of interest if he is so situated as to be
materially influenced in the exercise of his judgment for or against any party to the
proceedings. Without limiting the generality of the foregoing, an individual shall be
deemed to have a conflict of interest if:
(a) he is a creditor, owner, partner or stockholder of the debtor;
(b) he is engaged in a line of business which competes with that of the debtor;
(c) he is, or was, within five (5) years from the filing of the petition, a director,
officer, owner, partner or employee of the debtor or any of the creditors, or
the auditor or accountant of the debtor;
(d) he is, or was, within two (2) years from the filing of the petition, an
underwriter of the outstanding securities of the debtor;
(e) he is related by consanguinity or affinity within the fourth civil degree to any
individual creditor, owner/s of a sole proprietorship-debtor, partners of a
partnership-debtor or to any stockholder, director, officer, employee or
underwriter of a corporation-debtor; or
(f) he has any other direct or indirect material interest in the debtor or any of the
creditors.
Any rehabilitation receiver, member of the management committee or persons
employed or contracted by them possessing any conflict of interest shall make the
appropriate disclosure either to the court or to the creditors in case of out-of-court
rehabilitation proceedings. Any party to the proceeding adversely affected by the
appointment of any person with a conflict of interest to any of the positions enumerated
above may however waive his right to object to such appointment and, if the waiver is
unreasonably withheld, the court may disregard the conflict of interest, taking into
account the general interest of the stakeholders.
SECTION 41. Immunity. — The rehabilitation receiver and all persons employed by
him, and the members of the management committee and all persons employed by it,
shall not be subject to any action, claim or demand in connection with any act done or
omitted to be done by them in good faith in connection with the exercise of their
powers and functions under this Act or other actions duly approved by the court.
SECTION 42. Creditors' Committee. — After the creditors' meeting called pursuant
to Section 63 hereof, the creditors belonging to a class may formally organize a
committee among themselves. In addition, the creditors may, as a body, agree to form
a creditors' committee composed of a representative from each class of creditors, such
as the following:
(a) Secured creditors;
(b) Unsecured creditors;
(c) Trade creditors and suppliers; and
(d) Employees of the debtor.
In the election of the creditors' representatives, the rehabilitation receiver or his
representative shall attend such meeting and extend the appropriate assistance as may
be defined in the procedural rules.
SECTION 43. Role of Creditors' Committee. — The creditors' committee when
constituted pursuant to Section 42 of this Act shall assist the rehabilitation receiver in
communicating with the creditors and shall be the primary liaison between the
rehabilitation receiver and the creditors. The creditors' committee cannot exercise or
waive any right or give any consent on behalf of any creditor unless specifically
authorized in writing by such creditor. The creditors' committee may be authorized by
the court or by the rehabilitation receiver to perform such other tasks and functions as
may be defined by the procedural rules in order to facilitate the rehabilitation process.
(D) Determination of Claims.
SECTION 44. Registry of Claims. — Within twenty (20) days from his assumption
into office, the rehabilitation receiver shall establish a preliminary registry of claims.
The rehabilitation receiver shall make the registry available for public inspection and
provide publication notice to the debtor, creditors and stakeholders on where and when
they may inspect it. All claims included in the registry of claims must be duly
supported by sufficient evidence.
SECTION 45. Opposition or Challenge of Claims. — Within thirty (30) days from
the expiration of the period stated in the immediately preceding section, the debtor,
creditors, stakeholders and other interested parties may submit a challenge to claim/s
to the court, serving a certified copy on the rehabilitation receiver and the creditor
holding the challenged claim/s. Upon the expiration of the thirty (30)-day period, the
rehabilitation receiver shall submit to the court the registry of claims which shall
include undisputed claims that have not been subject to challenge.
SECTION 46. Appeal. — Any decision of the rehabilitation receiver regarding a
claim may be appealed to the court.
(E) Governance.
SECTION 47. Management. — Unless otherwise provided herein, the management
of the juridical debtor shall remain with the existing management subject to the
applicable law/s and agreement/s, if any, on the election or appointment of directors,
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managers or managing partner. However, all disbursements, payments or sale,
disposal, assignment, transfer or encumbrance of property, or any other act affecting
title or interest in property, shall be subject to the approval of the rehabilitation receiver
and/or the court, as provided in the following subchapter.
(F) Use, Preservation and Disposal of Assets and Treatment of Assets and Claims
after Commencement Date.
SECTION 48. Use or Disposition of Assets. — Except as otherwise provided herein,
no funds or property of the debtor shall be used or disposed of except in the ordinary
course of business of the debtor, or unless necessary to finance the administrative
expenses of the rehabilitation proceedings.
SECTION 49. Sale of Assets. — The court, upon application of the rehabilitation
receiver, may authorize the sale of unencumbered property of the debtor outside the
ordinary course of business upon a showing that the property, by its nature or because
of other circumstance, is perishable, costly to maintain, susceptible to devaluation or
otherwise in jeopardy.
SECTION 50. Sale or Disposal of Encumbered Property of the Debtor and Assets of
Third Parties Held by Debtor. — The court may authorize the sale, transfer,
conveyance or disposal of encumbered property of the debtor, or property of others
held by the debtor where there is a security interest pertaining to third parties under a
financial, credit or other similar transactions if, upon application of the rehabilitation
receiver and with the consent of the affected owners of the property, or secured
creditor/s in the case of encumbered property of the debtor and, after notice and
hearing, the court determines that:
(a) such sale, transfer, conveyance or disposal is necessary for the continued
operation of the debtor's business; and
(b) the debtor has made arrangements to provide a substitute lien or ownership
right that provides an equal level of security for the counter-party's claim or
right.
Provided, That properties held by the debtor where the debtor has authority to sell such
as trust receipt or consignment arrangements may be sold or disposed of by the debtor,
if such sale or disposal is necessary for the operation of the debtor's business, and the
debtor has made arrangements to provide a substitute lien or ownership right that
provides an equal level of security for the counter-party's claim or right.
Sale or disposal of property under this section shall not give rise to any criminal
liability under applicable laws.
SECTION 51. Assets of Debtor Held by Third Parties. — In the case of possessory
pledges, mechanic's liens or similar claims, third parties who have in their possession
or control property of the debtor shall not transfer, convey or otherwise dispose of the
same to persons other than the debtor, unless upon prior approval of the rehabilitation
receiver. The rehabilitation receiver may also:
(a) demand the surrender or the transfer of the possession or control of such
property to the rehabilitation receiver or any other person, subject to payment
of the claims secured by any possessory lien/s thereon;
(b) allow said third parties to retain possession or control, if such an arrangement
would more likely preserve or increase the value of the property in question
or the total value of the assets of the debtor; or
(c) undertake any other disposition of the said property as may be beneficial for
the rehabilitation of the debtor, after notice and hearing, and approval of the
court.
SECTION 52. Rescission or Nullity of Sale, Payment, Transfer or Conveyance of
Assets. — The court may rescind or declare as null and void any sale, payment, transfer
or conveyance of the debtor's unencumbered property or any encumbering thereof by
the debtor or its agents or representatives after the commencement date which are not
in the ordinary course of the business of the debtor: Provided, however, That the
unencumbered property may be sold, encumbered or otherwise disposed of upon order
of the court after notice and hearing:
(a) if such are in the interest of administering the debtor and facilitating the
preparation and implementation of a Rehabilitation Plan;
(b) in order to provide a substitute lien, mortgage or pledge of property under this
Act;
(c) for payments made to meet administrative expenses as they arise;
(d) for payments to victims of quasi delicts upon a showing that the claim is valid
and the debtor has insurance to reimburse the debtor for the payments made;
(e) for payments made to repurchase property of the debtor that is auctioned off
in a judicial or extrajudicial sale under this Act; or
(f) for payments made to reclaim property of the debtor held pursuant to a
possessory lien.
SECTION 53. Assets Subject to Rapid Obsolescence, Depreciation and Diminution
of Value. — Upon the application of a secured creditor holding a lien against or holder
of an ownership interest in property held by the debtor that is subject to potentially
rapid obsolescence, depreciation or diminution in value, the court shall, after notice
and hearing, order the debtor or rehabilitation receiver to take reasonable steps
necessary to prevent the depreciation. If depreciation cannot be avoided and such
depreciation is jeopardizing the security or property interest of the secured creditor or
owner, the court shall:
(a) allow the encumbered property to be foreclosed upon by the secured creditor
according to the relevant agreement between the debtor and the secured
creditor, applicable rules of procedure and relevant
legislation: Provided, That the proceeds of the sale will be distributed in
accordance with the order prescribed under the rules of concurrence and
preference of credits; or
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(b) upon motion of, or with the consent of the affected secured creditor or interest
owner, order the conveyance of a lien against or ownership interest in
substitute property of the debtor to the secured creditor: Provided,That other
creditors holding liens on such property, if any, do not object thereto, or, if
such property is not available;
(c) order the conveyance to the secured creditor or holder of an ownership
interest of a lien on the residual funds from the sale of encumbered property
during the proceedings; or
(d) allow the sale or disposition of the property: Provided, That the sale or
disposition will maximize the value of the property for the benefit of the
secured creditor and the debtor, and the proceeds of the sale will be
distributed in accordance with the order prescribed under the rules of
concurrence and preference of credits.
SECTION 54. Post-commencement Interest. — The rate and term of interest, if any,
on secured and unsecured claims shall be determined and provided for in the approved
Rehabilitation Plan.
SECTION 55. Post-commencement Loans and Obligations. — With the approval of
the court upon the recommendation of the rehabilitation receiver, the debtor, in order
to enhance its rehabilitation, may:
(a) enter into credit arrangements; or
(b) enter into credit arrangements, secured by mortgages of its unencumbered
property or secondary mortgages of encumbered property with the approval
of senior secured parties with regard to the encumbered property; or
(c) incur other obligations as may be essential for its rehabilitation.
The payment of the foregoing obligations shall be considered administrative expenses
under this Act.
SECTION 56. Treatment of Employees, Claims. — Compensation of employees
required to carry on the business shall be considered an administrative expense. Claims
of separation pay for months worked prior to the commencement date shall be
considered a pre-commencement claim. Claims for salary and separation pay for work
performed after the commencement date shall be an administrative expense.
SECTION 57. Treatment of Contracts. — Unless cancelled by virtue of a final
judgment of a court of competent jurisdiction issued prior to the issuance of the
Commencement Order, or at anytime thereafter by the court before which the
rehabilitation proceedings are pending, all valid and subsisting contracts of the debtor
with creditors and other third parties as at the commencement date shall continue in
force: Provided,That within ninety (90) days following the commencement of
proceedings, the debtor, with the consent of the rehabilitation receiver, shall notify
each contractual counter-party of whether it is confirming the particular contract.
Contractual obligations of the debtor arising or performed during this period, and
afterwards for confirmed contracts, shall be considered administrative expenses.
Contracts not confirmed within the required deadline shall be considered terminated.
Claims for actual damages, if any, arising as a result of the election to terminate a
contract shall be considered a pre-commencement claim against the debtor. Nothing
contained herein shall prevent the cancellation or termination of any contract of the
debtor for any ground provided by law.
(G) Avoidance Proceedings.
SECTION 58. Rescission or Nullity of Certain Pre-commencement Transactions. —
Any transaction occurring prior to commencement date entered into by the debtor or
involving its funds or assets may be rescinded or declared null and void on the ground
that the same was executed with intent to defraud a creditor or creditors or which
constitute undue preference of creditors. Without limiting the generality of the
foregoing, a disputable presumption of such design shall arise if the transaction:
(a) provides unreasonably inadequate consideration to the debtor and is executed
within ninety (90) days prior to the commencement date;
(b) involves an accelerated payment of a claim to a creditor within ninety (90)
days prior to the commencement date;
(c) provides security or additional security executed within ninety (90) days prior
to the commencement date;
(d) involves creditors, where a creditor obtained, or received the benefit of, more
than its pro rata share in the assets of the debtor, executed at a time when the
debtor was insolvent; or
(e) is intended to defeat, delay or hinder the ability of the creditors to collect
claims where the effect of the transaction is to put assets of the debtor beyond
the reach of creditors or to otherwise prejudice the interests of creditors.
Provided, however, That nothing in this section shall prevent the court from rescinding
or declaring as null and void a transaction on other grounds provided by relevant
legislation and jurisprudence: Provided, further, That the provisions of the Civil
Code on rescission shall in any case apply to these transactions.
SECTION 59. Actions for Rescission or Nullity. —
(a) The rehabilitation receiver or, with his conformity, any creditor may initiate
and prosecute any action to rescind, or declare null and void any transaction
described in Section 58 hereof. If the rehabilitation receiver does not consent
to the filing or prosecution of such action, any creditor may seek leave of the
court to commence said action.
(b) If leave of court is granted under subsection (a), the rehabilitation receiver
shall assign and transfer to the creditor all rights, title and interest in the chose
in action or subject matter of the proceeding, including any document in
support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a), to
the extent of his claim and the costs, belongs exclusively to the creditor
instituting the proceeding, and the surplus, if any, belongs to the estate.
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(d) Where, before an order is made under subsection (a), the rehabilitation
receiver (or liquidator) signifies to the court his readiness to institute the
proceeding for the benefit of the creditors, the order shall fix the time within
which he shall do so and, in that case, the benefit derived from the proceeding,
if instituted within the time limits so fixed, belongs to the estate.
(H) Treatment of Secured Creditors.
SECTION 60. No Diminution of Secured Creditor Rights. — The issuance of the
Commencement Order and the Suspension or Stay Order, and any other provision of
this Act, shall not be deemed in any way to diminish or impair the security or lien of a
secured creditor, or the value of his lien or security, except that his right to enforce
said security or lien may be suspended during the term of the Stay Order.
The court, upon motion or recommendation of the rehabilitation receiver, may allow
a secured creditor to enforce his security or lien, or foreclose upon property of the
debtor securing his/its claim, if the said property is not necessary for the rehabilitation
of the debtor. The secured creditor and/or the other lien holders shall be admitted to
the rehabilitation proceedings only for the balance of his claim, if any.
SECTION 61. Lack of Adequate Protection. — The court, on motion or motu
proprio, may terminate, modify or set conditions for the continuance of suspension of
payment, or relieve a claim from the coverage thereof, upon showing that:
(a) a creditor does not have adequate protection over property securing its claim;
or
(b) the value of a claim secured by a lien on property which is not necessary for
rehabilitation of the debtor exceeds the fair market value of the said property.
For purposes of this section, a creditor shall be deemed to lack adequate protection if
it can be shown that:
(a) the debtor fails or refuses to honor a pre-existing agreement with the creditor
to keep the property insured;
(b) the debtor fails or refuses to take commercially reasonable steps to maintain
the property; or
(c) the property has depreciated to an extent that the creditor is under secured.
Upon showing of a lack of protection, the court shall order the debtor or the
rehabilitation receiver to make arrangements to provide for the insurance or
maintenance of the property; or to make payments or otherwise provide additional or
replacement security such that the obligation is fully secured. If such arrangements are
not feasible, the court may modify the Stay Order to allow the secured creditor lacking
adequate protection to enforce its security claim against the debtor: Provided,
however, That the court may deny the creditor the remedies in this paragraph if the
property subject of the enforcement is required for the rehabilitation of the debtor.
(I) Administration of Proceedings.

SECTION 62. Contents of a Rehabilitation Plan. — The Rehabilitation Plan shall, as
a minimum:
(a) specify the underlying assumptions, the financial goals and the procedures
proposed to accomplish such goals;
(b) compare the amounts expected to be received by the creditors under the
Rehabilitation Plan with those that they will receive if liquidation ensues
within the next one hundred twenty (120) days;
(c) contain information sufficient to give the various classes of creditors a
reasonable basis for determining whether supporting the Plan is in their
financial interest when compared to the immediate liquidation of the debtor,
including any reduction of principal interest and penalties payable to the
creditors;
(d) establish classes of voting creditors;
(e) establish subclasses of voting creditors if prior approval has been granted by
the court;
(f) indicate how the insolvent debtor will be rehabilitated including, but not
limited to, debt forgiveness, debt rescheduling, reorganization or quasi-
reorganization, dacion en pago, debt-equity conversion and sale of the
business (or parts of it) as a going concern, or setting-up of a new business
entity or other similar arrangements as may be necessary to restore the
financial well-being and viability of the insolvent debtor;
(g) specify the treatment of each class or subclass described in subsections (d)
and (e);
(h) provide for equal treatment of all claims within the same class or subclass,
unless a particular creditor voluntarily agrees to less favorable
treatment; AICEDc
(i) ensure that the payments made under the plan follow the priority established
under the provisions of the Civil Code on concurrence and preference of
credits and other applicable laws;
(j) maintain the security interest of secured creditors and preserve the liquidation
value of the security unless such has been waived or modified voluntarily;
(k) disclose all payments to creditors for pre-commencement debts made during
the proceedings and the justifications thereof;
(l) describe the disputed claims and the provisioning of funds to account for
appropriate payments should the claim be ruled valid or its amount adjusted;
(m) identify the debtor's role in the implementation of the Plan;
(n) state any rehabilitation covenants of the debtor, the breach of which shall be
considered a material breach of the Plan;
(o) identify those responsible for the future management of the debtor and the
supervision and implementation of the Plan, their affiliation with the debtor
and their remuneration;
(p) address the treatment of claims arising after the confirmation of the
Rehabilitation Plan;
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(q) require the debtor and its counter-parties to adhere to the terms of all contracts
that the debtor has chosen to confirm;
(r) arrange for the payment of all outstanding administrative expenses as a
condition to the Plan's approval unless such condition has been waived in
writing by the creditors concerned;
(s) arrange for the payment of all outstanding taxes and assessments, or an
adjusted amount pursuant to a compromise settlement with the BIR or other
applicable tax authorities;
(t) include a certified copy of a certificate of tax clearance or evidence of a
compromise settlement with the BIR;
(u) include a valid and binding resolution of a meeting of the debtor's
stockholders to increase the shares by the required amount in cases where the
Plan contemplates an additional issuance of shares by the debtor;
(v) state the compensation and status, if any, of the rehabilitation receiver after
the approval of the Plan; and
(w) contain provisions for conciliation and/or mediation as a prerequisite to court
assistance or intervention in the event of any disagreement in the
interpretation or implementation of the Rehabilitation Plan.
SECTION 63. Consultation with Debtor and Creditors. — If the court gives due
course to the petition, the rehabilitation receiver shall confer with the debtor and all
the classes of creditors, and may consider their views and proposals in the review,
revision or preparation of a new Rehabilitation Plan.
SECTION 64. Creditor Approval of Rehabilitation Plan. — The rehabilitation
receiver shall notify the creditors and stakeholders that the Plan is ready for their
examination. Within twenty (20) days from the said notification, the rehabilitation
receiver shall convene the creditors, either as a whole or per class, for purposes of
voting on the approval of the Plan. The Plan shall be deemed rejected unless approved
by all classes of creditors whose rights are adversely modified or affected by the Plan.
For purposes of this section, the Plan is deemed to have been approved by a class of
creditors if members of the said class holding more than fifty percent (50%) of the
total claims of the said class vote in favor of the Plan. The votes of the creditors shall
be based solely on the amount of their respective claims based on the registry of claims
submitted by the rehabilitation receiver pursuant to Section 44 hereof. cTECHI
Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the
Rehabilitation Plan if all of the following circumstances are present:
(a) The Rehabilitation Plan complies with the requirements specified in this Act;
(b) The rehabilitation receiver recommends the confirmation of the
Rehabilitation Plan;
(c) The shareholders, owners or partners of the juridical debtor lose at least their
controlling interest as a result of the Rehabilitation Plan; and
(d) The Rehabilitation Plan would likely provide the objecting class of creditors
with compensation which has a net present value greater than that which they
would have received if the debtor were under liquidation.

SECTION 65. Submission of Rehabilitation Plan to the Court. — If the Rehabilitation
Plan is approved, the rehabilitation receiver shall submit the same to the court for
confirmation. Within five (5) days from receipt of the Rehabilitation Plan, the court
shall notify the creditors that the Rehabilitation Plan has been submitted for
confirmation, that any creditor may obtain copies of the Rehabilitation Plan and that
any creditor may file an objection thereto.
SECTION 66. Filing of Objections to Rehabilitation Plan. — A creditor may file an
objection to the Rehabilitation Plan within twenty (20) days from receipt of notice
from the court that the Rehabilitation Plan has been submitted for confirmation.
Objections to a Rehabilitation Plan shall be limited to the following:
(a) The creditors' support was induced by fraud;
(b) The documents or data relied upon in the Rehabilitation Plan are materially
false or misleading; or
(c) The Rehabilitation Plan is in fact not supported by the voting creditors.
SECTION 67. Hearing on the Objections. — If objections have been submitted
during the relevant period, the court shall issue an order setting the time and date for
the hearing or hearings on the objections.
If the court finds merit in the objection, it shall order the rehabilitation receiver or other
party to cure the defect, whenever feasible. If the court determines that the debtor acted
in bad faith, or that it is not feasible to cure the defect, the court shall convert the
proceedings into one for the liquidation of the debtor under Chapter V of this Act.
SECTION 68. Confirmation of the Rehabilitation Plan. — If no objections are filed
within the relevant period or, if objections are filed, the court finds them lacking in
merit, or determines that the basis for the objection has been cured, or determines that
the debtor has complied with an order to cure the objection, the court shall issue an
order confirming the Rehabilitation Plan.
The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes
over claims if the Rehabilitation Plan has made adequate provisions for paying such
claims.
For the avoidance of doubt, the provisions of other laws to the contrary
notwithstanding, the court shall have the power to approve or implement the
Rehabilitation Plan despite the lack of approval, or objection from the owners, partners
or stockholders of the insolvent debtor: Provided, That the terms thereof are necessary
to restore the financial well-being and viability of the insolvent debtor.
SECTION 69. Effect of Confirmation of the Rehabilitation Plan. — The confirmation
of the Rehabilitation Plan by the court shall result in the following:
(a) The Rehabilitation Plan and its provisions shall be binding upon the debtor
and all persons who may be affected by it, including the creditors, whether or
335
not such persons have participated in the proceedings or opposed the
Rehabilitation Plan or whether or not their claims have been scheduled;
(b) The debtor shall comply with the provisions of the Rehabilitation Plan and
shall take all actions necessary to carry out the Plan;
(c) Payments shall be made to the creditors in accordance with the provisions of
the Rehabilitation Plan;
(d) Contracts and other arrangements between the debtor and its creditors shall
be interpreted as continuing to apply to the extent that they do not conflict
with the provisions of the Rehabilitation Plan;
(e) Any compromises on amounts or rescheduling of timing of payments by the
debtor shall be binding on creditors regardless of whether or not the Plan is
successfully implemented; and
(f) Claims arising after approval of the Plan that are otherwise not treated by the
Plan are not subject to any Suspension Order.
The Order confirming the Plan shall comply with Rule 36 of the Rules of
Court: Provided, however, That the court may maintain jurisdiction over the case in
order to resolve claims against the debtor that remain contested and allegations that
the debtor has breached the Plan.
SECTION 70. Liability of General Partners of a Partnership for Unpaid Balances
Under an Approved Plan. — The approval of the Plan shall not affect the rights of
creditors to pursue actions against the general partners of a partnership to the extent
they are liable under relevant legislation for the debts thereof.
SECTION 71. Treatment of Amounts of Indebtedness or Obligations Forgiven or
Reduced. — Amounts of any indebtedness or obligations reduced or forgiven in
connection with a Plan's approval shall not be subject to any tax, in furtherance of the
purposes of this Act.
SECTION 72. Period for Confirmation of the Rehabilitation Plan. — The court shall
have a maximum period of one (1) year from the date of the filing of the petition to
confirm a Rehabilitation Plan.
If no Rehabilitation Plan is confirmed within the said period, the proceedings may,
upon motion or motu proprio, be converted into one for the liquidation of the debtor.
SECTION 73. Accounting Discharge of Rehabilitation Receiver. — Upon the
confirmation of the Rehabilitation Plan, the rehabilitation receiver shall provide a final
report and accounting to the court. Unless the Rehabilitation Plan specifically requires
and describes the role of the rehabilitation receiver after the approval of the
Rehabilitation Plan, the court shall discharge the rehabilitation receiver of his duties.
(J) Termination of Proceedings.
SECTION 74. Termination of Proceedings. — The rehabilitation proceedings under
Chapter II shall, upon motion by any stakeholder or the rehabilitation receiver, be
terminated by order of the court either declaring a successful implementation of the
Rehabilitation Plan or a failure of rehabilitation.
There is failure of rehabilitation in the following cases:
(a) Dismissal of the petition by the court;
(b) The debtor fails to submit a Rehabilitation Plan;
(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial
likelihood that the debtor can be rehabilitated within a reasonable period;
(d) The Rehabilitation Plan or its amendment is approved by the court but in the
implementation thereof, the debtor fails to perform its obligations thereunder,
or there is a failure to realize the objectives, targets or goals set forth therein,
including the timelines and conditions for the settlement of the obligations
due to the creditors and other claimants;
(e) The commission of fraud in securing the approval of the Rehabilitation Plan
or its amendment; and
(f) Other analogous circumstances as may be defined by the rules of procedure.
(a) Upon a breach of, or upon a failure of the Rehabilitation Plan, the court, upon
motion by an affected party, may:
(1) issue an order directing that the breach be cured within a specified period
of time, failing which the proceedings may be converted to a liquidation;
(2) issue an order converting the proceedings to a liquidation;
(3) allow the debtor or rehabilitation receiver to submit amendments to the
Rehabilitation Plan, the approval of which shall be governed by the same
requirements for the approval of a Rehabilitation Plan under this
subchapter;
(4) issue any other order to remedy the breach consistent with the present
regulation, other applicable law and the best interests of the creditors; or
(5) enforce the applicable provisions of the Rehabilitation Plan through a
writ of execution.
SECTION 75. Effects of Termination. — Termination of the proceedings shall result
in the following:
(a) The discharge of the rehabilitation receiver, subject to his submission of a
final accounting; and
(b) The lifting of the Stay Order and any other court order holding in abeyance
any action for the enforcement of a claim against the debtor.
Provided, however, That if the termination of proceedings is due to failure of
rehabilitation or dismissal of the petition for reasons other than technical grounds, the
proceedings shall be immediately converted to liquidation as provided in Section 92
of this Act.
CHAPTER III
336
PRE-NEGOTIATED REHABILITATION
SECTION 76. Petition by Debtor. — An insolvent debtor, by itself or jointly with any
of its creditors, may file a verified petition with the court for the approval of a pre-
negotiated Rehabilitation Plan which has been endorsed or approved by creditors
holding at least two-thirds (2/3) of the total liabilities of the debtor, including secured
creditors holding more than fifty percent (50%) of the total secured claims of the debtor
and unsecured creditors holding more than fifty percent (50%) of the total unsecured
claims of the debtor. The petition shall include, as a minimum:
(a) a schedule of the debtor's debts and liabilities;
(b) an inventory of the debtor's assets;
(c) the pre-negotiated Rehabilitation Plan, including the names of at least three (3)
qualified nominees for rehabilitation receiver; and
(d) a summary of disputed claims against the debtor and a report on the provisioning
of funds to account for appropriate payments should any such claims be ruled
valid or their amounts adjusted.
SECTION 77. Issuance of Order. — Within five (5) working days, and after
determination that the petition is sufficient in form and substance, the court shall issue
an Order which shall:
(a) identify the debtor, its principal business or activity/ies and its principal place
of business;
(b) declare that the debtor is under rehabilitation;
(c) summarize the ground/s for the filing of the petition;
(d) direct the publication of the Order in a newspaper of general circulation in
the Philippines once a week for at least two (2) consecutive weeks, with the
first publication to be made within seven (7) days from the time of its
issuance;
(e) direct the service by personal delivery of a copy of the petition on each
creditor who is not a petitioner holding at least ten percent (10%) of the total
liabilities of the debtor, as determined in the schedule attached to the petition,
within three (3) days;
(f) state that copies of the petition and the Rehabilitation Plan are available for
examination and copying by any interested party;
(g) state that creditors and other interested parties opposing the petition or
Rehabilitation Plan may file their objections or comments thereto within a
period of not later than twenty (20) days from the second publication of the
Order;
(h) appoint a rehabilitation receiver, if provided for in the Plan; and
(i) include a Suspension or Stay Order as described in this Act.
SECTION 78. Approval of the Plan. — Within ten (10) days from the date of the
second publication of the Order, the court shall approve the Rehabilitation Plan unless
a creditor or other interested party submits an objection to it in accordance with the
next succeeding section.

SECTION 79. Objection to the Petition or Rehabilitation Plan. — Any creditor or
other interested party may submit to the court a verified objection to the petition or the
Rehabilitation Plan not later than eight (8) days from the date of the second publication
of the Order mentioned in Section 77 hereof. The objections shall be limited to the
following:
(a) The allegations in the petition or the Rehabilitation Plan, or the attachments
thereto, are materially false or misleading;
(b) The majority of any class of creditors do not in fact support the Rehabilitation
Plan;
(c) The Rehabilitation Plan fails to accurately account for a claim against the
debtor and the claim is not categorically declared as a contested claim; or
(d) The support of the creditors, or any of them, was induced by fraud.
Copies of any objection to the petition or the Rehabilitation Plan shall be served on the
debtor, the rehabilitation receiver (if applicable), the secured creditor with the largest
claim and who supports the Rehabilitation Plan, and the unsecured creditor with the
largest claim and who supports the Rehabilitation Plan.
SECTION 80. Hearing on the Objections. — After receipt of an objection, the court
shall set the same for hearing. The date of the hearing shall be no earlier than twenty
(20) days and no later than thirty (30) days from the date of the second publication of
the Order mentioned in Section 77 hereof. If the court finds merit in the objection, it
shall direct the debtor, when feasible, to cure the defect within a reasonable period. If
the court determines that the debtor or creditors supporting the Rehabilitation Plan
acted in bad faith, or that the objection is non-curable, the court may order the
conversion of the proceedings into liquidation. A finding by the court that the objection
has no substantial merit, or that the same has been cured, shall be deemed an approval
of the Rehabilitation Plan.
SECTION 81. Period for Approval of Rehabilitation Plan. — The court shall have a
maximum period of one hundred twenty (120) days from the date of the filing of the
petition to approve the Rehabilitation Plan. If the court fails to act within the said
period, the Rehabilitation Plan shall be deemed approved.
SECTION 82. Effect of Approval. — Approval of a Plan under this chapter shall have
the same legal effect as confirmation of a Plan under Chapter II of this Act.
CHAPTER IV
OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR
REHABILITATION PLANS
SECTION 83. Out-of-Court or Informal Restructuring Agreements and
Rehabilitation Plans. — An out-of-court or informal restructuring agreement or
337
Rehabilitation Plan that meets the minimum requirements prescribed in this chapter is
hereby recognized as consistent with the objectives of this Act.
SECTION 84. Minimum Requirements of Out-of-Court or Informal Restructuring
Agreements and Rehabilitation Plans. — For an out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan to qualify under this chapter,
it must meet the following minimum requirements:
(a) The debtor must agree to the out-of-court or informal restructuring/workout
agreement or Rehabilitation Plan;
(b) It must be approved by creditors representing at least sixty-seven percent
(67%) of the secured obligations of the debtor;
(c) It must be approved by creditors representing at least seventy-five percent
(75%) of the unsecured obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent (85%) of
the total liabilities, secured and unsecured, of the debtor.
SECTION 85. Standstill Period. — A standstill period that may be agreed upon by
the parties pending negotiation and finalization of the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan contemplated herein shall be
effective and enforceable not only against the contracting parties but also against the
other creditors: Provided, That (a) such agreement is approved by creditors
representing more than fifty percent (50%) of the total liabilities of the debtor; (b)
notice thereof is published in a newspaper of general circulation in the Philippines
once a week for two (2) consecutive weeks; and (c) the standstill period does not
exceed one hundred twenty (120) days from the date of effectivity. The notice must
invite creditors to participate in the negotiation for out-of-court rehabilitation or
restructuring agreement and notify them that said agreement will be binding on all
creditors if the required majority votes prescribed in Section 84 of this Act are met.
SECTION 86. Cram Down Effect. — A restructuring/workout agreement or
Rehabilitation Plan that is approved pursuant to an informal workout framework
referred to in this chapter shall have the same legal effect as confirmation of a Plan
under Section 69 hereof. The notice of the Rehabilitation Plan or restructuring
agreement or Plan shall be published once a week for at least three (3) consecutive
weeks in a newspaper of general circulation in the Philippines. The Rehabilitation Plan
or restructuring agreement shall take effect upon the lapse of fifteen (15) days from
the date of the last publication of the notice thereof.
SECTION 87. Amendment or Modification. — Any amendment of an out-of-court
restructuring/workout agreement or Rehabilitation Plan must be made in accordance
with the terms of the agreement and with due notice on all creditors.
SECTION 88. Effect of Court Action or Other Proceedings. — Any court action or
other proceedings arising from, or relating to, the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan shall not stay its
implementation, unless the relevant party is able to secure a temporary restraining
order or injunctive relief from the Court of Appeals.
SECTION 89. Court Assistance. — The insolvent debtor and/or creditor may seek
court assistance for the execution or implementation of a Rehabilitation Plan under
this chapter, under such rules of procedure as may be promulgated by the Supreme
Court.
CHAPTER V
LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS
SECTION 90. Voluntary Liquidation. — An insolvent debtor may apply for
liquidation by filing a petition for liquidation with the court. The petition shall be
verified, shall establish the insolvency of the debtor and shall contain, whether as an
attachment or as part of the body of the petition:
(a) a schedule of the debtor's debts and liabilities including a list of creditors with
their addresses, amounts of claims and collaterals, or securities, if any;
(b) an inventory of all its assets including receivables and claims against third
parties; and
(c) the names of at least three (3) nominees to the position of liquidator.
At any time during the pendency of court-supervised or pre-negotiated rehabilitation
proceedings, the debtor may also initiate liquidation proceedings by filing a motion in
the same court where the rehabilitation proceedings are pending to convert the
rehabilitation proceedings into liquidation proceedings. The motion shall be verified,
shall contain or set forth the same matters required in the preceding paragraph, and
state that the debtor is seeking immediate dissolution and termination of its corporate
existence.
If the petition or the motion, as the case may be, is sufficient in form and substance,
the court shall issue a Liquidation Order mentioned in Section 112 hereof.
SECTION 91. Involuntary Liquidation. — Three (3) or more creditors the aggregate
of whose claims is at least either One million pesos (Php1,000,000.00) or at least
twenty-five percent (25%) of the subscribed capital stock or partner's contributions of
the debtor, whichever is higher, may apply for and seek the liquidation of an insolvent
debtor by filing a petition for liquidation of the debtor with the court. The petition shall
show that:
(a) there is no genuine issue of fact or law on the claim/s of the petitioner/s, and
that the due and demandable payments thereon have not been made for at
least one hundred eighty (180) days or that the debtor has failed generally to
meet its liabilities as they fall due; and
(b) there is no substantial likelihood that the debtor may be rehabilitated.
338
At any time during the pendency of or after a rehabilitation court-supervised or pre-
negotiated rehabilitation proceedings, three (3) or more creditors whose claims is at
least either One million pesos (Php1,000,000.00) or at least twenty-five percent (25%)
of the subscribed capital or partner's contributions of the debtor, whichever is higher,
may also initiate liquidation proceedings by filing a motion in the same court where
the rehabilitation proceedings are pending to convert the rehabilitation proceedings
into liquidation proceedings. The motion shall be verified, shall contain or set forth the
same matters required in the preceding paragraph, and state that the movants are
seeking the immediate liquidation of the debtor.
If the petition or motion is sufficient in form and substance, the court shall issue an
Order:
(1) directing the publication of the petition or motion in a newspaper of general
circulation once a week for two (2) consecutive weeks; and
(2) directing the debtor and all creditors who are not the petitioners to file their
comment on the petition or motion within fifteen (15) days from the date of
last publication.
If, after considering the comments filed, the court determines that the petition or
motion is meritorious, it shall issue the Liquidation Order mentioned in Section 112
hereof.
SECTION 92. Conversion by the Court into Liquidation Proceedings. — During the
pendency of court-supervised or pre-negotiated rehabilitation proceedings, the court
may order the conversion of rehabilitation proceedings to liquidation proceedings
pursuant to: (a) Section 25 (c) of this Act; or (b) Section 72 of this Act; or (c) Section
75 of this Act; or (d) Section 90 of this Act; or at any other time upon the
recommendation of the rehabilitation receiver that the rehabilitation of the debtor is
not feasible. Thereupon, the court shall issue the Liquidation Order mentioned in
Section 112 hereof.
SECTION 93. Powers of the Securities and Exchange Commission (SEC).— The
provisions of this chapter shall not affect the regulatory powers of the SEC under
Section 6 of Presidential Decree No. 902-A, as amended, with respect to any
dissolution and liquidation proceeding initiated and heard before it.
CHAPTER VI
INSOLVENCY OF INDIVIDUAL DEBTORS
(A) Suspension of Payments.
SECTION 94. Petition. — An individual debtor who, possessing sufficient property
to cover all his debts but foreseeing the impossibility of meeting them when they
respectively fall due, may file a verified petition that he be declared in the state of
suspension of payments by the court of the province or city in which he has resided
for six (6) months prior to the filing of his petition. He shall attach to his petition, as a
minimum: (a) a schedule of debts and liabilities; (b) an inventory of assets; and (c) a
proposed agreement with his creditors.
SECTION 95. Action on the Petition. — If the court finds the petition sufficient in
form and substance, it shall, within five (5) working days from the filing of the petition,
issue an Order:
(a) calling a meeting of all the creditors named in the schedule of debts and
liabilities at such time not less than fifteen (15) days nor more than forty (40)
days from the date of such Order and designating the date, time and place of
the meeting;
(b) directing such creditors to prepare and present written evidence of their
claims before the scheduled creditors' meeting;
(c) directing the publication of the said order in a newspaper of general
circulation published in the province or city in which the petition is filed once
a week for two (2) consecutive weeks, with the first publication to be made
within seven (7) days from the time of the issuance of the Order;
(d) directing the clerk of court to cause the sending of a copy of the Order by
registered mail, postage prepaid, to all creditors named in the schedule of
debts and liabilities;
(e) forbidding the individual debtor from selling, transferring, encumbering or
disposing in any manner of his property, except those used in the ordinary
operations of commerce or of industry in which the petitioning individual
debtor is engaged, so long as the proceedings relative to the suspension of
payments are pending;
(f) prohibiting the individual debtor from making any payment outside of the
necessary or legitimate expenses of his business or industry, so long as the
proceedings relative to the suspension of payments are pending; and
(g) appointing a commissioner to preside over the creditors' meeting.
SECTION 96. Actions Suspended. — Upon motion filed by the individual debtor, the
court may issue an order suspending any pending execution against the individual
debtor: Provided, that properties held as security by secured creditors shall not be the
subject of such suspension order. The suspension order shall lapse when three (3)
months shall have passed without the proposed agreement being accepted by the
creditors or as soon as such agreement is denied.
No creditor shall sue or institute proceedings to collect his claim from the debtor from
the time of the filing of the petition for suspension of payments and for as long as
proceedings remain pending except:
(a) those creditors having claims for personal labor, maintenance, expense of last
illness and funeral of the wife or children of the debtor incurred in the sixty
(60) days immediately prior to the filing of the petition; and
(b) secured creditors.
SECTION 97. Creditors' Meeting. — The presence of creditors holding claims
amounting to at least three-fifths (3/5) of the liabilities shall be necessary for holding
339
a meeting. The commissioner appointed by the court shall preside over the meeting
and the clerk of court shall act as the secretary thereof, subject to the following rules:
(a) The clerk shall record the creditors present and amount of their respective
claims;
(b) The commissioner shall examine the written evidence of the claims. If the
creditors present hold at least three-fifths (3/5) of the liabilities of the
individual debtor, the commissioner shall declare the meeting open for
business;
(c) The creditors and individual debtor shall discuss the propositions in the
proposed agreement and put them to a vote;
(d) To form a majority, it is necessary:
(1) that two-thirds (2/3) of the creditors voting unite upon the same
proposition; and
(2) that the claims represented by said majority vote amount to at least three-
fifths (3/5) of the total liabilities of the debtor mentioned in the petition;
and
(e) After the result of the voting has been announced, all protests made against
the majority vote shall be drawn up, and the commissioner and the individual
debtor together with all creditors taking part in the voting shall sign the
affirmed propositions.
No creditor who incurred his credit within ninety (90) days prior to the filing of the
petition shall be entitled to vote.
SECTION 98. Persons Who May Refrain from Voting. — Creditors who are
unaffected by the Suspension Order may refrain from attending the meeting and from
voting therein. Such persons shall not be bound by any agreement determined upon at
such meeting, but if they should join in the voting they shall be bound in the same
manner as are the other creditors.
SECTION 99. Rejection of the Proposed Agreement. — The proposed agreement
shall be deemed rejected if the number of creditors required for holding a meeting do
not attend thereat, or if the two (2) majorities mentioned in Section 97 hereof are not
in favor thereof. In such instances, the proceeding shall be terminated without recourse
and the parties concerned shall be at liberty to enforce the rights which may correspond
to them.
SECTION 100. Objections. — If the proposal of the individual debtor, or any
amendment thereof made during the creditors' meeting, is approved by the majority of
creditors in accordance with Section 97 hereof, any creditor who attended the meeting
and who dissented from and protested against the vote of the majority may file an
objection with the court within ten (10) days from the date of the last creditors'
meeting. The causes for which objection may be made to the decision made by the
majority during the meeting shall be: (a) defects in the call for the meeting, in the
holding thereof, and in the deliberations had thereat which prejudice the rights of the
creditors; (b) fraudulent connivance between one or more creditors and the individual
debtor to vote in favor of the proposed agreement; or (c) fraudulent conveyance of
claims for the purpose of obtaining a majority. The court shall hear and pass upon such
objection as soon as possible and in a summary manner.
In case the decision of the majority of creditors to approve the individual debtor's
proposal or any amendment thereof made during the creditors' meeting is annulled by
the court, the court shall declare the proceedings terminated and the creditors shall be
at liberty to exercise the rights which may correspond to them.
SECTION 101. Effects of Approval of Proposed Agreement. — If the decision of the
majority of the creditors to approve the proposed agreement or any amendment thereof
made during the creditors' meeting is upheld by the court, or when no opposition or
objection to said decision has been presented, the court shall order that the agreement
be carried out and all parties bound thereby to comply with its terms.
The court may also issue all orders which may be necessary or proper to enforce the
agreement on motion of any affected party. The Order confirming the approval of the
proposed agreement on any amendment thereof made during the creditors' meeting
shall be binding upon all creditors whose claims are included in the schedule of debts
and liabilities submitted by the individual debtor and who were properly summoned,
but not upon: (a) those creditors having claims for personal labor, maintenance,
expenses of last illness and funeral of the wife or children of the debtor incurred in the
sixty (60) days immediately prior to the filing of the petition, and (b) secured creditors
who failed to attend the meeting on refrained from voting therein.
SECTION 102. Failure of Individual Debtor to Perform Agreement. — If the
individual debtor fails, wholly or in part, to perform the agreement decided upon at the
meeting of the creditors, all the rights which the creditors had against the individual
debtor before the agreement shall revest in them. In such case the individual debtor
may be made subject to the insolvency proceedings in the manner established by this
Act.
(B) Voluntary Liquidation.
SECTION 103. Application. — An individual debtor whose properties are not
sufficient to cover his liabilities, and owing debts exceeding Five hundred thousand
pesos (Php500,000.00), may apply to be discharged from his debts and liabilities by
filing a verified petition with the court of the province or city in which he has resided
for six (6) months prior to the filing of such petition. He shall attach to his petition a
schedule of debts and liabilities and an inventory of assets. The filing of such petition
shall be an act of insolvency.
SECTION 104. Liquidation Order. — If the court finds the petition sufficient in form
and substance, it shall, within five (5) working days, issue the Liquidation Order
mentioned in Section 112 hereof.
(C) Involuntary Liquidation.
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SECTION 105. Petition; Acts of Insolvency. — Any creditor or group of creditors
with a claim of, or with claims aggregating, at least Five hundred thousand pesos
(Php500,000.00) may file a verified petition for liquidation with the court of the
province or city in which the individual debtor resides.
The following shall be considered acts of insolvency, and the petition for liquidation
shall set forth or allege at least one of such acts:
(a) That such person is about to depart or has departed from the Republic of the
Philippines, with intent to defraud his creditors;
(b) That being absent from the Republic of the Philippines, with intent to defraud
his creditors, he remains absent;
(c) That he conceals himself to avoid the service of legal process for the purpose
of hindering or delaying the liquidation or of defrauding his creditors;
(d) That he conceals, or is removing, any of his property to avoid its being attached
or taken on legal process;
(e) That he has suffered his property to remain under attachment or legal process
for three (3) days for the purpose of hindering or delaying the liquidation or of
defrauding his creditors;
(f) That he has confessed or offered to allow judgment in favor of any creditor or
claimant for the purpose of hindering or delaying the liquidation or of
defrauding any creditor or claimant;
(g) That he has willfully suffered judgment to be taken against him by default for
the purpose of hindering or delaying the liquidation or of defrauding his
creditors;
(h) That he has suffered or procured his property to be taken on legal process with
intent to give a preference to one or more of his creditors and thereby hinder
or delay the liquidation or defraud any one of his creditors;
(i) That he has made any assignment, gift, sale, conveyance or transfer of his
estate, property, rights or credits with intent to hinder or delay the liquidation
or defraud his creditors;
(j) That he has, in contemplation of insolvency, made any payment, gift, grant,
sale, conveyance or transfer of his estate, property, rights or credits;
(k) That being a merchant or tradesman, he has generally defaulted in the payment
of his current obligations for a period of thirty (30) days;
(l) That for a period of thirty (30) days, he has failed, after demand, to pay any
moneys deposited with him or received by him in a fiduciary capacity; and
(m) That an execution having been issued against him on final judgment for
money, he shall have been found to be without sufficient property subject to
execution to satisfy the judgment.
The petitioning creditor/s shall post a bond in such sum as the court shall direct,
conditioned that if the petition for liquidation is dismissed by the court, or withdrawn
by the petitioner, or if the debtor shall not be declared an insolvent, the petitioners will
pay to the debtor all costs, expenses, damages occasioned by the proceedings, and
attorney's fees.
SECTION 106. Order to Individual Debtor to Show Cause. — Upon the filing of such
creditors' petition, the court shall issue an Order requiring the individual debtor to
show cause, at a time and place to be fixed by the said court, why he should not be
adjudged an insolvent. Upon good cause shown, the court may issue an Order
forbidding the individual debtor from making payments of any of his debts, and
transferring any property belonging to him. However, nothing contained herein shall
affect or impair the rights of a secured creditor to enforce his lien in accordance with
its terms.
SECTION 107. Default. — If the individual debtor shall default or if, after trial, the
issues are found in favor of the petitioning creditors, the court shall issue the
Liquidation Order mentioned in Section 112 hereof.
SECTION 108. Absent Individual Debtor. — In all cases where the individual debtor
resides out of the Republic of the Philippines; or has departed therefrom; or cannot,
after due diligence, be found therein; or conceals himself to avoid service of the Order
to show cause, or any other preliminary process or orders in the matter, then the
petitioning creditors, upon submitting the affidavits requisite to procure an Order of
publication, and presenting a bond in double the amount of the aggregate sum of their
claims against the individual debtor, shall be entitled to an Order of the court directing
the sheriff of the province or city in which the matter is pending to take into his custody
a sufficient amount of property of the individual debtor to satisfy the demands of the
petitioning creditors and the costs of the proceedings. Upon receiving such Order of
the court to take into custody property of the individual debtor, it shall be the duty of
the sheriff to take possession of the property and effects of the individual debtor, not
exempt from execution, to an extent sufficient to cover the amount provided for, and
to prepare, within three (3) days from the time of taking such possession, a complete
inventory of all the property so taken, and to return it to the court as soon as completed.
The time for taking the inventory and making return thereof may be extended for good
cause shown to the court. The sheriff shall also prepare a schedule of the names and
residences of the creditors, and the amount due each, from the books of the debtor, or
from such other papers or data of the individual debtor available as may come to his
possession, and shall file such schedule or list of creditors and inventory with the clerk
of court.
SECTION 109. All Property Taken to be Held for All Creditors; Appeal Bonds;
Exceptions to Sureties. — In all cases where property is taken into custody by the
sheriff, if it does not embrace all the property and effects of the debtor not exempt
from execution, any other creditor or creditors of the individual debtor, upon giving
bond to be approved by the court in double the amount of their claims, singly or jointly,
shall be entitled to similar orders and to like action, by the sheriff, until all claims be
provided for, if there be sufficient property or effects. All property taken into custody
341
by the sheriff by virtue of the giving of any such bonds shall be held by him for the
benefit of all creditors of the individual debtor whose claims shall be duly proved as
provided in this Act. The bonds provided for in this section and the preceding section
to procure the order for custody of the property and effects of the individual debtor
shall be conditioned that if, upon final hearing of the petition in insolvency, the court
shall find in favor of the petitioners, such bonds and all of them shall be void; if the
decision be in favor of the individual debtor, the proceedings shall be dismissed, and
the individual debtor, his heirs, administrators, executors or assigns shall be entitled to
recover such sum of money as shall be sufficient to cover the damages sustained by
him, not to exceed the amount of the respective bonds. Such damages shall be fixed
and allowed by the court. If either the petitioners or the debtor shall appeal from the
decision of the court, upon final hearing of the petition, the appellant shall be required
to give bond to the successful party in a sum double the amount of the value of the
property in controversy, and for the costs of the proceedings.
Any person interested in the estate may take exception to the sufficiency of the sureties
on such bond or bonds. When excepted to, the petitioner's sureties, upon notice to the
person excepting of not less than two (2) nor more than five (5) days, must justify as
to their sufficiency; and upon failure to justify, or if others in their place fail to justify
at the time and place appointed, the judge shall issue an Order vacating the order to
take the property of the individual debtor into the custody of the sheriff, or denying
the appeal, as the case may be.
SECTION 110. Sale Under Execution. — If, in any case, proper affidavits and bonds
are presented to the court or a judge thereof, asking for and obtaining an Order of
publication and an Order for the custody of the property of the individual debtor and
thereafter the petitioners shall make it appear satisfactorily to the court or a judge
thereof that the interest of the parties to the proceedings will be subserved by a sale
thereof, the court may order such property to be sold in the same manner as property
is sold under execution, the proceeds to be deposited in the court to abide by the result
of the proceedings.
CHAPTER VII
PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY OF
INDIVIDUAL AND JURIDICAL DEBTORS
SECTION 111. Use of Term Debtor. — For purposes of this chapter, the term debtor
shall include both individual debtor as defined in Section 4 (o) and debtor as defined
in Section 4 (k) of this Act.
(A) The Liquidation Order.
SECTION 112. Liquidation Order. — The Liquidation Order shall:
(a) declare the debtor insolvent;
(b) order the liquidation of the debtor and, in the case of a juridical debtor, declare
it as dissolved;
 (c) order the sheriff to take possession and control of all the property of the
debtor, except those that may be exempt from execution;
(d) order the publication of the petition or motion in a newspaper of general
circulation once a week for two (2) consecutive weeks;
(e) direct payments of any claims and conveyance of any property due the debtor
to the liquidator;
(f) prohibit payments by the debtor and the transfer of any property by the
debtor;
(g) direct all creditors to file their claims with the liquidator within the period set
by the rules of procedure;
(h) authorize the payment of administrative expenses as they become due;
(i) state that the debtor and creditors who are not petitioner/s may submit the
names of other nominees to the position of liquidator; and
(j) set the case for hearing for the election and appointment of the liquidator,
which date shall not be less than thirty (30) days nor more than forty-five (45)
days from the date of the last publication.
SECTION 113. Effects of the Liquidation Order. — Upon the issuance of the
Liquidation Order:
(a) the juridical debtor shall be deemed dissolved and its corporate or juridical
existence terminated;
(b) legal title to and control of all the assets of the debtor, except those that may
be exempt from execution, shall be deemed vested in the liquidator or,
pending his election or appointment, with the court;
(c) all contracts of the debtor shall be deemed terminated and/or breached, unless
the liquidator, within ninety (90) days from the date of his assumption of
office, declares otherwise and the contracting party agrees;
(d) no separate action for the collection of an unsecured claim shall be allowed.
Such actions already pending will be transferred to the Liquidator for him to
accept and settle or contest. If the liquidator contests or disputes the claim,
the court shall allow, hear and resolve such contest except when the case is
already on appeal. In such a case, the suit may proceed to judgment, and any
final and executory judgment therein for a claim against the debtor shall be
filed and allowed in court; and
(e) no foreclosure proceeding shall be allowed for a period of one hundred eighty
(180) days.
SECTION 114. Rights of Secured Creditors. — The Liquidation Order shall not
affect the right of a secured creditor to enforce his lien in accordance with the
applicable contract or law. A secured creditor may:
(a) waive his rights under the security or lien, prove his claim in the liquidation
proceedings and share in the distribution of the assets of the debtor; or
(b) maintain his rights under his security or lien.
If the secured creditor maintains his rights under the security or lien:
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(1) the value of the property may be fixed in a manner agreed upon by the creditor
and the liquidator. When the value of the property is less than the claim it
secures, the liquidator may convey the property to the secured creditor and
the latter will be admitted in the liquidation proceedings as a creditor for the
balance; if its value exceeds the claim secured, the liquidator may convey the
property to the creditor and waive the debtor's right of redemption upon
receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the secured creditor's entire
claim from the proceeds of the sale; or
(3) the secured creditor may enforce the lien or foreclose on the property pursuant
to applicable laws.
(B) The Liquidator.
SECTION 115. Election of Liquidator. — Only creditors who have filed their claims
within the period set by the court, and whose claims are not barred by the statute of
limitations, will be allowed to vote in the election of the liquidator. A secured creditor
will not be allowed to vote, unless: (a) he waives his security or lien; or (b) has the
value of the property subject of his security or lien fixed by agreement with the
liquidator, and is admitted for the balance of his claim.
The creditors entitled to vote will elect the liquidator in open court. The nominee
receiving the highest number of votes cast in terms of amount of claims, and who is
qualified pursuant to Section 118 hereof, shall be appointed as the liquidator.
SECTION 116. Court-Appointed Liquidator. — The court may appoint the liquidator
if:
(a) on the date set for the election of the liquidator, the creditors do not attend;
(b) the creditors who attend, fail or refuse to elect a liquidator;
(c) after being elected, the liquidator fails to qualify; or
(d) a vacancy occurs for any reason whatsoever. In any of the cases provided
herein, the court may instead set another hearing for the election of the
liquidator.
Provided, further, That nothing in this section shall be construed to prevent a
rehabilitation receiver, who was administering the debtor prior to the commencement
of the liquidation, from being appointed as a liquidator.
SECTION 117. Oath and Bond of the Liquidator. — Prior to entering upon his
powers, duties and responsibilities, the liquidator shall take an oath and file a bond, in
such amount to be fixed by the court, conditioned upon the proper and faithful
discharge of his powers, duties and responsibilities.
SECTION 118. Qualifications of the Liquidator. — The liquidator shall have the
qualifications enumerated in Section 29 hereof. He may be removed at any time by the
court for cause, either motu proprio or upon motion of any creditor entitled to vote for
the election of the liquidator.
SECTION 119. Powers, Duties and Responsibilities of the Liquidator. — The
liquidator shall be deemed an officer of the court with the principal duty of preserving
and maximizing the value and recovering the assets of the debtor, with the end of
liquidating them and discharging to the extent possible all the claims against the
debtor. The powers, duties and responsibilities of the liquidator shall include, but not
be limited to:
(a) to sue and recover all the assets, debts and claims, belonging or due to the
debtor;
(b) to take possession of all the property of the debtor except property exempt by
law from execution;
(c) to sell, with the approval of the court, any property of the debtor which has
come into his possession or control;
(d) to redeem all mortgages and pledges, and to satisfy any judgment which may
be an encumbrance on any property sold by him;
(e) to settle all accounts between the debtor and his creditors, subject to the
approval of the court;
(f) to recover any property or its value, fraudulently conveyed by the debtor;
(g) to recommend to the court the creation of a creditors' committee which will
assist him in the discharge of his functions and which shall have powers as
the court deems just, reasonable and necessary; and
(h) upon approval of the court, to engage such professionals as may be necessary
and reasonable to assist him in the discharge of his duties.
In addition to the rights and duties of a rehabilitation receiver, the liquidator shall have
the right and duty to take all reasonable steps to manage and dispose of the debtor's
assets with a view towards maximizing the proceedings therefrom, to pay creditors
and stockholders, and to terminate the debtor's legal existence. Other duties of the
liquidator in accordance with this section may be established by procedural rules.
A liquidator shall be subject to removal pursuant to procedures for removing a
rehabilitation receiver.
SECTION 120. Compensation of the Liquidator. — The liquidator and the persons
and entities engaged or employed by him to assist in the discharge of his powers and
duties shall be entitled to such reasonable compensation as may be determined by the
liquidation court, which shall not exceed the maximum amount as may be prescribed
by the Supreme Court.
SECTION 121. Reporting Requirements. — The liquidator shall make and keep a
record of all moneys received and all disbursements made by him or under his
authority as liquidator. He shall render a quarterly report thereof to the court, which
report shall be made available to all interested parties. The liquidator shall also submit
343
such reports as may be required by the court from time to time as well as a final report
at the end of the liquidation proceedings.
SECTION 122. Discharge of Liquidator. — In preparation for the final settlement of
all the claims against the debtor, the liquidator will notify all the creditors, either by
publication in a newspaper of general circulation or such other mode as the court may
direct or allow, that he will apply with the court for the settlement of his account and
his discharge from liability as liquidator. The liquidator will file a final accounting
with the court, with proof of notice to all creditors. The accounting will be set for
hearing. If the court finds the same in order, the court will discharge the liquidator.
(C) Determination of Claims.
SECTION 123. Registry of Claims. — Within twenty (20) days from his assumption
into office, the liquidator shall prepare a preliminary registry of claims of secured and
unsecured creditors. Secured creditors who have waived their security or lien, or have
fixed the value of the property subject of their security or lien by agreement with the
liquidator and is admitted as a creditor for the balance, shall be considered as
unsecured creditors. The liquidator shall make the registry available for public
inspection and provide publication notice to creditors, individual debtors, owner/s of
the sole proprietorship-debtor, the partners of the partnership-debtor and shareholders
or members of the corporation-debtor, on where and when they may inspect it. All
claims must be duly proven before being paid.
SECTION 124. Right of Set-off. — If the debtor and a creditor are mutually debtor
and creditor of each other, one debt shall be set off against the other, and only the
balance, if any, shall be allowed in the liquidation proceedings.
SECTION 125. Opposition or Challenge to Claims. — Within thirty (30) days from
the expiration of the period for filing of applications for recognition of claims,
creditors, individual debtors, owner/s of the sole proprietorship-debtor, partners of the
partnership-debtor and shareholders or members of the corporation-debtor and other
interested parties may submit a challenge to a claim or claims to the court, serving a
certified copy on the liquidator and the creditor holding the challenged claim. Upon
the expiration of the thirty (30)-day period, the rehabilitation receiver shall submit to
the court the registry of claims containing the undisputed claims that have not been
subject to challenge. Such claims shall become final upon the filing of the register and
may be subsequently set aside only on grounds of fraud, accident, mistake or
inexcusable neglect.
SECTION 126. Submission of Disputed Claims to Court. — The liquidator shall
resolve disputed claims and submit his findings thereon to the court for final approval.
The liquidator may disallow claims.
(D) Avoidance Proceedings.
SECTION 127. Rescission or Nullity of Certain Transactions. — Any transaction
occurring prior to the issuance of the Liquidation Order or, in case of the conversion
of the rehabilitation proceedings to liquidation proceedings prior to the
commencement date, entered into by the debtor or involving its assets, may be
rescinded or declared null and void on the ground that the same was executed with
intent to defraud a creditor or creditors or which constitute undue preference of
creditors. The presumptions set forth in Section 58 hereof shall apply.
SECTION 128. Actions for Rescission or Nullity. —
(a) The liquidator or, with his conformity, a creditor may initiate and prosecute
any action to rescind, or declare null and void any transaction described in
the immediately preceding paragraph. If the liquidator does not consent to the
filing or prosecution of such action, any creditor may seek leave of the court
to commence said action.
(b) If leave of court is granted under subsection (a) hereof, the liquidator shall
assign and transfer to the creditor all rights, title and interest in the chose in
action or subject matter of the proceeding, including any document in support
thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a)
hereof, to the extent of his claim and the costs, belongs exclusively to the
creditor instituting the proceeding, and the surplus, if any, belongs to the
estate.
(d) Where, before an order is made under subsection (a) hereof, the liquidator
signifies to the court his readiness to institute the proceeding for the benefit
of the creditors, the order shall fix the time within which he shall do so and,
in that case, the benefit derived from the proceedings, if instituted within the
time limits so fixed, belongs to the estate.
(E) The Liquidation Plan.
SECTION 129. The Liquidation Plan. — Within three (3) months from his
assumption into office, the Liquidator shall submit a Liquidation Plan to the court. The
Liquidation Plan shall, as a minimum, enumerate all the assets of the debtor, all the
claims against the debtor and a schedule of liquidation of the assets and payment of
the claims.
SECTION 130. Exempt Property to be Set Apart. — It shall be the duty of the court,
upon petition and after hearing, to exempt and set apart, for the use and benefit of the
said insolvent, such real and personal property as is by law exempt from execution,
and also a homestead; but no such petition shall be heard as aforesaid until it is first
proved that notice of the hearing of the application therefor has been duly given by the
clerk, by causing such notice to be posted in at least three (3) public places in the
province or city at least ten (10) days prior to the time of such hearing, which notice
shall set forth the name of the said insolvent debtor, and the time and place appointed
for the hearing of such application, and shall briefly indicate the homestead sought to
344
be exempted or the property sought to be set aside; and the decree must show that such
proof was made to the satisfaction of the court, and shall be conclusive evidence of
that fact.
SECTION 131. Sale of Assets in Liquidation. — The liquidator may sell the
unencumbered assets of the debtor and convert the same into money. The sale shall be
made at public auction. However, a private sale may be allowed with the approval of
the court if: (a) the goods to be sold are of a perishable nature, or are liable to quickly
deteriorate in value, or are disproportionately expensive to keep or maintain; or (b) the
private sale is for the best interest of the debtor and his creditors.
With the approval of the court, unencumbered property of the debtor may also be
conveyed to a creditor in satisfaction of his claim or part thereof.
SECTION 132. Manner of Implementing the Liquidation Plan. — The liquidator
shall implement the Liquidation Plan as approved by the court. Payments shall be
made to the creditors only in accordance with the provisions of the Plan.
SECTION 133. Concurrence and Preference of Credits. — The Liquidation Plan and
its implementation shall ensure that the concurrence and preference of credits as
enumerated in the Civil Code of the Philippines and other relevant laws shall be
observed, unless a preferred creditor voluntarily waives his preferred right. For
purposes of this chapter, credits for services rendered by employees or laborers to the
debtor shall enjoy first preference under Article 2244 of the Civil Code, unless the
claims constitute legal liens under Articles 2241 and 2242 thereof.
SECTION 134. Order Removing the Debtor from the List of Registered Entities at the
Securities and Exchange Commission. — Upon determining that the liquidation has
been completed according to this Act and applicable law, the court shall issue an Order
approving the report and ordering the SEC to remove the debtor from the registry of
legal entities.
SECTION 135. Termination of Proceedings. — Upon receipt of evidence showing
that the debtor has been removed from the registry of legal entities at the SEC, the
court shall issue an Order terminating the proceedings.
(F) Liquidation of a Securities Market Participant.
SECTION 136. Liquidation of a Securities Market Participant. — The foregoing
provisions of this chapter shall be without prejudice to the power of a regulatory
agency or self-regulatory organization to liquidate trade-related claims of clients or
customers of a securities market participant which, for purposes of investor protection,
are hereby deemed to have absolute priority over all other claims of whatever nature
or kind insofar as trade-related assets are concerned.

For purposes of this section, trade-related assets include cash, securities, trading right
and other assets owned and used by the securities market participant in the ordinary
course of its business.
CHAPTER VIII
PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR
REHABILITATION PROCEEDINGS
(A) Banks and Other Financial Institutions Under Rehabilitation Receivership
Pursuant to a State-funded or State-mandated Insurance System.
SECTION 137. Provision of Assistance. — The court shall issue orders, adjudicate
claims and provide for other relief necessary to assist in the liquidation of a financial
institution under rehabilitation receivership established by a state-funded or state-
mandated insurance system.
SECTION 138. Application of Relevant Legislation. — The liquidation of banks,
financial institutions, insurance companies and pre-need companies shall be
determined by relevant legislation. The provisions in this Act shall apply in a
suppletory manner.
(B) Cross-Border Insolvency Proceedings.
SECTION 139. Adoption of Uncitral Model Law on Cross-Border Insolvency. —
Subject to the provision of Section 136 hereof and the rules of procedure that may be
adopted by the Supreme Court, the Model Law on Cross-Border Insolvency of the
United Nations Center for International Trade and Development is hereby adopted as
part of this Act.
SECTION 140. Initiation of Proceedings. — The court shall set a hearing in
connection with an insolvency or rehabilitation proceeding taking place in a foreign
jurisdiction, upon the submission of a petition by the representative of the foreign
entity that is the subject of the foreign proceeding.
SECTION 141. Provision of Relief. — The court may issue orders:
(a) suspending any action to enforce claims against the entity or otherwise seize
or foreclose on property of the foreign entity located in the Philippines;
(b) requiring the surrender of property of the foreign entity to the foreign
representative; or
(c) providing other necessary relief.
SECTION 142. Factors in Granting Relief. — In determining whether to grant relief
under this subchapter, the court shall consider:
345
(a) the protection of creditors in the Philippines and the inconvenience in
pursuing their claims in a foreign proceeding;
(b) the just treatment of all creditors through resort to a unified insolvency or
rehabilitation proceeding;
(c) whether other jurisdictions have given recognition to the foreign proceeding;
(d) the extent that the foreign proceeding recognizes the rights of creditors and
other interested parties in a manner substantially in accordance with the
manner prescribed in this Act; and
(e) the extent that the foreign proceeding has recognized and shown deference to
proceedings under this Act and previous legislation.
CHAPTER IX
FUNDS FOR REHABILITATION OF GOVERNMENT-OWNED AND -
CONTROLLED CORPORATIONS
SECTION 143. Funds for Rehabilitation of Government-owned and -Controlled
Corporations. — Public funds for the rehabilitation of government-owned and -
controlled corporations shall be released only pursuant to an appropriation by
Congress and shall be supported by funds actually available as certified by the National
Treasurer.
The Department of Finance, in collaboration with the Department of Budget and
Management, shall promulgate the rules for the use and release of said funds.
CHAPTER X
MISCELLANEOUS PROVISIONS
SECTION 144. Applicability of Provisions. — The provisions in Chapter II, insofar
as they are applicable, shall likewise apply to proceedings in Chapters III and IV.
SECTION 145. Penalties. — An owner, partner, director, officer or other employee
of the debtor who commits any one of the following acts shall, upon conviction thereof,
be punished by a fine of not more than One million pesos (Php1,000,000.00) and
imprisonment for not less than three (3) months nor more than five (5) years for each
offense:
(a) if he shall, having notice of the commencement of the proceedings, or having
reason to believe that proceedings are about to be commenced, or in
contemplation of the proceedings, hide or conceal, or destroy or cause to be
destroyed or hidden any property belonging to the debtor; or if he shall hide,
destroy, alter, mutilate or falsify, or cause to be hidden, destroyed, altered,
mutilated or falsified, any book, deed, document or writing relating thereto;
or if he shall, with intent to defraud the creditors of the debtor, make any
payment, sale, assignment, transfer or conveyance of any property belonging
to the debtor;
 (b) if he shall, having knowledge or belief of any person having proved a false
or fictitious claim against the debtor, fail to disclose the same to the
rehabilitation receiver or liquidator within one (1) month after coming to said
knowledge or belief; or if he shall attempt to account for any of the debtor's
property by fictitious losses or expenses; or
(c) if he shall knowingly violate a prohibition or knowingly fail to undertake an
obligation established by this Act.

SECTION 146. Application to Pending Insolvency, Suspension of Payments and

Rehabilitation Cases. — This Act shall govern all petitions filed after it has taken
effect. All further proceedings in insolvency, suspension of payments and
rehabilitation cases then pending, except to the extent that in the opinion of the court
their application would not be feasible or would work injustice, in which event the
procedures set forth in prior laws and regulations shall apply.

SECTION 147. Application to Pending Contracts. — This Act shall apply to all
contracts of the debtor regardless of the date of perfection.

SECTION 148. Repealing Clause. — The Insolvency Law (Act No. 1956), as
amended, is hereby repealed. All other laws, orders, rules and regulations or parts
thereof inconsistent with any provision of this Act are hereby repealed or modified
accordingly.

SECTION 149. Separability Clause. — If any provision of this Act shall be held
invalid, the remainder of this Act not otherwise affected shall remain in full force and
effect.

SECTION 150. Effectivity Clause. — This Act shall take effect fifteen (15) days after
its complete publication in the Official Gazette or in at least two (2) national
newspapers of general circulation.

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 DATA PRIVACY ACT OF 2012
REPUBLIC ACT No. 10173
CHAPTER I
GENERAL PROVISIONS
SECTION 1. Short Title. — This Act shall be known as the "Data Privacy Act of
2012".
SECTION 2. Declaration of Policy. — It is the policy of the State to protect the
fundamental human right of privacy of communication while ensuring free flow of
information to promote innovation and growth. The State recognizes the vital role of
information and communications technology in nation-building and its inherent
obligation to ensure that personal information in information and communications
systems in the government and in the private sector are secured and protected.
SECTION 3. Definition of Terms. — Whenever used in this Act, the following terms
shall have the respective meanings hereafter set forth:
(a) Commission shall refer to the National Privacy Commission created by virtue
of this Act.
(b) Consent of the data subject refers to any freely given, specific, informed
indication of will, whereby the data subject agrees to the collection and
processing of personal information about and/or relating to him or her.
Consent shall be evidenced by written, electronic or recorded means. It may
also be given on behalf of the data subject by an agent specifically authorized
by the data subject to do so.
(c) Data subject refers to an individual whose personal information is processed.
(d) Direct marketing refers to communication by whatever means of any
advertising or marketing material which is directed to particular individuals.
(e) Filing system refers to any set of information relating to natural or juridical
persons to the extent that, although the information is not processed by
equipment operating automatically in response to instructions given for that
purpose, the set is structured, either by reference to individuals or by
reference to criteria relating to individuals, in such a way that specific
information relating to a particular person is readily accessible.
(f) Information and Communications System refers to a system for generating,
sending, receiving, storing or otherwise processing electronic data messages
or electronic documents and includes the computer system or other similar
device by or which data is recorded, transmitted or stored and any procedure
related to the recording, transmission or storage of electronic data, electronic
message, or electronic document.
(g) Personal information refers to any information whether recorded in a
material form or not, from which the identity of an individual is apparent or
can be reasonably and directly ascertained by the entity holding the
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information, or when put together with other information would directly and
certainly identify an individual.
(h) Personal information controller refers to a person or organization who
controls the collection, holding, processing or use of personal information,
including a person or organization who instructs another person or
organization to collect, hold, process, use, transfer or disclose personal
information on his or her behalf. The term excludes:
(1) A person or organization who performs such functions as instructed by
another person or organization; and
(2) An individual who collects, holds, processes or uses personal
information in connection with the individual's personal, family or
household affairs.
(i) Personal information processor refers to any natural or juridical person
qualified to act as such under this Act to whom a personal information
controller may outsource the processing of personal data pertaining to a data
subject.
(j) Processing refers to any operation or any set of operations performed upon
personal information including, but not limited to, the collection, recording,
organization, storage, updating or modification, retrieval, consultation, use,
consolidation, blocking, erasure or destruction of data.
(k) Privileged information refers to any and all forms of data which under
the Rules of Court and other pertinent laws constitute privileged
communication.
(l) Sensitive personal information refers to personal information:
(1) About an individual's race, ethnic origin, marital status, age, color, and
religious, philosophical or political affiliations;
(2) About an individual's health, education, genetic or sexual life of a person,
or to any proceeding for any offense committed or alleged to have been
committed by such person, the disposal of such proceedings, or the
sentence of any court in such proceedings;
(3) Issued by government agencies peculiar to an individual which includes,
but not limited to, social security numbers, previous or current health
records, licenses or its denials, suspension or revocation, and tax returns;
and
(4) Specifically established by an executive order or an act of Congress to
be kept classified.
SECTION 4. Scope. — This Act applies to the processing of all types of personal
information and to any natural and juridical person involved in personal information
processing including those personal information controllers and processors who,
although not found or established in the Philippines, use equipment that are located in
the Philippines, or those who maintain an office, branch or agency in the Philippines
subject to the immediately succeeding paragraph: Provided, That the requirements of
Section 5 are complied with.
This Act does not apply to the following:
(a) Information about any individual who is or was an officer or employee of a
government institution that relates to the position or functions of the
individual, including:
(1) The fact that the individual is or was an officer or employee of the
government institution;
(2) The title, business address and office telephone number of the
individual;
(3) The classification, salary range and responsibilities of the position held
by the individual; and
(4) The name of the individual on a document prepared by the individual in
the course of employment with the government.
(b) Information about an individual who is or was performing service under
contract for a government institution that relates to the services performed,
including the terms of the contract, and the name of the individual given in
the course of the performance of those services;
(c) Information relating to any discretionary benefit of a financial nature such
as the granting of a license or permit given by the government to an
individual, including the name of the individual and the exact nature of the
benefit;
(d) Personal information processed for journalistic, artistic, literary or research
purposes;
(e) Information necessary in order to carry out the functions of public authority
which includes the processing of personal data for the performance by the
independent central monetary authority and law enforcement and regulatory
agencies of their constitutionally and statutorily mandated functions.
Nothing in this Act shall be construed as to have amended or
repealed Republic Act No. 1405, otherwise known as the Secrecy of Bank
Deposits Act; Republic Act. No 6426, otherwise known as the Foreign
Currency Deposit Act; and Republic Act No. 9510, otherwise known as
the Credit Information System Act (CISA);
(f) Information necessary for banks and other financial institutions under the
jurisdiction of the independent central monetary authority or Bangko Sentral
ng Pilipinas to comply with Republic Act No. 9510, and Republic Act No.
9160, as amended, otherwise known as the Anti-Money Laundering Act and
other applicable laws; and
(g) Personal information originally collected from residents of foreign
jurisdictions in accordance with the laws of those foreign jurisdictions,
including any applicable data privacy laws, which is being processed in the
Philippines.
SECTION 5. Protection Afforded to Journalists and Their Sources. — Nothing in this
Act shall be construed as to have amended or repealed the provisions of Republic Act
No. 53, which affords the publishers, editors or duly accredited reporters of any
newspaper, magazine or periodical of general circulation protection from being
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compelled to reveal the source of any news report or information appearing in said
publication which was related in any confidence to such publisher, editor, or reporter.
SECTION 6. Extraterritorial Application. — This Act applies to an act done or
practice engaged in and outside of the Philippines by an entity if:
(a) The act, practice or processing relates to personal information about a
Philippine citizen or a resident;
(b) The entity has a link with the Philippines, and the entity is processing personal
information in the Philippines or even if the processing is outside the
Philippines as long as it is about Philippine citizens or residents such as, but
not limited to, the following:
(1) A contract is entered in the Philippines;
(2) A juridical entity unincorporated in the Philippines but has central
management and control in the country; and
(3) An entity that has a branch, agency, office or subsidiary in the Philippines
and the parent or affiliate of the Philippine entity has access to personal
information; and
(c) The entity has other links in the Philippines such as, but not limited to:
(1) The entity carries on business in the Philippines; and
(2) The personal information was collected or held by an entity in the
Philippines.
CHAPTER II
THE NATIONAL PRIVACY COMMISSION
SECTION 7. Functions of the National Privacy Commission. — To administer and
implement the provisions of this Act, and to monitor and ensure compliance of the
country with international standards set for data protection, there is hereby created an
independent body to be known as the National Privacy Commission, which shall have
the following functions:
(a) Ensure compliance of personal information controllers with the provisions of
this Act;
(b) Receive complaints, institute investigations, facilitate or enable settlement of
complaints through the use of alternative dispute resolution processes,
adjudicate, award indemnity on matters affecting any personal information,
prepare reports on disposition of complaints and resolution of any
investigation it initiates, and, in cases it deems appropriate, publicize any such
report: Provided, That in resolving any complaint or investigation (except
where amicable settlement is reached by the parties), the Commission shall act
as a collegial body. For this purpose, the Commission may be given access to
personal information that is subject of any complaint and to collect the
information necessary to perform its functions under this Act;
(c) Issue cease and desist orders, impose a temporary or permanent ban on the
processing of personal information, upon finding that the processing will be
detrimental to national security and public interest;
(d) Compel or petition any entity, government agency or instrumentality to abide
by its orders or take action on a matter affecting data privacy;
(e) Monitor the compliance of other government agencies or instrumentalities on
their security and technical measures and recommend the necessary action in
order to meet minimum standards for protection of personal information
pursuant to this Act;
(f) Coordinate with other government agencies and the private sector on efforts
to formulate and implement plans and policies to strengthen the protection of
personal information in the country;
(g) Publish on a regular basis a guide to all laws relating to data protection;
(h) Publish a compilation of agency system of records and notices, including
index and other finding aids;
(i) Recommend to the Department of Justice (DOJ) the prosecution and
imposition of penalties specified in Sections 25 to 29 of this Act;
(j) Review, approve, reject or require modification of privacy codes voluntarily
adhered to by personal information controllers: Provided, That the privacy
codes shall adhere to the underlying data privacy principles embodied in this
Act: Provided, further, That such privacy codes may include private dispute
resolution mechanisms for complaints against any participating personal
information controller. For this purpose, the Commission shall consult with
relevant regulatory agencies in the formulation and administration of privacy
codes applying the standards set out in this Act, with respect to the persons,
entities, business activities and business sectors that said regulatory bodies are
authorized to principally regulate pursuant to the law: Provided, finally, That
the Commission may review such privacy codes and require changes thereto
for purposes of complying with this Act;
(k) Provide assistance on matters relating to privacy or data protection at the
request of a national or local agency, a private entity or any person;
(l) Comment on the implication on data privacy of proposed national or local
statutes, regulations or procedures, issue advisory opinions and interpret the
provisions of this Act and other data privacy laws;
(m) Propose legislation, amendments or modifications to Philippine laws on
privacy or data protection as may be necessary;
(n) Ensure proper and effective coordination with data privacy regulators in other
countries and private accountability agents, participate in international and
regional initiatives for data privacy protection;
(o) Negotiate and contract with other data privacy authorities of other countries
for cross-border application and implementation of respective privacy laws;
(p) Assist Philippine companies doing business abroad to respond to foreign
privacy or data protection laws and regulations; and
(q) Generally perform such acts as may be necessary to facilitate cross-border
enforcement of data privacy protection.
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SECTION 8. Confidentiality. — The Commission shall ensure at all times the
confidentiality of any personal information that comes to its knowledge and
possession.
SECTION 9. Organizational Structure of the Commission. — The Commission shall
be attached to the Department of Information and Communications Technology
(DICT) and shall be headed by a Privacy Commissioner, who shall also act as
Chairman of the Commission. The Privacy Commissioner shall be assisted by two (2)
Deputy Privacy Commissioners, one to be responsible for Data Processing Systems
and one to be responsible for Policies and Planning. The Privacy Commissioner and
the two (2) Deputy Privacy Commissioners shall be appointed by the President of the
Philippines for a term of three (3) years, and may be reappointed for another term of
three (3) years. Vacancies in the Commission shall be filled in the same manner in
which the original appointment was made.
The Privacy Commissioner must be at least thirty-five (35) years of age and of good
moral character, unquestionable integrity and known probity, and a recognized expert
in the field of information technology and data privacy. The Privacy Commissioner
shall enjoy the benefits, privileges and emoluments equivalent to the rank of Secretary.
The Deputy Privacy Commissioners must be recognized experts in the field of
information and communications technology and data privacy. They shall enjoy the
benefits, privileges and emoluments equivalent to the rank of Undersecretary.
The Privacy Commissioner, the Deputy Commissioners, or any person acting on their
behalf or under their direction, shall not be civilly liable for acts done in good faith in
the performance of their duties. However, he or she shall be liable for willful or
negligent acts done by him or her which are contrary to law, morals, public policy and
good customs even if he or she acted under orders or instructions of
superiors: Provided, That in case a lawsuit is filed against such official on the subject
of the performance of his or her duties, where such performance is lawful, he or she
shall be reimbursed by the Commission for reasonable costs of litigation.
SECTION 10. The Secretariat. — The Commission is hereby authorized to establish
a Secretariat. Majority of the members of the Secretariat must have served for at least
five (5) years in any agency of the government that is involved in the processing of
personal information including, but not limited to, the following offices: Social
Security System (SSS), Government Service Insurance System (GSIS), Land
Transportation Office (LTO), Bureau of Internal Revenue (BIR), Philippine Health
Insurance Corporation (PhilHealth), Commission on Elections (COMELEC),
Department of Foreign Affairs (DFA), Department of Justice (DOJ), and Philippine
Postal Corporation (Philpost).
CHAPTER III
PROCESSING OF PERSONAL INFORMATION
SECTION 11. General Data Privacy Principles. — The processing of personal
information shall be allowed, subject to compliance with the requirements of this Act
and other laws allowing disclosure of information to the public and adherence to the
principles of transparency, legitimate purpose and proportionality.
Personal information must be:
(a) Collected for specified and legitimate purposes determined and declared
before, or as soon as reasonably practicable after collection, and later
processed in a way compatible with such declared, specified and legitimate
purposes only;
(b) Processed fairly and lawfully;
(c) Accurate, relevant and, where necessary for purposes for which it is to be
used the processing of personal information, kept up to date; inaccurate or
incomplete data must be rectified, supplemented, destroyed or their further
processing restricted;
(d) Adequate and not excessive in relation to the purposes for which they are
collected and processed;
(e) Retained only for as long as necessary for the fulfillment of the purposes for
which the data was obtained or for the establishment, exercise or defense of
legal claims, or for legitimate business purposes, or as provided by law; and
(f) Kept in a form which permits identification of data subjects for no longer than
is necessary for the purposes for which the data were collected and
processed: Provided, That personal information collected for other purposes
may be processed for historical, statistical or scientific purposes, and in cases
laid down in law may be stored for longer periods: Provided, further, That
adequate safeguards are guaranteed by said laws authorizing their processing.
The personal information controller must ensure implementation of personal
information processing principles set out herein.
SECTION 12. Criteria for Lawful Processing of Personal Information. — The
processing of personal information shall be permitted only if not otherwise prohibited
by law, and when at least one of the following conditions exists:
(a) The data subject has given his or her consent;
(b) The processing of personal information is necessary and is related to the
fulfillment of a contract with the data subject or in order to take steps at the
request of the data subject prior to entering into a contract;
(c) The processing is necessary for compliance with a legal obligation to which
the personal information controller is subject;
(d) The processing is necessary to protect vitally important interests of the data
subject, including life and health;
(e) The processing is necessary in order to respond to national emergency, to
comply with the requirements of public order and safety, or to fulfill functions
of public authority which necessarily includes the processing of personal data
for the fulfillment of its mandate; or
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(f) The processing is necessary for the purposes of the legitimate interests
pursued by the personal information controller or by a third party or parties
to whom the data is disclosed, except where such interests are overridden by
fundamental rights and freedoms of the data subject which require protection
under the Philippine Constitution.
SECTION 13. Sensitive Personal Information and Privileged Information. — The
processing of sensitive personal information and privileged information shall be
prohibited, except in the following cases:
(a) The data subject has given his or her consent, specific to the purpose prior to
the processing, or in the case of privileged information, all parties to the
exchange have given their consent prior to processing;
(b) The processing of the same is provided for by existing laws and
regulations: Provided, That such regulatory enactments guarantee the
protection of the sensitive personal information and the privileged
information: Provided, further, That the consent of the data subjects are not
required by law or regulation permitting the processing of the sensitive
personal information or the privileged information;
(c) The processing is necessary to protect the life and health of the data subject
or another person, and the data subject is not legally or physically able to
express his or her consent prior to the processing;
(d) The processing is necessary to achieve the lawful and noncommercial
objectives of public organizations and their associations: Provided, That such
processing is only confined and related to the bona fide members of these
organizations or their associations: Provided, further, That the sensitive
personal information are not transferred to third parties: Provided, finally,
That consent of the data subject was obtained prior to processing;
(e) The processing is necessary for purposes of medical treatment, is carried out
by a medical practitioner or a medical treatment institution, and an adequate
level of protection of personal information is ensured; or
(f) The processing concerns such personal information as is necessary for the
protection of lawful rights and interests of natural or legal persons in court
proceedings, or the establishment, exercise or defense of legal claims, or
when provided to government or public authority.
SECTION 14. Subcontract of Personal Information. — A personal information
controller may subcontract the processing of personal information: Provided, That the
personal information controller shall be responsible for ensuring that proper
safeguards are in place to ensure the confidentiality of the personal information
processed, prevent its use for unauthorized purposes, and generally, comply with the
requirements of this Act and other laws for processing of personal information. The
personal information processor shall comply with all the requirements of this Act and
other applicable laws.
SECTION 15. Extension of Privileged Communication. — Personal information
controllers may invoke the principle of privileged communication over privileged
information that they lawfully control or process. Subject to existing laws and
regulations, any evidence gathered on privileged information is inadmissible.
CHAPTER IV
RIGHTS OF THE DATA SUBJECT
SECTION 16. Rights of the Data Subject. — The data subject is entitled to:
(a) Be informed whether personal information pertaining to him or her shall be,
are being or have been processed;
(b) Be furnished the information indicated hereunder before the entry of his or
her personal information into the processing system of the personal
information controller, or at the next practical opportunity:
(1) Description of the personal information to be entered into the system;
(2) Purposes for which they are being or are to be processed;
(3) Scope and method of the personal information processing;
(4) The recipients or classes of recipients to whom they are or may be
disclosed;
(5) Methods utilized for automated access, if the same is allowed by the data
subject, and the extent to which such access is authorized;
(6) The identity and contact details of the personal information controller or
its representative;
(7) The period for which the information will be stored; and
(8) The existence of their rights, i.e., to access, correction, as well as the right
to lodge a complaint before the Commission.
Any information supplied or declaration made to the data subject on
these matters shall not be amended without prior notification of data
subject: Provided, That the notification under subsection (b) shall not
apply should the personal information be needed pursuant to
a subpoena or when the collection and processing are for obvious
purposes, including when it is necessary for the performance of or in
relation to a contract or service or when necessary or desirable in the
context of an employer-employee relationship, between the collector and
the data subject, or when the information is being collected and
processed as a result of legal obligation;
(c) Reasonable access to, upon demand, the following:
(1) Contents of his or her personal information that were processed;
(2) Sources from which personal information were obtained;
(3) Names and addresses of recipients of the personal information;
(4) Manner by which such data were processed;
(5) Reasons for the disclosure of the personal information to recipients;
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(6) Information on automated processes where the data will or likely to be
made as the sole basis for any decision significantly affecting or will
affect the data subject;
(7) Date when his or her personal information concerning the data subject
were last accessed and modified; and
(8) The designation, or name or identity and address of the personal
information controller.
(d) Dispute the inaccuracy or error in the personal information and have the
personal information controller correct it immediately and accordingly,
unless the request is vexatious or otherwise unreasonable. If the personal
information have been corrected, the personal information controller shall
ensure the accessibility of both the new and the retracted information and the
simultaneous receipt of the new and the retracted information by recipients
thereof: Provided, That the third parties who have previously received such
processed personal information shall be informed of its inaccuracy and its
rectification upon reasonable request of the data subject;
(e) Suspend, withdraw or order the blocking, removal or destruction of his or her
personal information from the personal information controller's filing system
upon discovery and substantial proof that the personal information are
incomplete, outdated, false, unlawfully obtained, used for unauthorized
purposes or are no longer necessary for the purposes for which they were
collected. In this case, the personal information controller may notify third
parties who have previously received such processed personal information;
and
(f) Be indemnified for any damages sustained due to such inaccurate,
incomplete, outdated, false, unlawfully obtained or unauthorized use of
personal information.
SECTION 17. Transmissibility of Rights of the Data Subject. — The lawful heirs and
assigns of the data subject may invoke the rights of the data subject for, which he or
she is an heir or assignee at any time after the death of the data subject or when the
data subject is incapacitated or incapable of exercising the rights as enumerated in the
immediately preceding section.
SECTION 18. Right to Data Portability. — The data subject shall have the right,
where personal information is processed by electronic means and in a structured and
commonly used format, to obtain from the personal information controller a copy of
data undergoing processing in an electronic or structured format, which is commonly
used and allows for further use by the data subject. The Commission may specify the
electronic format referred to above, as well as the technical standards, modalities and
procedures for their transfer.
SECTION 19. Non-Applicability. — The immediately preceding sections are not
applicable if the processed personal information are used only for the needs of
scientific and statistical research and, on the basis of such, no activities are carried out
and no decisions are taken regarding the data subject: Provided, That the personal
information shall be held under strict confidentiality and shall be used only for the
declared purpose. Likewise, the immediately preceding sections are not applicable to
processing of personal information gathered for the purpose of investigations in
relation to any criminal, administrative or tax liabilities of a data subject.
CHAPTER V
SECURITY OF PERSONAL INFORMATION
SECTION 20. Security of Personal Information. —
(a) The personal information controller must implement reasonable and appropriate
organizational, physical and technical measures intended for the protection of
personal information against any accidental or unlawful destruction, alteration
and disclosure, as well as against any other unlawful processing.
(b) The personal information controller shall implement reasonable and appropriate
measures to protect personal information against natural dangers such as
accidental loss or destruction, and human dangers such as unlawful access,
fraudulent misuse, unlawful destruction, alteration and contamination.
(c) The determination of the appropriate level of security under this section must
take into account the nature of the personal information to be protected, the risks
represented by the processing, the size of the organization and complexity of its
operations, current data privacy best practices and the cost of security
implementation. Subject to guidelines as the Commission may issue from time
to time, the measures implemented must include:
(1) Safeguards to protect its computer network against accidental, unlawful or
unauthorized usage or interference with or hindering of their functioning or
availability;
(2) A security policy with respect to the processing of personal information;
(3) A process for identifying and accessing reasonably foreseeable
vulnerabilities in its computer networks, and for taking preventive,
corrective and mitigating action against security incidents that can lead to a
security breach; and
(4) Regular monitoring for security breaches and a process for taking
preventive, corrective and mitigating action against security incidents that
can lead to a security breach.
(d) The personal information controller must further ensure that third parties
processing personal information on its behalf shall implement the security
measures required by this provision.
(e) The employees, agents or representatives of a personal information controller
who are involved in the processing of personal information shall operate and
hold personal information under strict confidentiality if the personal information
are not intended for public disclosure. This obligation shall continue even after
leaving the public service, transfer to another position or upon termination of
employment or contractual relations.
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(f) The personal information controller shall promptly notify the Commission and
affected data subjects when sensitive personal information or other information
that may, under the circumstances, be used to enable identity fraud are
reasonably believed to have been acquired by an unauthorized person, and the
personal information controller or the Commission believes that such
unauthorized acquisition is likely to give rise to a real risk of serious harm to
any affected data subject. The notification shall at least describe the nature of
the breach, the sensitive personal information possibly involved, and the
measures taken by the entity to address the breach. Notification may be delayed
only to the extent necessary to determine the scope of the breach, to prevent
further disclosures, or to restore reasonable integrity to the information and
communications system.
(1) In evaluating if notification is unwarranted, the Commission may take into
account compliance by the personal information controller with this
section and existence of good faith in the acquisition of personal
information.
(2) The Commission may exempt a personal information controller from
notification where, in its reasonable judgment, such notification would not
be in the public interest or in the interests of the affected data subjects.
(3) The Commission may authorize postponement of notification where it may
hinder the progress of a criminal investigation related to a serious breach.
CHAPTER VI
ACCOUNTABILITY FOR TRANSFER OF PERSONAL INFORMATION
SECTION 21. Principle of Accountability. — Each personal information controller is
responsible for personal information under its control or custody, including
information that have been transferred to a third party for processing, whether
domestically or internationally, subject to cross-border arrangement and cooperation.
(a) The personal information controller is accountable for complying with the
requirements of this Act and shall use contractual or other reasonable means
to provide a comparable level of protection while the information are being
processed by a third party.
(b) The personal information controller shall designate an individual or
individuals who are accountable for the organization's compliance with this
Act. The identity of the individual(s) so designated shall be made known to
any data subject upon request.
CHAPTER VII
SECURITY OF SENSITIVE PERSONAL INFORMATION IN
GOVERNMENT
SECTION 22. Responsibility of Heads of Agencies. — All sensitive personal
information maintained by the government, its agencies and instrumentalities shall be
secured, as far as practicable, with the use of the most appropriate standard recognized
by the information and communications technology industry, and as recommended by
the Commission. The head of each government agency or instrumentality shall be
responsible for complying with the security requirements mentioned herein while the
Commission shall monitor the compliance and may recommend the necessary action
in order to satisfy the minimum standards.
SECTION 23. Requirements Relating to Access by Agency Personnel to Sensitive
Personal Information. —
(a) On-site and Online Access — Except as may be allowed through guidelines to
be issued by the Commission, no employee of the government shall have access
to sensitive personal information on government property or through online
facilities unless the employee has received a security clearance from the head of
the source agency.
(b) Off-site Access — Unless otherwise provided in guidelines to be issued by the
Commission, sensitive personal information maintained by an agency may not
be transported or accessed from a location off government property unless a
request for such transportation or access is submitted and approved by the head
of the agency in accordance with the following guidelines:
(1) Deadline for Approval or Disapproval — In the case of any request
submitted to the head of an agency, such head of the agency shall approve
or disapprove the request within two (2) business days after the date of
submission of the request. In case there is no action by the head of the
agency, then such request is considered disapproved;
(2) Limitation to One thousand (1,000) Records — If a request is approved,
the head of the agency shall limit the access to not more than one
thousand (1,000) records at a time; and
(3) Encryption — Any technology used to store, transport or access sensitive
personal information for purposes of off-site access approved under this
subsection shall be secured by the use of the most secure encryption
standard recognized by the Commission.
The requirements of this subsection shall be implemented not later than six (6) months
after the date of the enactment of this Act.
SECTION 24. Applicability to Government Contractors. — In entering into any
contract that may involve accessing or requiring sensitive personal information from
one thousand (1,000) or more individuals, an agency shall require a contractor and its
employees to register their personal information processing system with the
Commission in accordance with this Act and to comply with the other provisions of
this Act including the immediately preceding section, in the same manner as agencies
and government employees comply with such requirements.
CHAPTER VIII
PENALTIES
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SECTION 25. Unauthorized Processing of Personal Information and Sensitive
Personal Information. —
(a) The unauthorized processing of personal information shall be penalized by
imprisonment ranging from one (1) year to three (3) years and a fine of not
less than Five hundred thousand pesos (Php500,000.00) but not more than
Two million pesos (Php2,000,000.00) shall be imposed on persons who
process personal information without the consent of the data subject, or
without being authorized under this Act or any existing law.
(b) The unauthorized processing of personal sensitive information shall be
penalized by imprisonment ranging from three (3) years to six (6) years and a
fine of not less than Five hundred thousand pesos (Php500,000.00) but not
more than Four million pesos (Php4,000,000.00) shall be imposed on persons
who process personal information without the consent of the data subject, or
without being authorized under this Act or any existing law.
SECTION 26. Accessing Personal Information and Sensitive Personal
Information Due to Negligence. —
(a) Accessing personal information due to negligence shall be penalized by
imprisonment ranging from one (1) year to three (3) years and a fine of not
less than Five hundred thousand pesos (Php500,000.00) but not more than
Two million pesos (Php2,000,000.00) shall be imposed on persons who, due
to negligence, provided access to personal information without being
authorized under this Act or any existing law.
(b) Accessing sensitive personal information due to negligence shall be penalized
by imprisonment ranging from three (3) years to six (6) years and a fine of
not less than Five hundred thousand pesos (Php500,000.00) but not more than
Four million pesos (Php4,000,000.00) shall be imposed on persons who, due
to negligence, provided access to personal information without being
authorized under this Act or any existing law.
SECTION 27. Improper Disposal of Personal Information and Sensitive Personal
Information. —
(a) The improper disposal of personal information shall be penalized by
imprisonment ranging from six (6) months to two (2) years and a fine of not
less than One hundred thousand pesos (Php100,000.00) but not more than
Five hundred thousand pesos (Php500,000.00) shall be imposed on persons
who knowingly or negligently dispose, discard or abandon the personal
information of an individual in an area accessible to the public or has
otherwise placed the personal information of an individual in its container for
trash collection.
(b) The improper disposal of sensitive personal information shall be penalized
by imprisonment ranging from one (1) year to three (3) years and a fine of
not less than One hundred thousand pesos (Php100,000.00) but not more than
One million pesos (Php1,000,000.00) shall be imposed on persons who
knowingly or negligently dispose, discard or abandon the personal
 information of an individual in an area accessible to the public or has
otherwise placed the personal information of an individual in its container for
trash collection.
SECTION 28. Processing of Personal Information and Sensitive Personal
Information for Unauthorized Purposes. — The processing of personal information
for unauthorized purposes shall be penalized by imprisonment ranging from one (1)
year and six (6) months to five (5) years and a fine of not less than Five hundred
thousand pesos (Php500,000.00) but not more than One million pesos
(Php1,000,000.00) shall be imposed on persons processing personal information for
purposes not authorized by the data subject, or otherwise authorized under this Act or
under existing laws.
The processing of sensitive personal information for unauthorized purposes shall be
penalized by imprisonment ranging from two (2) years to seven (7) years and a fine of
not less than Five hundred thousand pesos (Php500,000.00) but not more than Two
million pesos (Php2,000,000.00) shall be imposed on persons processing sensitive
personal information for purposes not authorized by the data subject, or otherwise
authorized under this Act or under existing laws.
SECTION 29. Unauthorized Access or Intentional Breach. — The penalty of
imprisonment ranging from one (1) year to three (3) years and a fine of not less than
Five hundred thousand pesos (Php500,000.00) but not more than Two million pesos
(Php2,000,000.00) shall be imposed on persons who knowingly and unlawfully, or
violating data confidentiality and security data systems, breaks in any way into any
system where personal and sensitive personal information is stored.
SECTION 30. Concealment of Security Breaches Involving Sensitive Personal
Information. — The penalty of imprisonment of one (1) year and six (6) months to
five (5) years and a fine of not less than Five hundred thousand pesos (Php500,000.00)
but not more than One million pesos (Php1,000,000.00) shall be imposed on persons
who, after having knowledge of a security breach and of the obligation to notify the
Commission pursuant to Section 20 (f), intentionally or by omission conceals the fact
of such security breach.
SECTION 31. Malicious Disclosure. — Any personal information controller or
personal information processor or any of its officials, employees or agents, who, with
malice or in bad faith, discloses unwarranted or false information relative to any
personal information or personal sensitive information obtained by him or her, shall
be subject to imprisonment ranging from one (1) year and six (6) months to five (5)
years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not
more than One million pesos (Php1,000,000.00).
SECTION 32. Unauthorized Disclosure. —
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(a) Any personal information controller or personal information processor or any
of its officials, employees or agents, who discloses to a third party personal
information not covered by the immediately preceding section without the
consent of the data subject, shall be subject to imprisonment ranging from
one (1) year to three (3) years and a fine of not less than Five hundred
thousand pesos (Php500,000.00) but not more than One million pesos
(Php1,000,000.00).
(b) Any personal information controller or personal information processor or any
of its officials, employees or agents, who discloses to a third party sensitive
personal information not covered by the immediately preceding section
without the consent of the data subject, shall be subject to imprisonment
ranging from three (3) years to five (5) years and a fine of not less than Five
hundred thousand pesos (Php500,000.00) but not more than Two million
pesos (Php2,000,000.00).
SECTION 33. Combination or Series of Acts. — Any combination or series of acts as
defined in Sections 25 to 32 shall make the person subject to imprisonment ranging
from three (3) years to six (6) years and a fine of not less than One million pesos
(Php1,000,000.00) but not more than Five million pesos (Php5,000,000.00).
SECTION 34. Extent of Liability. — If the offender is a corporation, partnership or
any juridical person, the penalty shall be imposed upon the responsible officers, as the
case may be, who participated in, or by their gross negligence, allowed the commission
of the crime. If the offender is a juridical person, the court may suspend or revoke any
of its rights under this Act. If the offender is an alien, he or she shall, in addition to the
penalties herein prescribed, be deported without further proceedings after serving the
penalties prescribed. If the offender is a public official or employee and he or she is
found guilty of acts penalized under Sections 27 and 28 of this Act, he or she shall, in
addition to the penalties prescribed herein, suffer perpetual or temporary absolute
disqualification from office, as the case may be.
SECTION 35. Large-Scale. — The maximum penalty in the scale of penalties
respectively provided for the preceding offenses shall be imposed when the personal
information of at least one hundred (100) persons is harmed, affected or involved as
the result of the abovementioned actions.
SECTION 36. Offense Committed by Public Officer. — When the offender or the
person responsible for the offense is a public officer as defined in the Administrative
Code of the Philippines in the exercise of his or her duties, an accessory penalty
consisting in the disqualification to occupy public office for a term double the term of
criminal penalty imposed shall be applied.
SECTION 37. Restitution. — Restitution for any aggrieved party shall be governed
by the provisions of the New Civil Code.
CHAPTER IX
 MISCELLANEOUS PROVISIONS

SECTION 38. Interpretation. — Any doubt in the interpretation of any provision of

this Act shall be liberally interpreted in a manner mindful of the rights and interests of
the individual about whom personal information is processed.

SECTION 39. Implementing Rules and Regulations (IRR). — Within ninety (90) days
from the effectivity of this Act, the Commission shall promulgate the rules and
regulations to effectively implement the provisions of this Act.

SECTION 40. Reports and Information. — The Commission shall annually report to
the President and Congress on its activities in carrying out the provisions of this Act.
The Commission shall undertake whatever efforts it may determine to be necessary or
appropriate to inform and educate the public of data privacy, data protection and fair
information rights and responsibilities.

SECTION 41. Appropriations Clause. — The Commission shall be provided with an

initial appropriation of Twenty million pesos (Php20,000,000.00) to be drawn from
the national government. Appropriations for the succeeding years shall be included in
the General Appropriations Act. It shall likewise receive Ten million pesos
(Php10,000,000.00) per year for five (5) years upon implementation of this Act drawn
from the national government.

SECTION 42. Transitory Provision. — Existing industries, businesses and offices

affected by the implementation of this Act shall be given one (1) year transitory period
from the effectivity of the IRR or such other period as may be determined by the
Commission, to comply with the requirements of this Act.

In case that the DICT has not yet been created by the time the law takes full force and
effect, the National Privacy Commission shall be attached to the Office of the
President.

SECTION 43. Separability Clause. — If any provision or part hereof is held invalid
or unconstitutional, the remainder of the law or the provision not otherwise affected
shall remain valid and subsisting.

SECTION 44. Repealing Clause. — The provision of Section 7 of Republic Act No.
9372, otherwise known as the "Human Security Act of 2007", is hereby amended.
Except as otherwise expressly provided in this Act, all other laws, decrees, executive
orders, proclamations and administrative regulations or parts thereof inconsistent
herewith are hereby repealed or modified accordingly.

SECTION 45. Effectivity Clause. — This Act shall take effect fifteen (15) days after
its publication in at least two (2) national newspapers of general circulation.

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IMPLEMENTING RULES AND REGULATIONS OF THE DATA
PRIVACY ACT
RULE I
PRELIMINARY PROVISIONS
SECTION 1. Title. — These rules and regulations shall be known as the
"Implementing Rules and Regulations of the Data Privacy Act of 2012", or the
"Rules".
SECTION 2. Policy. — These Rules further enforce the Data Privacy Act and adopt
generally accepted international principles and standards for personal data protection.
They safeguard the fundamental human right of every individual to privacy while
ensuring free flow of information for innovation, growth, and national development.
These Rules also recognize the vital role of information and communications
technology in nation-building and enforce the State's inherent obligation to ensure that
personal data in information and communications systems in the government and in
the private sector are secured and protected.
SECTION 3. Definitions. — Whenever used in these Rules, the following terms shall
have the respective meanings hereafter set forth:
a. "Act" refers to Republic Act No. 10173, also known as the Data Privacy Act of
2012;
b. "Commission" refers to the National Privacy Commission;
c. "Consent of the data subject" refers to any freely given, specific, informed
indication of will, whereby the data subject agrees to the collection and
processing of his or her personal, sensitive personal, or privileged information.
Consent shall be evidenced by written, electronic or recorded means. It may also
be given on behalf of a data subject by a lawful representative or an agent
specifically authorized by the data subject to do so;
d. "Data subject" refers to an individual whose personal, sensitive personal, or
privileged information is processed;
e. "Data processing systems" refers to the structure and procedure by which
personal data is collected and further processed in an information and
communications system or relevant filing system, including the purpose and
intended output of the processing;
f. "Data sharing" is the disclosure or transfer to a third party of personal data
under the custody of a personal information controller or personal information
processor. In the case of the latter, such disclosure or transfer must have been
upon the instructions of the personal information controller concerned. The term
excludes outsourcing, or the disclosure or transfer of personal data by a personal
information controller to a personal information processor;
g. "Direct marketing" refers to communication by whatever means of any
advertising or marketing material which is directed to particular individuals;
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h. "Filing system" refers to any set of information relating to natural or juridical
persons to the extent that, although the information is not processed by
equipment operating automatically in response to instructions given for that
purpose, the set is structured, either by reference to individuals or by reference
to criteria relating to individuals, in such a way that specific information relating
to a particular individual is readily accessible;
i. "Information and communications system" refers to a system for generating,
sending, receiving, storing, or otherwise processing electronic data messages or
electronic documents, and includes the computer system or other similar device
by which data is recorded, transmitted, or stored, and any procedure related to
the recording, transmission, or storage of electronic data, electronic message, or
electronic document;
j. "Personal data" refers to all types of personal information;
k. "Personal data breach" refers to a breach of security leading to the accidental
or unlawful destruction, loss, alteration, unauthorized disclosure of, or access
to, personal data transmitted, stored, or otherwise processed;
l. "Personal information" refers to any information, whether recorded in a
material form or not, from which the identity of an individual is apparent or can
be reasonably and directly ascertained by the entity holding the information, or
when put together with other information would directly and certainly identify
an individual;
m. "Personal information controller" refers to a natural or juridical person, or any
other body who controls the processing of personal data, or instructs another to
process personal data on its behalf. The term excludes:
1. A natural or juridical person, or any other body, who performs such
functions as instructed by another person or organization; or
2. A natural person who processes personal data in connection with his or her
personal, family, or household affairs
There is control if the natural or juridical person or any other body decides
on what information is collected, or the purpose or extent of its processing;
n. "Personal information processor" refers to any natural or juridical person or any
other body to whom a personal information controller may outsource or instruct
the processing of personal data pertaining to a data subject;
o. "Processing" refers to any operation or any set of operations performed upon
personal data including, but not limited to, the collection, recording,
organization, storage, updating or modification, retrieval, consultation, use,
consolidation, blocking, erasure or destruction of data. Processing may be
performed through automated means, or manual processing, if the personal data
are contained or are intended to be contained in a filing system;
p. "Profiling" refers to any form of automated processing of personal data
consisting of the use of personal data to evaluate certain personal aspects
relating to a natural person, in particular to analyze or predict aspects concerning
that natural person's performance at work, economic situation, health, personal
preferences, interests, reliability, behavior, location or movements;
 q. "Privileged information" refers to any and all forms of data, which, under the
Rules of Court and other pertinent laws constitute privileged communication;
r. "Public authority" refers to any government entity created by the Constitution
or law, and vested with law enforcement or regulatory authority and functions;
s. "Security incident" is an event or occurrence that affects or tends to affect data
protection, or may compromise the availability, integrity and confidentiality of
personal data. It includes incidents that would result to a personal data breach,
if not for safeguards that have been put in place;
t. Sensitive personal information refers to personal information:
1. About an individual's race, ethnic origin, marital status, age, color, and
religious, philosophical or political affiliations;
2. About an individual's health, education, genetic or sexual life of a person,
or to any proceeding for any offense committed or alleged to have been
committed by such individual, the disposal of such proceedings, or the
sentence of any court in such proceedings;
3. Issued by government agencies peculiar to an individual which includes,
but is not limited to, social security numbers, previous or current health
records, licenses or its denials, suspension or revocation, and tax returns;
and
4. Specifically established by an executive order or an act of Congress to be
kept classified.
RULE II
SCOPE OF APPLICATION
SECTION 4. Scope. — The Act and these Rules apply to the processing of personal
data by any natural and juridical person in the government or private sector. They
apply to an act done or practice engaged in and outside of the Philippines if:
a. The natural or juridical person involved in the processing of personal data is
found or established in the Philippines;
b. The act, practice or processing relates to personal data about a Philippine
citizen or Philippine resident;
c. The processing of personal data is being done in the Philippines; or
d. The act, practice or processing of personal data is done or engaged in by an
entity with links to the Philippines, with due consideration to international
law and comity, such as, but not limited to, the following:
1. Use of equipment located in the country, or maintains an office, branch
or agency in the Philippines for processing of personal data;
2. A contract is entered in the Philippines;
3. A juridical entity unincorporated in the Philippines but has central
management and control in the country;
4. An entity that has a branch, agency, office or subsidiary in the
Philippines and the parent or affiliate of the Philippine entity has access
to personal data;
5. An entity that carries on business in the Philippines;
357
6. An entity that collects or holds personal data in the Philippines.
SECTION 5. Special Cases. — The Act and these Rules shall not apply to the
following specified information, only to the minimum extent of collection, access, use,
disclosure or other processing necessary to the purpose, function, or activity
concerned:
a. Information processed for purpose of allowing public access to information
that fall within matters of public concern, pertaining to:
1. Information about any individual who is or was an officer or employee of
government that relates to his or her position or functions, including:
(a) The fact that the individual is or was an officer or employee of the
government;
(b) The title, office address, and office telephone number of the
individual;
(c) The classification, salary range, and responsibilities of the position
held by the individual; and
(d) The name of the individual on a document he or she prepared in the
course of his or her employment with the government;
2. Information about an individual who is or was performing a service under
contract for a government institution, but only in so far as it relates to such
service, including the name of the individual and the terms of his or her
contract;
3. Information relating to a benefit of a financial nature conferred on an
individual upon the discretion of the government, such as the granting of
a license or permit, including the name of the individual and the exact
nature of the benefit: Provided, that they do not include benefits given in
the course of an ordinary transaction or as a matter of right;
b. Personal information processed for journalistic, artistic or literary purpose, in
order to uphold freedom of speech, of expression, or of the press, subject to
requirements of other applicable law or regulations;
c. Personal information that will be processed for research purpose, intended for
a public benefit, subject to the requirements of applicable laws, regulations, or
ethical standards;
d. Information necessary in order to carry out the functions of public authority,
in accordance with a constitutionally or statutorily mandated function
pertaining to law enforcement or regulatory function, including the
performance of the functions of the independent, central monetary authority,
subject to restrictions provided by law. Nothing in this Act shall be construed
as having amended or repealed Republic Act No. 1405, otherwise known as
the Secrecy of Bank Deposits Act; Republic Act No. 6426, otherwise known
as the Foreign Currency Deposit Act; and Republic Act No. 9510, otherwise
known as the Credit Information System Act (CISA);
e. Information necessary for banks, other financial institutions under the
jurisdiction of the independent, central monetary authority or Bangko Sentral
ng Pilipinas, and other bodies authorized by law, to the extent necessary to
 comply with Republic Act No. 9510 (CISA), Republic Act No. 9160, as
amended, otherwise known as the Anti-Money Laundering Act, and other
applicable laws;
f. Personal information originally collected from residents of foreign
jurisdictions in accordance with the laws of those foreign jurisdictions,
including any applicable data privacy laws, which is being processed in the
Philippines. The burden of proving the law of the foreign jurisdiction falls on
the person or body seeking exemption. In the absence of proof, the applicable
law shall be presumed to be the Act and these Rules: Provided, that the non-
applicability of the Act or these Rules do not extend to personal information
controllers or personal information processors, who remain subject to the
requirements of implementing security measures for personal data
protection: Provided further, that the processing of the information provided
in the preceding paragraphs shall be exempted from the requirements of the
Act only to the minimum extent necessary to achieve the specific purpose,
function, or activity.
SECTION 6. Protection Afforded to Data Subjects. —
a. Unless directly incompatible or inconsistent with the preceding sections in
relation to the purpose, function, or activities the non-applicability concerns,
the personal information controller or personal information processor shall
uphold the rights of data subjects, and adhere to general data privacy principles
and the requirements of lawful processing.
b. The burden of proving that the Act and these Rules are not applicable to a
particular information falls on those involved in the processing of personal
data or the party claiming the non-applicability.
c. In all cases, the determination of any exemption shall be liberally interpreted
in favor of the rights and interests of the data subject.
SECTION 7. Protection Afforded to Journalists and Their Sources. —
a. Publishers, editors, or duly accredited reporters of any newspaper, magazine
or periodical of general circulation shall not be compelled to reveal the source
of any news report or information appearing in said publication if it was
related in any confidence to such publisher, editor, or reporter.
b. Publishers, editors, or duly accredited reporters who are likewise personal
information controllers or personal information processors within the
meaning of the law are still bound to follow the Data Privacy Act and related
issuances with regard to the processing of personal data, upholding rights of
their data subjects and maintaining compliance with other provisions that are
not incompatible with the protection provided by Republic Act No. 53.
RULE III
NATIONAL PRIVACY COMMISSION
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SECTION 8. Mandate. — The National Privacy Commission is an independent body
mandated to administer and implement the Act, and to monitor and ensure compliance
of the country with international standards set for personal data protection.
SECTION 9. Functions. — The National Privacy Commission shall have the
following functions:
a. Rule Making. The Commission shall develop, promulgate, review or amend
rules and regulations for the effective implementation of the Act. This
includes:
1. Recommending organizational, physical and technical security measures
for personal data protection, encryption, and access to sensitive personal
information maintained by government agencies, considering the most
appropriate standard recognized by the information and communications
technology industry, as may be necessary;
2. Specifying electronic format and technical standards, modalities and
procedures for data portability, as may be necessary;
3. Issuing guidelines for organizational, physical, and technical security
measures for personal data protection, taking into account the nature of
the personal data to be protected, the risks presented by the processing,
the size of the organization and complexity of its operations, current data
privacy best practices, cost of security implementation, and the most
appropriate standard recognized by the information and communications
technology industry, as may be necessary;
4. Consulting with relevant regulatory agencies in the formulation, review,
amendment, and administration of privacy codes, applying the standards
set out in the Act, with respect to the persons, entities, business activities,
and business sectors that said regulatory bodies are authorized to
principally regulate pursuant to law;
5. Proposing legislation, amendments or modifications to Philippine laws on
privacy or data protection, as may be necessary;
6. Ensuring proper and effective coordination with data privacy regulators
in other countries and private accountability agents;
7. Participating in international and regional initiatives for data privacy
protection.
b. Advisory. The Commission shall be the advisory body on matters affecting
protection of personal data. This includes:
1. Commenting on the implication on data privacy of proposed national or
local statutes, regulations or procedures, issuing advisory opinions, and
interpreting the provisions of the Act and other data privacy laws;
2. Reviewing, approving, rejecting, or requiring modification of privacy
codes voluntarily adhered to by personal information controllers, which
may include private dispute resolution mechanisms for complaints against
any participating personal information controller, and which adhere to the
underlying data privacy principles embodied in the Act and these Rules;
 3. Providing assistance on matters relating to privacy or data protection at
the request of a national or local agency, a private entity or any person,
including the enforcement of rights of data subjects;
4. Assisting Philippine companies doing business abroad to respond to data
protection laws and regulations.
c. Public Education. The Commission shall undertake necessary or appropriate
efforts to inform and educate the public of data privacy, data protection, and
fair information rights and responsibilities. This includes:
1. Publishing, on a regular basis, a guide to all laws relating to data
protection;
2. Publishing a compilation of agency system of records and notices,
including index and other finding aids;
3. Coordinating with other government agencies and the private sector on
efforts to formulate and implement plans and policies to strengthen the
protection of personal data in the country;
d. Compliance and Monitoring. The Commission shall perform compliance and
monitoring functions to ensure effective implementation of the Act, these
Rules, and other issuances. This includes:
1. Ensuring compliance by personal information controllers with the
provisions of the Act;
2. Monitoring the compliance of all government agencies or
instrumentalities as regards their security and technical measures, and
recommending the necessary action in order to meet minimum standards
for protection of personal data pursuant to the Act;
3. Negotiating and contracting with other data privacy authorities of other
countries for cross-border application and implementation of respective
privacy laws;
4. Generally performing such acts as may be necessary to facilitate cross-
border enforcement of data privacy protection;
5. Managing the registration of personal data processing systems in the
country, including the personal data processing system of contractors and
their employees entering into contracts with government agencies that
involves accessing or requiring sensitive personal information of at least
one thousand (1,000) individuals.
e. Complaints and Investigations. The Commission shall adjudicate on
complaints and investigations on matters affecting personal data: Provided,
that in resolving any complaint or investigation, except where amicable
settlement is reached by the parties, the Commission shall act as a collegial
body. This includes:
1. Receiving complaints and instituting investigations regarding violations
of the Act, these Rules, and other issuances of the Commission, including
violations of the rights of data subjects and other matters affecting
personal data;
2. Summoning witnesses, and requiring the production of evidence by a
subpoena duces tecum for the purpose of collecting the information
359
necessary to perform its functions under the Act: Provided, that the
Commission may be given access to personal data that is subject of any
complaint;
3. Facilitating or enabling settlement of complaints through the use of
alternative dispute resolution processes, and adjudicating on matters
affecting any personal data;
4. Preparing reports on the disposition of complaints and the resolution of
any investigation it initiates, and, in cases it deems appropriate,
publicizing such reports.
f. Enforcement. The Commission shall perform all acts as may be necessary to
effectively implement the Act, these Rules, and its other issuances, and to
enforce its Orders, Resolutions or Decisions, including the imposition of
administrative sanctions, fines, or penalties. This includes:
1. Issuing compliance or enforcement orders;
2. Awarding indemnity on matters affecting any personal data, or rights of
data subjects;
3. Issuing cease and desist orders, or imposing a temporary or permanent
ban on the processing of personal data, upon finding that the processing
will be detrimental to national security or public interest, or if it is
necessary to preserve and protect the rights of data subjects;
4. Recommending to the Department of Justice (DOJ) the prosecution of
crimes and imposition of penalties specified in the Act;
5. Compelling or petitioning any entity, government agency, or
instrumentality, to abide by its orders or take action on a matter affecting
data privacy;
6. Imposing administrative fines for violations of the Act, these Rules, and
other issuances of the Commission.
g. Other functions. The Commission shall exercise such other functions as may
be necessary to fulfill its mandate under the Act.
SECTION 10. Administrative Issuances. — The Commission shall publish or issue
official directives and administrative issuances, orders, and circulars, which include:
a. Rules of procedure in the exercise of its quasi-judicial functions, subject to
the suppletory application of the Rules of Court;
b. Schedule of administrative fines and penalties for violations of the Act, these
Rules, and issuances or Orders of the Commission, including the applicable
fees for its administrative services and filing fees;
c. Procedure for registration of data processing systems, and notification;
d. Other administrative issuances consistent with its mandate and other
functions.
SECTION 11. Reports and Information. — The Commission shall report annually to
the President and Congress regarding its activities in carrying out the provisions of the
Act, these Rules, and its other issuances. It shall undertake all efforts it deems
necessary or appropriate to inform and educate the public of data privacy, data
protection, and fair information rights and responsibilities.
SECTION 12. Confidentiality of Personal Data. — Members, employees, and
consultants of the Commission shall ensure at all times the confidentiality of any
personal data that come to their knowledge and possession: Provided, that such duty
of confidentiality shall remain even after their term, employment, or contract has
ended.
SECTION 13. Organizational Structure. — The Commission is attached to the
Department of Information and Communications Technology for policy and program
coordination in accordance with Section 38 (3) of Executive Order No. 292, series of
1987, also known as the Administrative Code of 1987. The Commission shall remain
completely independent in the performance of its functions.
The Commission shall be headed by a Privacy Commissioner, who shall act as
Chairman of the Commission. The Privacy Commissioner must be at least thirty-five
(35) years of age and of good moral character, unquestionable integrity and known
probity, and a recognized expert in the field of information technology and data
privacy. The Privacy Commissioner shall enjoy the benefits, privileges, and
emoluments equivalent to the rank of Secretary.
The Privacy Commissioner shall be assisted by two (2) Deputy Privacy
Commissioners. One shall be responsible for Data Processing Systems, while the other
shall be responsible for Policies and Planning. The Deputy Privacy Commissioners
must be recognized experts in the field of information and communications technology
and data privacy. They shall enjoy the benefits, privileges, and emoluments equivalent
to the rank of Undersecretary.
SECTION 14. Secretariat. — The Commission is authorized to establish a
Secretariat, which shall assist in the performance of its functions. The Secretariat shall
be headed by an Executive Director and shall be organized according to the following
offices:
a. Data Security and Compliance Office;
b. Legal and Enforcement Office;
c. Finance and Administrative Office;
d. Privacy Policy Office;
e. Public Information and Assistance Office.
Majority of the members of the Secretariat, in so far as practicable, must have served
for at least five (5) years in any agency of the government that is involved in the
processing of personal data including, but not limited to, the following offices: Social
Security System (SSS), Government Service Insurance System (GSIS), Land
Transportation Office (LTO), Bureau of Internal Revenue (BIR), Philippine Health
Insurance Corporation (PhilHealth), Commission on Elections (COMELEC),
360
Department of Foreign Affairs (DFA), Department of Justice (DOJ), and Philippine
Postal Corporation (Philpost).
The organizational structure shall be subject to review and modification by the
Commission, including the creation of new divisions and units it may deem necessary,
and shall appoint officers and employees of the Commission in accordance with civil
service law, rules, and regulations.
SECTION 15. Effect of Lawful Performance of Duty. — The Privacy Commissioner,
the Deputy Commissioners, or any person acting on their behalf or under their
direction, shall not be civilly liable for acts done in good faith in the performance of
their duties: Provided, that they shall be liable for willful or negligent acts, which are
contrary to law, morals, public policy, and good customs, even if they acted under
orders or instructions of superiors: Provided further, that in case a lawsuit is filed
against them in relation to the performance of their duties, where such performance is
lawful, he or she shall be reimbursed by the Commission for reasonable costs of
litigation.
SECTION 16. Magna Carta for Science and Technology Personnel. — Qualified
employees of the Commission shall be covered by Republic Act No. 8349, which
provides a magna carta for scientists, engineers, researchers, and other science and
technology personnel in the government.
RULE IV
DATA PRIVACY PRINCIPLES
SECTION 17. General Data Privacy Principles. — The processing of personal data
shall be allowed, subject to compliance with the requirements of the Act and other
laws allowing disclosure of information to the public, and adherence to the principles
of transparency, legitimate purpose, and proportionality.
SECTION 18. Principles of Transparency, Legitimate Purpose and
Proportionality. — The processing of personal data shall be allowed subject to
adherence to the principles of transparency, legitimate purpose, and proportionality.
a. Transparency. The data subject must be aware of the nature, purpose, and extent
of the processing of his or her personal data, including the risks and safeguards
involved, the identity of personal information controller, his or her rights as a
data subject, and how these can be exercised. Any information and
communication relating to the processing of personal data should be easy to
access and understand, using clear and plain language.
b. Legitimate purpose. The processing of information shall be compatible with a
declared and specified purpose which must not be contrary to law, morals, or
public policy.
c. Proportionality. The processing of information shall be adequate, relevant,
suitable, necessary, and not excessive in relation to a declared and specified
 purpose. Personal data shall be processed only if the purpose of the processing
could not reasonably be fulfilled by other means.
SECTION 19. General Principles in Collection, Processing and Retention. — The
processing of personal data shall adhere to the following general principles in the
collection, processing, and retention of personal data:
a. Collection must be for a declared, specified, and legitimate purpose.
1. Consent is required prior to the collection and processing of personal
data, subject to exemptions provided by the Act and other applicable
laws and regulations. When consent is required, it must be time-bound
in relation to the declared, specified and legitimate purpose. Consent
given may be withdrawn.
2. The data subject must be provided specific information regarding the
purpose and extent of processing, including, where applicable, the
automated processing of his or her personal data for profiling, or
processing for direct marketing, and data sharing.
3. Purpose should be determined and declared before, or as soon as
reasonably practicable, after collection.
4. Only personal data that is necessary and compatible with declared,
specified, and legitimate purpose shall be collected.
b. Personal data shall be processed fairly and lawfully.
1. Processing shall uphold the rights of the data subject, including the right
to refuse, withdraw consent, or object. It shall likewise be transparent,
and allow the data subject sufficient information to know the nature and
extent of processing.
2. Information provided to a data subject must always be in clear and plain
language to ensure that they are easy to understand and access.
3. Processing must be in a manner compatible with declared, specified, and
legitimate purpose.
4. Processed personal data should be adequate, relevant, and limited to what
is necessary in relation to the purposes for which they are processed.
5. Processing shall be undertaken in a manner that ensures appropriate
privacy and security safeguards.
c. Processing should ensure data quality.
1. Personal data should be accurate and where necessary for declared,
specified and legitimate purpose, kept up to date.
2. Inaccurate or incomplete data must be rectified, supplemented, destroyed
or their further processing restricted.
d. Personal Data shall not be retained longer than necessary.
1. Retention of personal data shall only for as long as necessary:
(a) for the fulfillment of the declared, specified, and legitimate purpose,
or when the processing relevant to the purpose has been terminated;
(b) for the establishment, exercise or defense of legal claims; or
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(c) for legitimate business purposes, which must be consistent with
standards followed by the applicable industry or approved by
appropriate government agency.
2. Retention of personal data shall be allowed in cases provided by law.
3. Personal data shall be disposed or discarded in a secure manner that
would prevent further processing, unauthorized access, or disclosure to
any other party or the public, or prejudice the interests of the data
subjects.
e. Any authorized further processing shall have adequate safeguards.
1. Personal data originally collected for a declared, specified, or legitimate
purpose may be processed further for historical, statistical, or scientific
purposes, and, in cases laid down in law, may be stored for longer
periods, subject to implementation of the appropriate organizational,
physical, and technical security measures required by the Act in order to
safeguard the rights and freedoms of the data subject.
2. Personal data which is aggregated or kept in a form which does not
permit identification of data subjects may be kept longer than necessary
for the declared, specified, and legitimate purpose.
3. Personal data shall not be retained in perpetuity in contemplation of a
possible future use yet to be determined.
SECTION 20. General Principles for Data Sharing. — Further Processing of
Personal Data collected from a party other than the Data Subject shall be allowed under
any of the following conditions:
a. Data sharing shall be allowed when it is expressly authorized by
law: Provided, that there are adequate safeguards for data privacy and
security, and processing adheres to principle of transparency, legitimate
purpose and proportionality.
b. Data Sharing shall be allowed in the private sector if the data subject consents
to data sharing, and the following conditions are complied with:
1. Consent for data sharing shall be required even when the data is to be
shared with an affiliate or mother company, or similar relationships;
2. Data sharing for commercial purposes, including direct marketing, shall
be covered by a data sharing agreement.
(a) The data sharing agreement shall establish adequate safeguards for
data privacy and security, and uphold rights of data subjects.
(b) The data sharing agreement shall be subject to review by the
Commission, on its own initiative or upon complaint of data subject;
3. The data subject shall be provided with the following information prior
to collection or before data is shared:
(a) Identity of the personal information controllers or personal
information processors that will be given access to the personal data;
(b) Purpose of data sharing;
(c) Categories of personal data concerned;
(d) Intended recipients or categories of recipients of the personal data;
 (e) Existence of the rights of data subjects, including the right to access
and correction, and the right to object;
(f) Other information that would sufficiently notify the data subject of
the nature and extent of data sharing and the manner of processing.
4. Further processing of shared data shall adhere to the data privacy
principles laid down in the Act, these Rules, and other issuances of the
Commission.
c. Data collected from parties other than the data subject for purpose of research
shall be allowed when the personal data is publicly available, or has the
consent of the data subject for purpose of research: Provided, that adequate
safeguards are in place, and no decision directly affecting the data subject
shall be made on the basis of the data collected or processed. The rights of
the data subject shall be upheld without compromising research integrity.
d. Data sharing between government agencies for the purpose of a public
function or provision of a public service shall be covered a data sharing
agreement.
1. Any or all government agencies party to the agreement shall comply with
the Act, these Rules, and all other issuances of the Commission,
including putting in place adequate safeguards for data privacy and
security.
2. The data sharing agreement shall be subject to review of the
Commission, on its own initiative or upon complaint of data subject.
RULE V
LAWFUL PROCESSING OF PERSONAL DATA
SECTION 21. Criteria for Lawful Processing of Personal Information. — Processing
of personal information is allowed, unless prohibited by law. For processing to be
lawful, any of the following conditions must be complied with:
a. The data subject must have given his or her consent prior to the collection, or
as soon as practicable and reasonable;
b. The processing involves the personal information of a data subject who is a
party to a contractual agreement, in order to fulfill obligations under the
contract or to take steps at the request of the data subject prior to entering the
said agreement;
c. The processing is necessary for compliance with a legal obligation to which
the personal information controller is subject;
d. The processing is necessary to protect vitally important interests of the data
subject, including his or her life and health;
e. The processing of personal information is necessary to respond to national
emergency or to comply with the requirements of public order and safety, as
prescribed by law;
f. The processing of personal information is necessary for the fulfillment of the
constitutional or statutory mandate of a public authority; or
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g. The processing is necessary to pursue the legitimate interests of the personal
information controller, or by a third party or parties to whom the data is
disclosed, except where such interests are overridden by fundamental rights
and freedoms of the data subject, which require protection under the Philippine
Constitution.
SECTION 22. Sensitive Personal Information and Privileged Information. — The
processing of sensitive personal and privileged information is prohibited, except in any
of the following cases:
a. Consent is given by data subject, or by the parties to the exchange of
privileged information, prior to the processing of the sensitive personal
information or privileged information, which shall be undertaken pursuant to
a declared, specified, and legitimate purpose;
b. The processing of the sensitive personal information or privileged
information is provided for by existing laws and regulations: Provided, that
said laws and regulations do not require the consent of the data subject for
the processing, and guarantee the protection of personal data;
c. The processing is necessary to protect the life and health of the data subject
or another person, and the data subject is not legally or physically able to
express his or her consent prior to the processing;
d. The processing is necessary to achieve the lawful and noncommercial
objectives of public organizations and their associations provided that:
1. Processing is confined and related to the bona fide members of these
organizations or their associations;
2. The sensitive personal information are not transferred to third parties;
and
3. Consent of the data subject was obtained prior to processing.
e. The processing is necessary for the purpose of medical treatment: Provided,
that it is carried out by a medical practitioner or a medical treatment
institution, and an adequate level of protection of personal data is ensured; or
f. The processing concerns sensitive personal information or privileged
information necessary for the protection of lawful rights and interests of
natural or legal persons in court proceedings, or the establishment, exercise,
or defense of legal claims, or when provided to government or public
authority pursuant to a constitutional or statutory mandate.
SECTION 23. Extension of Privileged Communication. — Personal information
controllers may invoke the principle of privileged communication over privileged
information that they lawfully control or process. Subject to existing laws and
regulations, any evidence gathered from privileged information is inadmissible.
When the Commission inquires upon communication claimed to be privileged, the
personal information controller concerned shall prove the nature of the communication
in an executive session. Should the communication be determined as privileged, it
shall be excluded from evidence, and the contents thereof shall not form part of the
records of the case: Provided, that where the privileged communication itself is the
subject of a breach, or a privacy concern or investigation, it may be disclosed to the
Commission but only to the extent necessary for the purpose of investigation, without
including the contents thereof in the records.
SECTION 24. Surveillance of Suspects and Interception of Recording of
Communications. — Section 7 of Republic Act No. 9372, otherwise known as the
"Human Security Act of 2007", is hereby amended to include the condition that the
processing of personal data for the purpose of surveillance, interception, or recording
of communications shall comply with the Data Privacy Act, including adherence to
the principles of transparency, proportionality, and legitimate purpose.
RULE VI
SECURITY MEASURES FOR THE PROTECTION OF PERSONAL DATA
SECTION 25. Data Privacy and Security. — Personal information controllers and
personal information processors shall implement reasonable and appropriate
organizational, physical, and technical security measures for the protection of personal
data.
The personal information controller and personal information processor shall take
steps to ensure that any natural person acting under their authority and who has access
to personal data, does not process them except upon their instructions, or as required
by law.
The security measures shall aim to maintain the availability, integrity, and
confidentiality of personal data and are intended for the protection of personal data
against any accidental or unlawful destruction, alteration, and disclosure, as well as
against any other unlawful processing. These measures shall be implemented to protect
personal data against natural dangers such as accidental loss or destruction, and human
dangers such as unlawful access, fraudulent misuse, unlawful destruction, alteration
and contamination.
SECTION 26. Organizational Security Measures. — Where appropriate, personal
information controllers and personal information processors shall comply with the
following guidelines for organizational security:
a. Compliance Officers. Any natural or juridical person or other body involved
in the processing of personal data shall designate an individual or individuals
who shall function as data protection officer, compliance officer or otherwise
be accountable for ensuring compliance with applicable laws and regulations
for the protection of data privacy and security.
b. Data Protection Policies. Any natural or juridical person or other body
involved in the processing of personal data shall implement appropriate data
protection policies that provide for organization, physical, and technical
security measures, and, for such purpose, take into account the nature, scope,
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context and purposes of the processing, as well as the risks posed to the rights
and freedoms of data subjects.
1. The policies shall implement data protection principles both at the time of
the determination of the means for processing and at the time of the
processing itself.
2. The policies shall implement appropriate security measures that, by
default, ensure only personal data which is necessary for the specified
purpose of the processing are processed. They shall determine the amount
of personal data collected, including the extent of processing involved,
the period of their storage, and their accessibility. TCAScE
3. The polices shall provide for documentation, regular review, evaluation,
and updating of the privacy and security policies and practices.
c. Records of Processing Activities. Any natural or juridical person or other body
involved in the processing of personal data shall maintain records that
sufficiently describe its data processing system, and identify the duties and
responsibilities of those individuals who will have access to personal data.
Records should include:
1. Information about the purpose of the processing of personal data,
including any intended future processing or data sharing;
2. A description of all categories of data subjects, personal data, and
recipients of such personal data that will be involved in the processing;
3. General information about the data flow within the organization, from
the time of collection, processing, and retention, including the time limits
for disposal or erasure of personal data;
4. A general description of the organizational, physical, and technical
security measures in place;
5. The name and contact details of the personal information controller and,
where applicable, the joint controller, the its representative, and the
compliance officer or Data Protection Officer, or any other individual or
individuals accountable for ensuring compliance with the applicable laws
and regulations for the protection of data privacy and security.
d. Management of Human Resources. Any natural or juridical person or other
entity involved in the processing of personal data shall be responsible for
selecting and supervising its employees, agents, or representatives,
particularly those who will have access to personal data.
The said employees, agents, or representatives shall operate and hold personal
data under strict confidentiality if the personal data are not intended for public
disclosure. This obligation shall continue even after leaving the public service,
transferring to another position, or upon terminating their employment or
contractual relations. There shall be capacity building, orientation or training
programs for such employees, agents or representatives, regarding privacy or
security policies.
 e. Processing of Personal Data. Any natural or juridical person or other body
involved in the processing of personal data shall develop, implement and
review:
1. A procedure for the collection of personal data, including procedures for
obtaining consent, when applicable;
2. Procedures that limit the processing of data, to ensure that it is only to the
extent necessary for the declared, specified, and legitimate purpose;
3. Policies for access management, system monitoring, and protocols to
follow during security incidents or technical problems;
4. Policies and procedures for data subjects to exercise their rights under the
Act;
5. Data retention schedule, including timeline or conditions for erasure or
disposal of records.
f. Contracts with Personal Information Processors. The personal information
controller, through appropriate contractual agreements, shall ensure that its
personal information processors, where applicable, shall also implement the
security measures required by the Act and these Rules. It shall only engage
those personal information processors that provide sufficient guarantees to
implement appropriate security measures specified in the Act and these Rules,
and ensure the protection of the rights of the data subject.
SECTION 27. Physical Security Measures. — Where appropriate, personal
information controllers and personal information processors shall comply with the
following guidelines for physical security:
a. Policies and procedures shall be implemented to monitor and limit access to
and activities in the room, workstation or facility, including guidelines that
specify the proper use of and access to electronic media;
b. Design of office space and work stations, including the physical arrangement
of furniture and equipment, shall provide privacy to anyone processing
personal data, taking into consideration the environment and accessibility to
the public;
c. The duties, responsibilities and schedule of individuals involved in the
processing of personal data shall be clearly defined to ensure that only the
individuals actually performing official duties shall be in the room or work
station, at any given time;
d. Any natural or juridical person or other body involved in the processing of
personal data shall implement Policies and procedures regarding the transfer,
removal, disposal, and re-use of electronic media, to ensure appropriate
protection of personal data;
e. Policies and procedures that prevent the mechanical destruction of files and
equipment shall be established. The room and workstation used in the
processing of personal data shall, as far as practicable, be secured against
natural disasters, power disturbances, external access, and other similar
threats.
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SECTION 28. Guidelines for Technical Security Measures. — Where appropriate,
personal information controllers and personal information processors shall adopt and
establish the following technical security measures:
a. A security policy with respect to the processing of personal data;
b. Safeguards to protect their computer network against accidental, unlawful or
unauthorized usage, any interference which will affect data integrity or hinder
the functioning or availability of the system, and unauthorized access through
an electronic network;
c. The ability to ensure and maintain the confidentiality, integrity, availability,
and resilience of their processing systems and services;
d. Regular monitoring for security breaches, and a process both for identifying
and accessing reasonably foreseeable vulnerabilities in their computer
networks, and for taking preventive, corrective, and mitigating action against
security incidents that can lead to a personal data breach;
e. The ability to restore the availability and access to personal data in a timely
manner in the event of a physical or technical incident;
f. A process for regularly testing, assessing, and evaluating the effectiveness of
security measures;
g. Encryption of personal data during storage and while in transit, authentication
process, and other technical security measures that control and limit access.
SECTION 29. Appropriate Level of Security. — The Commission shall monitor the
compliance of natural or juridical person or other body involved in the processing of
personal data, specifically their security measures, with the guidelines provided in
these Rules and subsequent issuances of the Commission. In determining the level of
security appropriate for a particular personal information controller or personal
information processor, the Commission shall take into account the nature of the
personal data that requires protection, the risks posed by the processing, the size of the
organization and complexity of its operations, current data privacy best practices, and
the cost of security implementation. The security measures provided herein shall be
subject to regular review and evaluation, and may be updated as necessary by the
Commission in separate issuances, taking into account the most appropriate standard
recognized by the information and communications technology industry and data
privacy best practices.
RULE VII
SECURITY OF SENSITIVE PERSONAL INFORMATION IN
GOVERNMENT
SECTION 30. Responsibility of Heads of Agencies. — All sensitive personal
information maintained by the government, its agencies, and instrumentalities shall be
secured, as far as practicable, with the use of the most appropriate standard recognized
by the information and communications technology industry, subject to these Rules
and other issuances of the Commission. The head of each government agency or
instrumentality shall be responsible for complying with the security requirements
mentioned herein. The Commission shall monitor government agency compliance and
may recommend the necessary action in order to satisfy the minimum standards.
SECTION 31. Requirements Relating to Access by Agency Personnel to Sensitive
Personal Information. —
a. On-site and Online Access.
1. No employee of the government shall have access to sensitive personal
information on government property or through online facilities unless he
or she the employee has received a security clearance from the head of the
source agency. The source agency is the government agency who originally
collected the personal data.
2. A source agency shall strictly regulate access to sensitive personal
information under its custody or control, particularly when it allows online
access. An employee of the government shall only be granted a security
clearance when the performance of his or her official functions or the
provision of a public service directly depends on and cannot otherwise be
performed unless access to the personal data is allowed.
3. Where allowed under the next preceding sections, online access to sensitive
personal information shall be subject to the following conditions:
(a) An information technology governance framework has been designed and
implemented;
(b) Sufficient organizational, physical and technical security measures have
been established;
(c) The agency is capable of protecting sensitive personal information in
accordance with data privacy practices and standards recognized by the
information and communication technology industry;
(d) The employee of the government is only given online access to sensitive
personal information necessary for the performance of official functions or
the provision of a public service.
b. Off-site access.
1. Sensitive personal information maintained by an agency may not be
transported or accessed from a location off or outside of government
property, whether by its agent or employee, unless the head of agency has
ensured the implementation of privacy policies and appropriate security
measures. A request for such transportation or access shall be submitted to
and approved by the head of agency. The request must include proper
accountability mechanisms in the processing of data.
2. The head of agency shall approve requests for off-site access in accordance
with the following guidelines:
(a) Deadline for Approval or Disapproval. The head of agency shall
approve or disapprove the request within two (2) business days after
the date of submission of the request. Where no action is taken by the
head of agency, the request is considered disapproved;
(b) Limitation to One thousand (1,000) Records. Where a request is
approved, the head of agency shall limit the access to not more than
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one thousand (1,000) records at a time, subject to the next succeeding
paragraph.
(c) Encryption. Any technology used to store, transport or access sensitive
personal information for purposes of off-site access approved under
this subsection shall be secured by the use of the most secure
encryption standard recognized by the Commission.
SECTION 32. Implementation of Security Requirements. — Notwithstanding the
effective date of these Rules, the requirements in the preceding sections shall be
implemented before any off-site or online access request is approved. Any data sharing
agreement between a source agency and another government agency shall be subject
to review of the Commission on its own initiative or upon complaint of data subject.
SECTION 33. Applicability to Government Contractors. — In entering into any
contract with a private service provider that may involve accessing or requiring
sensitive personal information from one thousand (1,000) or more individuals, a
government agency shall require such service provider and its employees to register
their personal data processing system with the Commission in accordance with the Act
and these Rules. The service provider, as personal information processor, shall comply
with the other provisions of the Act and these Rules, particularly the immediately
preceding sections, similar to a government agency and its employees.
RULE VIII
RIGHTS OF DATA SUBJECTS
SECTION 34. Rights of the Data Subject. — The data subject is entitled to the
following rights:
a. Right to be informed.
1. The data subject has a right to be informed whether personal data
pertaining to him or her shall be, are being, or have been processed,
including the existence of automated decision-making and profiling.
2. The data subject shall be notified and furnished with information
indicated hereunder before the entry of his or her personal data into the
processing system of the personal information controller, or at the next
practical opportunity:
(a) Description of the personal data to be entered into the system;
(b) Purposes for which they are being or will be processed, including
processing for direct marketing, profiling or historical, statistical or
scientific purpose;
(c) Basis of processing, when processing is not based on the consent of
the data subject;
(d) Scope and method of the personal data processing;
(e) The recipients or classes of recipients to whom the personal data are
or may be disclosed;
 (f) Methods utilized for automated access, if the same is allowed by the
data subject, and the extent to which such access is authorized,
including meaningful information about the logic involved, as well
as the significance and the envisaged consequences of such
processing for the data subject;
(g) The identity and contact details of the personal data controller or its
representative;
(h) The period for which the information will be stored; and
(i) The existence of their rights as data subjects, including the right to
access, correction, and object to the processing, as well as the right
to lodge a complaint before the Commission.
b. Right to object. The data subject shall have the right to object to the processing
of his or her personal data, including processing for direct marketing,
automated processing or profiling. The data subject shall also be notified and
given an opportunity to withhold consent to the processing in case of changes
or any amendment to the information supplied or declared to the data subject
in the preceding paragraph.
When a data subject objects or withholds consent, the personal information
controller shall no longer process the personal data, unless:
1. The personal data is needed pursuant to a subpoena;
2. The collection and processing are for obvious purposes, including,
when it is necessary for the performance of or in relation to a contract
or service to which the data subject is a party, or when necessary or
desirable in the context of an employer-employee relationship between
the collector and the data subject; or
3. The information is being collected and processed as a result of a legal
obligation.
c. Right to Access. The data subject has the right to reasonable access to, upon
demand, the following:
1. Contents of his or her personal data that were processed;
2. Sources from which personal data were obtained;
3. Names and addresses of recipients of the personal data;
4. Manner by which such data were processed;
5. Reasons for the disclosure of the personal data to recipients, if any;
6. Information on automated processes where the data will, or is likely to,
be made as the sole basis for any decision that significantly affects or
will affect the data subject;
7. Date when his or her personal data concerning the data subject were last
accessed and modified; and
8. The designation, name or identity, and address of the personal
information controller.
d. Right to rectification. The data subject has the right to dispute the inaccuracy
or error in the personal data and have the personal information controller
correct it immediately and accordingly, unless the request is vexatious or
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otherwise unreasonable. If the personal data has been corrected, the personal
information controller shall ensure the accessibility of both the new and the
retracted information and the simultaneous receipt of the new and the retracted
information by the intended recipients thereof: Provided, That recipients or
third parties who have previously received such processed personal data shall
be informed of its inaccuracy and its rectification, upon reasonable request of
the data subject.
e. Right to Erasure or Blocking. The data subject shall have the right to suspend,
withdraw or order the blocking, removal or destruction of his or her personal
data from the personal information controller's filing system.
1. This right may be exercised upon discovery and substantial proof of any
of the following:
(a) The personal data is incomplete, outdated, false, or unlawfully
obtained;
(b) The personal data is being used for purpose not authorized by the data
subject;
(c) The personal data is no longer necessary for the purposes for which
they were collected;
(d) The data subject withdraws consent or objects to the processing, and
there is no other legal ground or overriding legitimate interest for the
processing;
(e) The personal data concerns private information that is prejudicial to
data subject, unless justified by freedom of speech, of expression, or
of the press or otherwise authorized;
(f) The processing is unlawful;
(g) The personal information controller or personal information
processor violated the rights of the data subject.
2. The personal information controller may notify third parties who have
previously received such processed personal information.
f. Right to damages. The data subject shall be indemnified for any damages
sustained due to such inaccurate, incomplete, outdated, false, unlawfully
obtained or unauthorized use of personal data, taking into account any
violation of his or her rights and freedoms as data subject.
SECTION 35. Transmissibility of Rights of the Data Subject. — The lawful heirs and
assigns of the data subject may invoke the rights of the data subject to which he or she
is an heir or an assignee, at any time after the death of the data subject, or when the
data subject is incapacitated or incapable of exercising the rights as enumerated in the
immediately preceding section.
SECTION 36. Right to Data Portability. — Where his or her personal data is
processed by electronic means and in a structured and commonly used format, the data
subject shall have the right to obtain from the personal information controller a copy
of such data in an electronic or structured format that is commonly used and allows
for further use by the data subject. The exercise of this right shall primarily take into
account the right of data subject to have control over his or her personal data being
processed based on consent or contract, for commercial purpose, or through automated
means. The Commission may specify the electronic format referred to above, as well
as the technical standards, modalities, procedures and other rules for their transfer.
SECTION 37. Limitation on Rights. — The immediately preceding sections shall not
be applicable if the processed personal data are used only for the needs of scientific
and statistical research and, on the basis of such, no activities are carried out and no
decisions are taken regarding the data subject: Provided, that the personal data shall
be held under strict confidentiality and shall be used only for the declared purpose.
The said sections are also not applicable to the processing of personal data gathered
for the purpose of investigations in relation to any criminal, administrative or tax
liabilities of a data subject. Any limitations on the rights of the data subject shall only
be to the minimum extent necessary to achieve the purpose of said research or
investigation.
RULE IX
DATA BREACH NOTIFICATION
SECTION 38. Data Breach Notification. —
a. The Commission and affected data subjects shall be notified by the personal
information controller within seventy-two (72) hours upon knowledge of, or
when there is reasonable belief by the personal information controller or
personal information processor that, a personal data breach requiring
notification has occurred.
b. Notification of personal data breach shall be required when sensitive personal
information or any other information that may, under the circumstances, be
used to enable identity fraud are reasonably believed to have been acquired by
an unauthorized person, and the personal information controller or the
Commission believes that such unauthorized acquisition is likely to give rise
to a real risk of serious harm to any affected data subject.
c. Depending on the nature of the incident, or if there is delay or failure to notify,
the Commission may investigate the circumstances surrounding the personal
data breach. Investigations may include on-site examination of systems and
procedures.
SECTION 39. Contents of Notification. — The notification shall at least describe the
nature of the breach, the personal data possibly involved, and the measures taken by
the entity to address the breach. The notification shall also include measures taken to
reduce the harm or negative consequences of the breach, the representatives of the
personal information controller, including their contact details, from whom the data
subject can obtain additional information about the breach, and any assistance to be
provided to the affected data subjects.
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SECTION 40. Delay of Notification. — Notification may be delayed only to the
extent necessary to determine the scope of the breach, to prevent further disclosures,
or to restore reasonable integrity to the information and communications system.
a. In evaluating if notification is unwarranted, the Commission may take into
account compliance by the personal information controller with this section
and existence of good faith in the acquisition of personal data.
b. The Commission may exempt a personal information controller from
notification where, in its reasonable judgment, such notification would not be
in the public interest, or in the interest of the affected data subjects.
c. The Commission may authorize postponement of notification where it may
hinder the progress of a criminal investigation related to a serious breach.
SECTION 41. Breach Report. —
a. The personal information controller shall notify the Commission by
submitting a report, whether written or electronic, containing the required
contents of notification. The report shall also include the name of a designated
representative of the personal information controller, and his or her contact
details.
b. All security incidents and personal data breaches shall be documented
through written reports, including those not covered by the notification
requirements. In the case of personal data breaches, a report shall include the
facts surrounding an incident, the effects of such incident, and the remedial
actions taken by the personal information controller. In other security
incidents not involving personal data, a report containing aggregated data
shall constitute sufficient documentation. These reports shall be made
available when requested by the Commission. A general summary of the
reports shall be submitted to the Commission annually.
SECTION 42. Procedure for Notification. — The Procedure for breach notification
shall be in accordance with the Act, these Rules, and any other issuance of the
Commission.
RULE X
OUTSOURCING AND SUBCONTRACTING AGREEMENTS
SECTION 43. Subcontract of Personal Data. — A personal information controller
may subcontract or outsource the processing of personal data: Provided, that the
personal information controller shall use contractual or other reasonable means to
ensure that proper safeguards are in place, to ensure the confidentiality, integrity and
availability of the personal data processed, prevent its use for unauthorized purposes,
and generally, comply with the requirements of the Act, these Rules, other applicable
laws for processing of personal data, and other issuances of the Commission.
SECTION 44. Agreements for Outsourcing. — Processing by a personal information
processor shall be governed by a contract or other legal act that binds the personal
information processor to the personal information controller.
a. The contract or legal act shall set out the subject-matter and duration of the
processing, the nature and purpose of the processing, the type of personal data
and categories of data subjects, the obligations and rights of the personal
information controller, and the geographic location of the processing under the
subcontracting agreement.
b. The contract or other legal act shall stipulate, in particular, that the personal
information processor shall:
1. Process the personal data only upon the documented instructions of the
personal information controller, including transfers of personal data to
another country or an international organization, unless such transfer is
authorized by law;
2. Ensure that an obligation of confidentiality is imposed on persons
authorized to process the personal data;
3. Implement appropriate security measures and comply with the Act, these
Rules, and other issuances of the Commission;
4. Not engage another processor without prior instruction from the personal
information controller: Provided, that any such arrangement shall ensure
that the same obligations for data protection under the contract or legal
act are implemented, taking into account the nature of the processing;
5. Assist the personal information controller, by appropriate technical and
organizational measures and to the extent possible, fulfill the obligation
to respond to requests by data subjects relative to the exercise of their
rights;
6. Assist the personal information controller in ensuring compliance with
the Act, these Rules, other relevant laws, and other issuances of the
Commission, taking into account the nature of processing and the
information available to the personal information processor; IAETDc
7. At the choice of the personal information controller, delete or return all
personal data to the personal information controller after the end of the
provision of services relating to the processing: Provided, that this
includes deleting existing copies unless storage is authorized by the Act
or another law;
8. Make available to the personal information controller all information
necessary to demonstrate compliance with the obligations laid down in
the Act, and allow for and contribute to audits, including inspections,
conducted by the personal information controller or another auditor
mandated by the latter;
9. Immediately inform the personal information controller if, in its opinion,
an instruction infringes the Act, these Rules, or any other issuance of the
Commission.
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SECTION 45. Duty of Personal Information Processor. — The personal information
processor shall comply with the requirements of the Act, these Rules, other applicable
laws, and other issuances of the Commission, in addition to obligations provided in a
contract, or other legal act with a personal information controller.
RULE XI
REGISTRATION AND COMPLIANCE REQUIREMENTS
SECTION 46. Enforcement of the Data Privacy Act. — Pursuant to the mandate of
the Commission to administer and implement the Act, and to ensure the compliance
of personal information controllers with its obligations under the law, the Commission
requires the following:
a. Registration of personal data processing systems operating in the country that
involves accessing or requiring sensitive personal information of at least one
thousand (1,000) individuals, including the personal data processing system
of contractors, and their personnel, entering into contracts with government
agencies;
b. Notification of automated processing operations where the processing
becomes the sole basis of making decisions that would significantly affect the
data subject;
c. Annual report of the summary of documented security incidents and personal
data breaches;
d. Compliance with other requirements that may be provided in other issuances
of the Commission.
SECTION 47. Registration of Personal Data Processing Systems. — The personal
information controller or personal information processor that employs fewer than two
hundred fifty (250) persons shall not be required to register unless the processing it
carries out is likely to pose a risk to the rights and freedoms of data subjects, the
processing is not occasional, or the processing includes sensitive personal information
of at least one thousand (1,000) individuals.
a. The contents of registration shall include:
1. The name and address of the personal information controller or personal
information processor, and of its representative, if any, including their
contact details;
2. The purpose or purposes of the processing, and whether processing is
being done under an outsourcing or subcontracting agreement;
3. A description of the category or categories of data subjects, and of the
data or categories of data relating to them;
4. The recipients or categories of recipients to whom the data might be
disclosed;
5. Proposed transfers of personal data outside the Philippines;
6. A general description of privacy and security measures for data
protection;
7. Brief description of the data processing system;
 8. Copy of all policies relating to data governance, data privacy, and
information security;
9. Attestation to all certifications attained that are related to information and
communications processing; and
10. Name and contact details of the compliance or data protection officer,
which shall immediately be updated in case of changes.
b. The procedure for registration shall be in accordance with these Rules and
other issuances of the Commission.
SECTION 48. Notification of Automated Processing Operations. — The personal
information controller carrying out any wholly or partly automated processing
operations or set of such operations intended to serve a single purpose or several
related purposes shall notify the Commission when the automated processing becomes
the sole basis for making decisions about a data subject, and when the decision would
significantly affect the data subject.
a. The notification shall include the following information:
1. Purpose of processing;
2. Categories of personal data to undergo processing;
3. Category or categories of data subject;
4. Consent forms or manner of obtaining consent;
5. The recipients or categories of recipients to whom the data are to be
disclosed;
6. The length of time the data are to be stored;
7. Methods and logic utilized for automated processing;
8. Decisions relating to the data subject that would be made on the basis of
processed data or that would significantly affect the rights and freedoms
of data subject; and
9. Names and contact details of the compliance or data protection officer.
b. No decision with legal effects concerning a data subject shall be made solely
on the basis of automated processing without the consent of the data subject.
SECTION 49. Review by the Commission. — The following are subject to the review
of the Commission, upon its own initiative or upon the filing of a complaint by a data
subject:
a. Compliance by a personal information controller or personal information
processor with the Act, these Rules, and other issuances of the Commission;
b. Compliance by a personal information controller or personal information
processor with the requirement of establishing adequate safeguards for data
privacy and security;
c. Any data sharing agreement, outsourcing contract, and similar contracts
involving the processing of personal data, and its implementation;
d. Any off-site or online access to sensitive personal data in government allowed
by a head of agency;
e. Processing of personal data for research purposes, public functions, or
commercial activities;
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f. Any reported violation of the rights and freedoms of data subjects;
g. Other matters necessary to ensure the effective implementation and
administration of the Act, these Rules, and other issuances of the
Commission.
RULE XII
RULES ON ACCOUNTABILITY
SECTION 50. Accountability for Transfer of Personal Data. — A personal
information controller shall be responsible for any personal data under its control or
custody, including information that have been outsourced or transferred to a personal
information processor or a third party for processing, whether domestically or
internationally, subject to cross-border arrangement and cooperation.
a. A personal information controller shall be accountable for complying with
the requirements of the Act, these Rules, and other issuances of the
Commission. It shall use contractual or other reasonable means to provide a
comparable level of protection to the personal data while it is being processed
by a personal information processor or third party.
b. A personal information controller shall designate an individual or individuals
who are accountable for its compliance with the Act. The identity of the
individual or individuals so designated shall be made known to a data subject
upon request.
SECTION 51. Accountability for Violation of the Act, These Rules and Other
Issuances of the Commission. —
a. Any natural or juridical person, or other body involved in the processing of
personal data, who fails to comply with the Act, these Rules, and other
issuances of the Commission, shall be liable for such violation, and shall be
subject to its corresponding sanction, penalty, or fine, without prejudice to any
civil or criminal liability, as may be applicable.
b. In cases where a data subject files a complaint for violation of his or her rights
as data subject, and for any injury suffered as a result of the processing of his
or her personal data, the Commission may award indemnity on the basis of the
applicable provisions of the New Civil Code.
c. In case of criminal acts and their corresponding personal penalties, the person
who committed the unlawful act or omission shall be recommended for
prosecution by the Commission based on substantial evidence. If the offender
is a corporation, partnership, or any juridical person, the responsible officers,
as the case may be, who participated in, or by their gross negligence, allowed
the commission of the crime, shall be recommended for prosecution by the
Commission based on substantial evidence.
RULE XIII
PENALTIES
SECTION 52. Unauthorized Processing of Personal Information and Sensitive
Personal Information. —
a. A penalty of imprisonment ranging from one (1) year to three (3) years and a
fine of not less than Five hundred thousand pesos (Php500,000.00) but not
more than Two million pesos (Php2,000,000.00) shall be imposed on persons
who process personal information without the consent of the data subject, or
without being authorized under the Act or any existing law.
b. A penalty of imprisonment ranging from three (3) years to six (6) years and a
fine of not less than Five hundred thousand pesos (Php500,000.00) but not
more than Four million pesos (Php4,000,000.00) shall be imposed on persons
who process sensitive personal information without the consent of the data
subject, or without being authorized under the Act or any existing law.
SECTION 53. Accessing Personal Information and Sensitive Personal Information
Due to Negligence. —
a. A penalty of imprisonment ranging from one (1) year to three (3) years and a
fine of not less than Five hundred thousand pesos (Php500,000.00) but not
more than Two million pesos (Php2,000,000.00) shall be imposed on persons
who, due to negligence, provided access to personal information without
being authorized under the Act or any existing law.
b. A penalty of imprisonment ranging from three (3) years to six (6) years and
a fine of not less than Five hundred thousand pesos (Php500,000.00) but not
more than Four million pesos (Php4,000,000.00) shall be imposed on persons
who, due to negligence, provided access to sensitive personal information
without being authorized under the Act or any existing law.
SECTION 54. Improper Disposal of Personal Information and Sensitive Personal
Information. —
a. A penalty of imprisonment ranging from six (6) months to two (2) years and
a fine of not less than One hundred thousand pesos (Php100,000.00) but not
more than Five hundred thousand pesos (Php500,000.00) shall be imposed on
persons who knowingly or negligently dispose, discard, or abandon the
personal information of an individual in an area accessible to the public or has
otherwise placed the personal information of an individual in its container for
trash collection.
b. A penalty of imprisonment ranging from one (1) year to three (3) years and a
fine of not less than One hundred thousand pesos (Php100,000.00) but not
more than One million pesos (Php1,000,000.00) shall be imposed on persons
who knowingly or negligently dispose, discard or abandon the sensitive
personal information of an individual in an area accessible to the public or has
otherwise placed the sensitive personal information of an individual in its
container for trash collection.
SECTION 55. Processing of Personal Information and Sensitive Personal
Information for Unauthorized Purposes. —
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a. A penalty of imprisonment ranging from one (1) year and six (6) months to
five (5) years and a fine of not less than Five hundred thousand pesos
(Php500,000.00) but not more than One million pesos (Php1,000,000.00)
shall be imposed on persons processing personal information for purposes not
authorized by the data subject, or otherwise authorized under the Act or under
existing laws.
b. A penalty of imprisonment ranging from two (2) years to seven (7) years and
a fine of not less than Five hundred thousand pesos (Php500,000.00) but not
more than Two million pesos (Php2,000,000.00) shall be imposed on persons
processing sensitive personal information for purposes not authorized by the
data subject, or otherwise authorized under the Act or under existing laws.
SECTION 56. Unauthorized Access or Intentional Breach. — A penalty of
imprisonment ranging from one (1) year to three (3) years and a fine of not less than
Five hundred thousand pesos (Php500,000.00) but not more than Two million pesos
(Php2,000,000.00) shall be imposed on persons who knowingly and unlawfully, or
violating data confidentiality and security data systems, breaks in any way into any
system where personal and sensitive personal information are stored.
SECTION 57. Concealment of Security Breaches Involving Sensitive Personal
Information. — A penalty of imprisonment ranging from one (1) year and six (6)
months to five (5) years and a fine of not less than Five hundred thousand pesos
(Php500,000.00) but not more than One million pesos (Php1,000,000.00) shall be
imposed on persons who, after having knowledge of a security breach and of the
obligation to notify the Commission pursuant to Section 20 (f) of the Act, intentionally
or by omission conceals the fact of such security breach.
SECTION 58. Malicious Disclosure. — Any personal information controller or
personal information processor, or any of its officials, employees or agents, who, with
malice or in bad faith, discloses unwarranted or false information relative to any
personal information or sensitive personal information obtained by him or her, shall
be subject to imprisonment ranging from one (1) year and six (6) months to five (5)
years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not
more than One million pesos (Php1,000,000.00).
SECTION 59. Unauthorized Disclosure. —
a. Any personal information controller or personal information processor, or any
of its officials, employees, or agents, who discloses to a third party personal
information not covered by the immediately preceding section without the
consent of the data subject, shall be subject to imprisonment ranging from one
(1) year to three (3) years and a fine of not less than Five hundred thousand
pesos (Php500,000.00) but not more than One million pesos (Php1,000,000.00).
b. Any personal information controller or personal information processor, or any
of its officials, employees or agents, who discloses to a third party sensitive
personal information not covered by the immediately preceding section without
 the consent of the data subject, shall be subject to imprisonment ranging from
three (3) years to five (5) years and a fine of not less than Five hundred thousand
pesos (Php500,000.00) but not more than Two million pesos
(Php2,000,000.00).
SECTION 60. Combination or Series of Acts. — Any combination or series of acts as
defined in Sections 52 to 59 shall make the person subject to imprisonment ranging
from three (3) years to six (6) years and a fine of not less than One million pesos
(Php1,000,000.00) but not more than Five million pesos (Php5,000,000.00).
SECTION 61. Extent of Liability. — If the offender is a corporation, partnership or
any juridical person, the penalty shall be imposed upon the responsible officers, as the
case may be, who participated in, or by their gross negligence, allowed the commission
of the crime. Where applicable, the court may also suspend or revoke any of its rights
under this Act.
If the offender is an alien, he or she shall, in addition to the penalties herein prescribed,
be deported without further proceedings after serving the penalties prescribed.
If the offender is a public official or employee and he or she is found guilty of acts
penalized under Sections 54 and 55 of these Rules, he or she shall, in addition to the
penalties prescribed herein, suffer perpetual or temporary absolute disqualification
from office, as the case may be.
SECTION 62. Large-Scale. — The maximum penalty in the corresponding scale of
penalties provided for the preceding offenses shall be imposed when the personal data
of at least one hundred (100) persons are harmed, affected, or involved, as the result
of any of the above-mentioned offenses.
SECTION 63. Offense Committed by Public Officer. — When the offender or the
person responsible for the offense is a public officer, as defined in the Administrative
Code of 1987, in the exercise of his or her duties, he or she shall likewise suffer an
accessory penalty consisting of disqualification to occupy public office for a term
double the term of the criminal penalty imposed.
SECTION 64. Restitution. — Pursuant to the exercise of its quasi-judicial functions,
the Commission shall award indemnity to an aggrieved party on the basis of the
provisions of the New Civil Code. Any complaint filed by a data subject shall be
subject to the payment of filing fees, unless the data subject is an indigent.
SECTION 65. Fines and Penalties. — Violations of the Act, these Rules, other
issuances and orders of the Commission, shall, upon notice and hearing, be subject to
compliance and enforcement orders, cease and desist orders, temporary or permanent
ban on the processing of personal data, or payment of fines, in accordance with a
schedule to be published by the Commission.
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RULE XIV
MISCELLANEOUS PROVISIONS
SECTION 66. Appeal. — Appeal from final decisions of the Commission shall be
made to the proper courts in accordance with the Rules of Court, or as may be
prescribed by law.
SECTION 67. Period for Compliance. — Any natural or juridical person or other
body involved in the processing of personal data shall comply with the personal data
processing principles and standards of personal data privacy and security already laid
out in the Act.
Personal information controllers and Personal Information processors shall register
with the Commission their data processing systems or automated processing
operations, subject to notification, within one (1) year after the effectivity of these
Rules. Any subsequent issuance of the Commission, including those that implement
specific standards for data portability, encryption, or other security measures shall
provide the period for its compliance.
For a period of one (1) year from the effectivity of these Rules, a personal information
controller or personal information processor may apply for an extension of the period
within which to comply with the issuances of the Commission. The Commission may
grant such request for good cause shown.
SECTION 68. Appropriations Clause. — The Commission shall be provided with
appropriations for the performance of its functions which shall be included in the
General Appropriations Act.
SECTION 69. Interpretation. — Any doubt in the interpretation of any provision of
this Act shall be liberally interpreted in a manner that would uphold the rights and
interests of the individual about whom personal data is processed.
SECTION 70. Separability Clause. — If any provision or part hereof is held invalid
or unconstitutional, the remainder of these Rules or the provision not otherwise
affected shall remain valid and subsisting.
SECTION 71. Repealing Clause. — Except as otherwise expressly provided in the
Act or these Rules, all other laws, decrees, executive orders, proclamations and
administrative regulations or parts thereof inconsistent herewith are hereby repealed
or modified accordingly.
SECTION 72. Effectivity Clause. — These Rules shall take effect fifteen (15) days
after its publication in the Official Gazette.
 PERSONAL PROPERTY SECURITY ACT
REPUBLIC ACT No. 11057
SECTION 1. Title. — This Act shall be known as the
"Personal Property Security Act."
SECTION 2. Declaration of Policy. — It is the policy of the State to promote
economic activity by increasing access to least cost credit, particularly for micro,
small, and medium enterprises (MSMEs), by establishing a unified and modern legal
framework for securing obligations with personal property.
CHAPTER 1
DEFINITIONS AND SCOPE
SECTION 3. Definition of Terms. — As used in this Act, the following terms shall
mean:
(a) Commodity contract — a commodity futures contract, an option on a
commodity futures contract, a commodity option, or another contract if the
contract or option is:
(1) Traded on or subject to the rules of a board of trade that has been designated
as a contract market for such a contract; or
(2) Traded on a foreign commodity board of trade, exchange, or market, and is
carried on the books of a commodity intermediary for a commodity
customer;
(b) Control agreement —
(1) With respect to securities, means an agreement in writing among the issuer
or the intermediary, the grantor and the secured creditor, according to which
the issuer or the intermediary agrees to follow instructions from the secured
creditor with respect to the security, without further consent from the
grantor;
(2) With respect to rights to deposit account, means an agreement in writing
among the deposit-taking institution, the grantor and the secured creditor,
according to which the deposit-taking institution agrees to follow
instructions from the secured creditor with respect to the payment of funds
credited to the deposit account without further consent from the grantor;
(3) With respect to commodity contracts, means an agreement in writing
among the grantor, secured creditor, and intermediary, according to which
the commodity intermediary will apply any value distributed on account of
the commodity contract as directed by the secured creditor without further
consent by the commodity customer or grantor;
(c) Grantor —
(1) The person who grants a security interest m collateral to secure its own
obligation or that of another person;
(2) A buyer or other transferee of a collateral that acquires its right subject to
a security interest;
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(3) A transferor in an outright transfer of an accounts receivable; or
(4) A lessee of goods;
(d) Non-intermediated securities — securities other than securities credited to a
securities account and rights in securities resulting from the credit of securities
to a securities account;
(e) Notice — a statement of information that is registered in the Registry relating to
a security interest or lien. The term includes an initial notice, amendment notice,
and termination notice;
(f) Proceeds — any property received upon sale, lease or other disposition of
collateral, or whatever is collected on or distributed with respect to collateral,
claims arising out of the loss or damage to the collateral, as well as a right to
insurance payment or other compensation for loss or damage of the collateral;
(g) Purchase money security interest — a security interest in goods taken by the
seller to secure the price or by a person who gives value to enable the grantor to
acquire the goods to the extent that the credit is used for that purpose;
(h) Registry — the centralized and nationwide electronic registry established in the
Land Registration Authority (LRA) where notice of a security interest and a lien
in personal property may be registered;
(i) Secured creditor — a person that has a security interest. For the purposes of
registration and priority only, it includes a buyer of account receivable and a
lessor of goods under an operating lease for not less than one (1) year;
(j) Security interest — a property right in collateral that secures payment or other
performance of an obligation, regardless of whether the parties have
denominated it as a security interest, and regardless of the type of asset, the
status of the grantor or secured creditor, or the nature of the secured obligation;
including the right of a buyer of accounts receivable and a lessor under an
operating lease for not less than one (1) year; and
(k) Writing — for the purpose of this Act includes electronic records.
SECTION 4. Scope of the Act. — This Act shall apply to all transactions of any form
that secure an obligation with movable collateral, except interests in aircrafts subject
to Republic Act No. 9497, or the “Civil Aviation Authority Act of 2008,” and interests
in ships subject to Presidential Decree No. 1521, or the “Ship Mortgage Decree of
1978.”
CHAPTER 2
CREATION OF SECURITY INTEREST
SECTION 5. Creation of a Security Interest. —
(a) A security interest shall be created by a security agreement.
(b) A security agreement may provide for the creation of a security interest in a
future property, but the security interest in that property is created only when
the grantor acquires rights in it or the power to encumber it.
SECTION 6. Security Agreement. — A security agreement must be contained in a
written contract signed by the parties. It may consist of one or more writings that, taken
together, establish the intent of the parties to create a security interest.
The security agreement shall likewise provide for the language to be used in
agreements and notices. The grantor shall be given the option to have the agreement
and notices in Filipino. The Department of Finance (DOF) shall prepare model
agreements in plain English and Filipino.
SECTION 7. Description of Collateral. — A description of collateral shall be
considered sufficient, whether it is specific or general, if it reasonably identifies the
collateral. A description such as "all personal property," "all equipment," "all
inventory," or "all personal property within a generic category" of the grantor shall be
sufficient.
SECTION 8. Right to Proceeds and Commingled Funds and Money. —
(a) A security interest in personal property shall extend to its identifiable or
traceable proceeds.
(b) Where proceeds in the form of funds credited to a deposit account or money
are commingled with other funds or money:
(1) The security interest shall extend to the commingled money or funds,
notwithstanding that the proceeds have ceased to be identifiable to the
extent they remain traceable;
(2) The security interest in the commingled funds or money shall be limited
to the amount of the proceeds immediately before they were commingled;
and
(3) If at any time after the commingling, the balance credited to the deposit
account or the amount of the commingled money is less than the amount
of the proceeds immediately before they were commingled,
the security interest against the commingled funds or money shall be
limited to the lowest amount of the commingled funds or money between
the time when the proceeds were commingled and the time
the security interest in the proceeds is claimed.
SECTION 9. Continuity of Security Interest. — A security interest shall continue in
collateral notwithstanding sale, lease, license, exchange, or other disposition of the
collateral, except as otherwise provided in Section 21 of this Act, or agreed upon by
the parties.
SECTION 10. Contractual Limitation on the Creation of a Security Interest. —
(a) A security interest in an account receivable shall be effective notwithstanding
any agreement between the grantor and the account debtor or any secured
creditor limiting in any way the grantor's right to create a security interest.
(b) Nothing in this section shall affect any obligation or liability of the grantor
for breach of the agreement in subsection (a).
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(c) Any stipulation limiting the grantor's right to create a security interest shall
be void.
(d) This section shall apply only to accounts receivable arising from:
(1) A contract for the supply or lease of goods or services other than financial
services;
(2) A construction contract or a contract for the sale or lease of real property;
and
(3) A contract for the sale, lease or license of intellectual property.
CHAPTER 3
PERFECTION OF SECURITY INTEREST
SECTION 11. Perfection of Security Interest. —
(a) A security interest shall be perfected when it has been created and the secured
creditor has taken one of the actions in accordance with Section 12.
(b) On perfection, a security interest becomes effective against third parties.
SECTION 12. Means of Perfection. — A security interest may be perfected by:
(a) Registration of a notice with the Registry;
(b) Possession of the collateral by the secured creditor; and
(c) Control of investment property and deposit account.
A security interest in any tangible asset may be perfected by registration or possession.
A security interest in investment property and deposit account may be perfected by
registration or control.
SECTION 13. Perfection by Control. —
(a) A security interest in a deposit account or investment property may be
perfected by control through:
(1) The creation of the security interest in favor of the deposit-taking
institution or the intermediary;
(2) The conclusion of a control agreement; or
(3) For an investment property that is an electronic security not held with an
intermediary, the notation of the security interest in the books
maintained by or on behalf of the issuer for the purpose of recording the
name of the holder of the securities.
(b) Nothing in this Act shall require a deposit-taking institution or an
intermediary to enter into a control agreement, even if the grantor so requests.
A deposit-taking institution or an intermediary that has entered into such an
agreement shall not be required to confirm the existence of the agreement to
another person unless requested to do so by the grantor.
SECTION 14. Perfection in Proceeds. —
(a) Upon disposition of collateral, a security interest shall extend to proceeds of
the collateral without further act and be continuously perfected, if the
 proceeds are in the form of money, accounts receivable, negotiable
instruments or deposit accounts.
(b) Upon disposition of the collateral, if the proceeds are in a form different from
money, accounts receivable, negotiable instruments or deposit accounts,
the security interest in such proceeds must be perfected by one of the means
applicable to the relevant type of collateral within fifteen (15) days after the
grantor receives such proceeds; otherwise, the security interest in such
proceeds shall not be effective against third parties.
SECTION 15. Change in Means of Perfection. — A security interest shall remain
perfected despite a change in the means for achieving perfection: Provided, That there
was no time when the security interest was not perfected.
SECTION 16. Assignment of Security Interest. — If a secured creditor assigns a
perfected security interest, an amendment notice may be registered to reflect the
assignment.
CHAPTER 4
PRIORITY OF SECURITY INTEREST
SECTION 17. Priority Rules. — The priority of security interests and liens in the
same collateral shall be determined according to time of registration of a notice or
perfection by other means, without regard to the order of creation of
the security interests and liens.
SECTION 18. Priority for Perfection by Control. —
(a) A security interest in a deposit account with respect to which the secured
creditor is the deposit-taking institution or the intermediary shall have priority
over a competing security interest perfected by any method.
(b) A security interest in a deposit account or investment property that is
perfected by a control agreement shall have priority over a
competing security interest except a security interest of the deposit-taking
institution or the intermediary.
(c) The order of priority among competing security interests in a deposit account
or investment property that were perfected by the conclusion of control
agreements shall be determined on the basis of the time of conclusion of the
control agreements.
(d) Any rights to set-off that the deposit-taking institution may have against a
grantor's right to payment of funds credited to a deposit account shall have
priority over a security interest in the deposit account.
(e) A security interest in a security certificate perfected by the secured creditor's
possession of the certificate shall have priority over a
competing security interest perfected by registration of a notice in the
Registry.
(f) A security interest in electronic securities not held with an intermediary
perfected by a notation of the security interests in the books maintained for
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that purpose by or on behalf of the issuer shall have priority over
a security interest in the same securities perfected by any other method.
(g) A security interest in electronic securities not held with an intermediary
perfected by the conclusion of a control agreement shall have priority over
a security interest in the same securities perfected by registration of a notice
in the Registry.
(h) The order of priority among competing security interests in electronic
securities not held with an intermediary perfected by the conclusion of control
agreements is determined on the basis of the time of conclusion of the control
agreements.
SECTION 19. Priority for Instruments and Negotiable Documents. —
A security interest in an instrument or negotiable document that is perfected by
possession of the instrument or the negotiable document shall have priority over
a security interest in the instrument or negotiable document that is perfected by
registration of a notice in the Registry.
SECTION 20. Priority and Right of Retention by Operation of Law. — A person who
provides services or materials with respect to the goods, in the ordinary course of
business, and retains possession of the goods shall have priority over a
perfected security interest in the goods until payment thereof.
SECTION 21. Transferee Exceptions. — Any party who obtains, in the ordinary
course of business, any movable property containing a security interest shall take the
same free of such security interest provided he was in good faith. No such good faith
shall exist if the security interest in the movable property was registered prior to his
obtaining the property.
SECTION 22. Effect of the Grantor's Insolvency on the Priority of a Security Interest.
— Subject to the applicable insolvency law, a security interest perfected prior to the
commencement of insolvency proceedings in respect of the grantor shall remain
perfected and retain the priority it had before the commencement of the insolvency
proceedings.
SECTION 23. Purchase Money Security Interest. —
(a) A purchase money security interest in equipment and its proceeds shall have
priority over a conflicting security interest, if a notice relating to the purchase
money security interest is registered within three (3) business days after the
grantor receives possession of the equipment.
(b) A purchase money security interest in consumer goods that is perfected by
registration of notice not later than three (3) business days after the grantor
obtains possession of the consumer goods shall have priority over a
conflicting security interest.
 (c) A purchase money security interest in inventory, intellectual property or
livestock shall have priority over a conflicting perfected security interest in the
same inventory, intellectual property or livestock if:
(1) The purchase money security interest is perfected when the grantor receives
possession of the inventory or livestock, or acquires rights to
intellectual property; and
(2) Before the grantor receives possession of the inventory or livestock, or
acquires rights in intellectual property, the purchase money secured creditor
gives written notification to the holder of the conflicting
perfected security interest in the same types of inventory, livestock, or
intellectual property. The notification sent to the holder of the
conflicting security interest may cover multiple transactions between the
purchase money secured creditor and the grantor without the need to
identify each transaction.
(d) The purchase money security interest in equipment or consumer goods
perfected timely in accordance with subsections (a) and (b), shall have priority
over the rights of a buyer, lessee, or lien holder which arise between delivery of
the equipment or consumer goods to the grantor and the time the notice is
registered.
SECTION 24. Livestock. — A perfected security interest in livestock securing an
obligation incurred to enable the grantor to obtain food or medicine for the livestock
shall have priority over any other security interest in the livestock, except for a
perfected purchase money security interest in the livestock, if the secured creditor
providing credit for food or medicine gives written notification to the holder of the
conflicting perfected security interest in the same livestock before the grantor receives
possession of the food or medicine.
SECTION 25. Fixtures, Accessions, and Commingled Goods. — A
perfected security interest in a movable property which has become a fixture, or has
undergone accession or commingling shall continue provided the
movable property involved can still be reasonably traced. In determining ownership
over fixtures, accessions, and commingled goods, the provisions of Book II
of Republic Act No. 386 or the "Civil Code of the Philippines" shall apply.
CHAPTER 5
REGISTRATION — REGISTRY
SECTION 26. Establishment of Electronic Registry. —
(a) The Registry shall be established in and administered by the LRA.
(b) The Registry shall provide electronic means for registration and searching of
notices.
SECTION 27. Public Record. —
375
(a) Information contained in a registered notice shall be considered as a public
record.
(b) Any person may search notices registered in the Registry.
(c) The electronic records of the Registry shall be the official records.
SECTION 28. Sufficiency of Notice. —
(a) An initial notice of security interest shall not be rejected:
(1) If it identifies the grantor by an identification number, as further
prescribed in the regulations;
(2) If it identifies the secured creditor or an agent of the secured creditor by
name;
(3) If it provides an address for the grantor and secured creditor or its agent;
(4) If it describes the collateral; and
(5) If the prescribed fee has been tendered, or an arrangement has been made
for payment of fees by other means.
(b) If the Registry rejects to register a notice, it shall promptly communicate the
fact of and reason for its rejection to the person who submitted the notice.
(c) Each grantor must authorize the registration of an initial notice by signing
a security agreement or otherwise in writing.
(d) A notice may be registered before a security agreement is concluded. Once
a security agreement is concluded, the date of registration of the notice shall
be reckoned from the date the notice was registered.
(e) A notice of lien may be registered by a lien holder without the consent of the
person against whom the lien is sought to be enforced.
(f) Description of the collateral in a notice shall be entered in English.
SECTION 29. One Notice Sufficient for Security Interests under
Multiple Security Agreements. — The registration of a single notice may relate
to security interests created by the grantor under one (1) or more than
one security agreement.
SECTION 30. Effectiveness of Notice. —
(a) A notice shall be effective at the time it is discoverable on the records of the
Registry.
(b) A notice shall be effective for the duration of the term indicated in the notice
unless a continuation notice is registered before the term lapses.
(c) A notice substantially complying with the requirements of this Chapter shall
be effective unless it is seriously misleading.
(d) A notice that may not be retrieved in a search of the Registry against the
correct identifier of the grantor shall be ineffective with respect to that
grantor.
SECTION 31. Seriously Misleading Notice. — A notice that does not provide the
identification number of the grantor shall be seriously misleading.
SECTION 32. Amendment of Notice. —
(a) A notice may be amended by the registration of an amendment notice that:
(1) Identifies the initial notice by its registration number; and
(2) Provides the new information.
(b) An amendment notice that adds collateral that is not proceeds must be
authorized by the grantor in writing.
(c) An amendment notice that adds a grantor must be authorized by the added
grantor in writing.
(d) An amendment notice shall be effective only as to each secured creditor who
authorizes it.
(e) An amendment notice that adds collateral or a grantor shall be effective as to
the added collateral or grantor from the date of its registration.
SECTION 33. Continuation of Notice. —
(a) The period of effectiveness of a notice may be continued by registering an
amendment notice that identifies the initial notice by its registration number.
(b) Continuation of notice may be registered only within six (6) months before
the expiration of the effective period of the notice.
SECTION 34. Termination of Effectiveness of a Notice. —
(a) The effectiveness of a notice may be terminated by registering a termination
notice that:
(1) Identifies the initial notice by its registration number; and
(2) Identifies each secured creditor who authorizes the registration of the
termination notice.
(b) A termination notice terminates effectiveness of the notice as to each
authorizing secured creditor.
SECTION 35. Registry Duties. —
(a) For each registered notice, the Registry shall:
(1) Assign a unique registration number;
(2) Create a record that bears the number assigned to the initial notice and
the date and time of registration; and
(3) Maintain the record for public inspection.
(b) The Registry shall index notices by the identification number of the grantor
and, for notices containing a serial number of a motor vehicle, by serial
number.
(c) The Registry shall provide a copy of the electronic record of the notice,
including the registration number and the date and time of registration to the
person who submitted it.
(d) The Registry shall maintain the capability to retrieve a record by the
identification number of the grantor, and by serial number of a motor vehicle.
(e) The Registry shall maintain records of lapsed notices for a period of ten (10)
years after the lapse.
(f) The duties of the Registry shall be merely administrative in nature. By
registering a notice or refusing to register a notice, the Registry does not
376
determine the sufficiency, correctness, authenticity, or validity of any
information contained in the notice.
SECTION 36. Search of Registry Records and Certified Report. —
(a) The Registry shall communicate the following information to any person who
requests it:
(1) Whether there are in the Registry any unlapsed notices that indicate the
grantor's identification number or vehicle serial number that exactly
matches the relevant criterion provided by the searcher;
(2) The registration number, and the date and time of registration of each
notice; and
(3) All of the information contained in each notice.
(b) If requested, the Registry shall issue a certified report of the results of a search
that is an official record of the Registry and shall be admissible into evidence
in judicial proceedings without extrinsic evidence of its authenticity.
SECTION. 37. Disclosure of Information. —
(a) The secured creditor must provide to the grantor at its request:
(1) The current amount of the unpaid secured obligation; and
(2) A list of assets currently subject to a security interest.
(b) The secured creditor may require payment of a fee for each request made by
the grantor in subsection (a) in this section, but the grantor is entitled to a
reply without charge once every six (6) months.
(c) A security interest in a deposit account shall not:
(1) Affect the rights and obligations of the deposit-taking institution without
its consent; or
(2) Require the deposit-taking institution to provide any information about
the deposit account to third parties.
SECTION 38. Fees Set by Regulation. —
(a) The fees for registering a notice and for requesting a certified search report
shall be set by regulation issued by the DOF for the recovery of reasonable
costs of establishing and operating the Registry.
(b) The fee structure or any change thereof under subsection (a) shall further
consider that the same shall not be burdensome to either lender or grantor.
(c) There shall be no fee for electronic searches of the Registry records or for the
registration of termination notices.
(d) The Registry may charge fees for services not mentioned above.
SECTION 39. When the Grantor May Demand Amendment or Termination of Notice.
— A grantor may give a written demand to the secured creditor to amend or terminate
the effectiveness of the notice if:
(a) All the obligations under the security agreement to which the registration
relates have been performed and there is no commitment to make future
advances;
 (b) The secured creditor has agreed to release part of the collateral described in
the notice;
(c) The collateral described in the notice includes an item or kind of property that
is not a collateral under a security agreement between the secured creditor
and the grantor;
(d) No security agreement exists between the parties; or
(e) The security interest is extinguished in accordance with this Act.
SECTION 40. Matters That May be Required by Demand. — Upon receipt of the
demand submitted under Section 39, the secured creditor must register, within fifteen
(15) working days, an amendment or termination notice:
(a) Terminating the registration in a case within subsections (a), (d) or (e) of
Section 39;
(b) Amending the registration to release some property that is no longer
collateral in a case within subsection (c) of Section 39 or that was never
collateral under a security agreement between the secured creditor and the
grantor in a case within subsection (c) of Section 39.
SECTION 41. Procedure for Noncompliance with Demand. — If the secured creditor
fails to comply with the demand within fifteen (15) working days after its receipt, the
person giving the demand under Section 39 may ask the proper court to issue an order
terminating or amending the notice as appropriate.
SECTION 42. Compulsory Amendment or Termination by Court Order. —
(a) The court may, on application by the grantor, issue an order that the notice be
terminated or amended in accordance with the demand, which order shall be
conclusive and binding on the LRA: Provided, That the secured creditor who
disagrees with the order of the court may appeal the order.
(b) The court may make any other order it deems proper for the purpose of giving
effect to an order under subsection (a) of this section.
(c) The LRA shall amend or terminate a notice in accordance with a court order
made under subsection (a) of this section as soon as reasonably practicable
after receiving the order.
SECTION 43. No Fee for Compliance of Demand. — A secured creditor shall not
charge any fee for compliance with a demand received under Section 39.
SECTION 44. When Registration and Search Constitutes Interference with Privacy
of Individual. — A person who submitted a notice for registration or carried out a
search of the Registry with a frivolous, malicious or criminal purpose or intent shall
be subject to civil and criminal penalties according to the relevant laws.
CHAPTER 6
ENFORCEMENT OF SECURITY INTEREST SECURED CREDITOR'S
RIGHTS
377
SECTION 45. Right of Redemption. —
(a) Any person who is entitled to receive a notification of disposition in
accordance with this Chapter is entitled to redeem the collateral by paying or
otherwise performing the secured obligation in full, including the reasonable
cost of enforcement.
(b) The right of redemption may be exercised, unless:
(1) The person entitled to redeem has not, after the default, waived in writing
the right to redeem;
(2) The collateral is sold or otherwise disposed of, acquired or collected by
the secured creditor or until the conclusion of an agreement by the
secured creditor for that purpose; and
(3) The secured creditor has retained the collateral.
SECTION 46. Right of Higher-Ranking Secured Creditor to Take Over Enforcement.
—
(a) Even if another secured creditor or alien holder has commenced enforcement,
a secured creditor whose security interest has priority over that of the
enforcing secured creditor or lien holder shall be entitled to take over the
enforcement process.
(b) The right referred to in subsection (a) of this section may be invoked at any
time before the collateral is sold or otherwise disposed of, or retained by the
secured creditor or until the conclusion of an agreement by the secured creditor
for that purpose.
(c) The right of the higher-ranking secured creditor to take over the enforcement
process shall include the right to enforce the rights by any method available to
a secured creditor under this Act.
SECTION 47. Expedited Repossession of the Collateral. —
(a) The secured creditor may take possession of the collateral without judicial
process if the security agreement so stipulates: Provided, That possession can
be taken without a breach of the peace.
(b) If the collateral is a fixture, the secured creditor, if it has priority over all
owners and mortgagees, may remove the fixture from the real property to
which it is affixed without judicial process. The secured creditor shall
exercise due care in removing the fixture.
(c) If, upon default, the secured creditor cannot take possession of collateral
without breach of the peace, the secured creditor may proceed as follows:
(1) The secured creditor shall be entitled to an expedited hearing upon
application for an order granting the secured creditor possession of the
collateral. Such application shall include a statement by the secured
creditor, under oath, verifying the existence of the security agreement
attached to the application and identifying at least one event of default
by the debtor under the security agreement;
(2) The secured creditor shall provide the debtor, grantor, and, if the
collateral is a fixture, any real estate mortgagee, a copy of the application,
 including all supporting documents and evidence for the order granting
the secured creditor possession of the collateral; and
(3) The secured creditor is entitled to an order granting possession of the
collateral upon the court finding that a default has occurred under
the security agreement and that the secured creditor has a right to take
possession of the collateral. The court may direct the grantor to take such
action as the court deems necessary and appropriate so that the secured
creditor may take possession of the collateral: Provided, That breach of
the peace shall include entering the private residence of the grantor
without permission, resorting to physical violence or intimidation, or
being accompanied by a law enforcement officer when taking possession
or confronting the grantor.
SECTION 48. Recovery in Special Cases. — Upon default, the secured creditor may
without judicial process:
(a) Instruct the account debtor to make payment to the secured creditor, and
apply such payment to the satisfaction of the obligation secured by
the security interest after deducting the secured creditor's reasonable
collection expenses. On request of the account debtor, the secured creditor
shall provide evidence of its security interest to the account debtor when it
delivers the instruction to the account debtor;
(b) In a negotiable document that is perfected by possession, proceed as to the
negotiable document or goods covered by the negotiable document;
(c) In a deposit account maintained by the secured creditor, apply the balance of
the deposit account to the obligation secured by the deposit account; and
(d) In other cases of security interest in a deposit account perfected by control,
instruct the deposit-taking institution to pay the balance of the deposit
account to the secured creditor's account.
SECTION 49. Right to Dispose of Collateral. —
(a) After default, a secured creditor may sell or otherwise dispose of the
collateral, publicly or privately, in its present condition or following any
commercially reasonable preparation or processing.
(b) The secured creditor may buy the collateral at any public disposition, or at a
private disposition but only if the collateral is of a kind that is customarily
sold on a recognized market or the subject of widely distributed standard price
quotations.
SECTION 50. Commercial Reasonableness Required. —
(a) In disposing of collateral, the secured creditor shall act in a commercially
reasonable manner.
(b) A disposition is commercially reasonable if the secured creditor disposes of
the collateral in conformity with commercial practices among dealers in that
type of property.
378
(c) A disposition is not commercially unreasonable merely because a better price
could have been obtained by disposition at a different time or by a different
method from the time and method selected by the secured creditor.
(d) If a method of disposition of collateral has been approved in any legal
proceeding, it is conclusively commercially reasonable.
SECTION 51. Notification of Disposition. —
(a) Not later than ten (10) days before disposition of the collateral, the secured
creditor shall notify:
(1) The grantor:
(2) Any other secured creditor or lien holder who, five (5) days before the
date notification is sent to the grantor, held a security interest or lien in
the collateral that was perfected by registration; and
(3) Any other person from whom the secured creditor received notification
of a claim of an interest in the collateral if the notification was received
before the secured creditor gave notification of the proposed disposition
to the grantor.
(b) The grantor may waive the right to be notified.
(c) A notification of disposition is sufficient if it identifies the grantor and the
secured creditor; describes the collateral; states the method of intended
disposition; and states the time and place of a public disposition or the time
after which other disposition is to be made.
(d) The requirement to send a notification under this section shall not apply if the
collateral is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market.
SECTION 52. Application of Proceeds. —
(a) The proceeds of disposition shall be applied in the following order:
(1) The reasonable expenses of taking, holding, preparing for disposition,
and disposing of the collateral, including reasonable attorneys' fees and
legal expenses incurred by the secured creditor;
(2) The satisfaction of the obligation secured by the security interest of the
enforcing secured creditor; and
(3) The satisfaction of obligations secured by any
subordinate security interest or lien in the collateral if a written demand
and proof of the interest are received before distribution of the proceeds
is completed.
(b) The secured creditor shall account to the grantor for any surplus, and, unless
otherwise agreed, the debtor is liable for any deficiency.
SECTION 53. Rights of Buyers and Other Third Parties. —
(a) If a secured creditor sells the collateral under this Chapter, the buyer shall
acquire the grantor's right in the asset free of the rights of any secured creditor
or lien holder.
 (b) If a secured creditor leases or licenses the collateral under this Chapter, the
lessee or licensee shall be entitled to the benefit of the lease or license during
its term.
(c) If a secured creditor sells, leases or licenses the collateral not in compliance
with this Chapter, the buyer, lessee or licensee of the collateral shall acquire
the rights or benefits described in subsections (a) and (b) of this
section: Provided, That it had no knowledge of a violation of this Chapter
that materially prejudiced the rights of the grantor or another person.
SECTION 54. Retention of Collateral by Secured Creditor. —
(a) After default, the secured creditor may propose to the debtor and grantor to
take all or part of the collateral in total or partial satisfaction of the secured
obligation, and shall send a proposal to:
(1) The debtor and the grantor;
(2) Any other secured creditor or lien holder who, five (5) days before the
proposal is sent to the debtor and the grantor, perfected
its security interest or lien by registration; and
(3) Any other person with an interest in the collateral who has given a written
notification to the secured creditor before the proposal is sent to the
debtor and the grantor.
(b) The secured creditor may retain the collateral in the case of:
(1) A proposal for the acquisition of the collateral in full satisfaction of the
secured obligation, unless the secured creditor receives an objection in
writing from any person entitled to receive such a proposal within twenty
(20) days after the proposal is sent to that person; or
(2) A proposal for the acquisition of the collateral in partial satisfaction of
the secured obligation, only if the secured creditor receives the
affirmative consent of each addressee of the proposal in writing within
twenty (20) days after the proposal is sent to that person.
CHAPTER 7
TRANSITIONAL PROVISIONS
SECTION 55. Interpretation of Transitional Provisions. — For this Chapter, unless
the context otherwise requires:
(a) Existing secured creditor — means a secured creditor with a
prior security interest;
(b) Prior law — means any law that existed or in force before the effectivity of
this Act;
(c) Prior interest — means a security interest created or provided for by an
agreement or other transaction that was made or entered into before the
effectivity of this Act and that had not been terminated before the effectivity
of this Act, but excludes a security interest that is renewed or extended by
a security agreement or other transaction made or entered into on or after the
effectivity of this Act; and
379
(d) Transitional period — means the period from the date of effectivity of
this Act until the date when the Registry has been established and operational.
SECTION 56. Creation of Prior Interest. —
(a) Creation of prior interest shall be determined by prior law.
(b) A prior interest remains effective between the parties notwithstanding its
creation did not comply with the creation requirements of this Act.
SECTION 57. Perfection of Prior Interest. —
(a) A prior interest that was perfected under prior law continues to be perfected
under this Act until the earlier of:
(1) The time the prior interest would cease to be perfected under prior law;
and
(2) The expiration of the transitional period.
(b) If the perfection requirements of this Act are satisfied before the perfection
of a prior interest ceases in accordance with subsection (a) of this section, the
prior interest continues to be perfected under this Act from the time when it
was perfected under the prior law.
(c) If the perfection requirements of this Act are not satisfied before the
perfection of a prior interest ceases in accordance with subsection (a) of this
section, the prior interest is perfected only from the time it is perfected under
this Act.
(d) A written agreement between a grantor and a secured creditor creating a prior
interest is sufficient to constitute authorization by the grantor of the
registration of a notice covering assets described in that agreement under
this Act.
(e) If a prior interest referred to in subsection (b) of this section was perfected by
the registration of a notice under prior law, the time of registration under the
prior law shall be the time to be used for purposes of applying the priority
rules of this Act.
SECTION 58. Priority of Prior Interest. —
(a) The priority of a prior interest as against the rights of a competing claimant
is determined by the prior law if:
(1) The security interest and the rights of all competing claimant arose
before the effectivity of this Act; and
(2) The priority status of these rights has not changed since the effectivity of
this Act.
(b) For purposes of subsection (a) (2) of this section, the priority status of a prior
interest has changed only if:
(1) It was perfected when this Act took effect, but ceased to be perfected; or
(2) It was not perfected under prior law when this Act took effect, and was
only perfected under this Act.
SECTION 59. Enforcement of Prior Interest. —
 (a) If any step or action has been taken to enforce a prior interest before the
effectivity of this Act, enforcement may continue under prior law or may
proceed under this Act.
(b) Subject to subsection (a) of this section, prior law shall apply to a matter that
is the subject of proceedings before a court before the effectivity of this Act.
CHAPTER 8
CONGRESSIONAL OVERSIGHT AND MISCELLANEOUS PROVISIONS
SECTION 60. Congressional Oversight and Periodic Review. — A Congressional
Oversight Committee shall be created that will conduct a periodic review every five
(5) years commencing from the effectivity of this Act. The Congressional Oversight
Committee shall be composed of the Chairperson of the Senate Committee on Banks,
Financial Institutions and Currencies, the Chairperson of the House of Representatives
Committee on Banks and Financial Intermediaries, and representatives of other
relevant congressional committees.
SECTION 61. Interpretation. — If there is conflict between a provision of
this Act and a provision of any other law, this Act shall govern unless the other law
specifically cites or amends the conflicting provisions of this law.
(b) Articles 2085-2123, 2127, 2140-2141, 2241, 2243, and 2246-2247
of Republic Act No. 386, otherwise known as the "Civil Code of the
Philippines";
(c) Section 13 of Republic Act No. 5980, as amended by Republic Act No. 8556,
otherwise known as the "Financing Company Act of 1998";
(d) Sections 114-116 of Presidential Decree No. 1529, otherwise known as the
"Property Registration Decree";
(e) Section 10 of Presidential Decree No. 1529, insofar as the provision thereof is
inconsistent with this Act; and
(f) Section 5 (e) of Republic Act No. 4136, otherwise known as the "Land
Transportation and Traffic Code."
SECTION 67. Effectivity. — This Act shall take effect fifteen (15) days after
publication in at least two (2) newspapers of general circulation.
SECTION 68. Implementation. — Notwithstanding the entry into force of
this Act under Section 67, the implementation of the Act shall be conditioned upon the
Registry being established and operational under Section 26.

SECTION 62. Implementing Rules and Regulations. — Within six (6) months from
the passage of this Act, the DOF in coordination with the Department of Justice,
through the LRA, shall promulgate the necessary rules and regulations for the effective
implementation of this Act.

SECTION 63. Rules on Enforcement Procedure. — Subject to Section 47, the

expedited hearing/proceedings shall be conducted in a summary manner consistent
with the declared policies of this Act and in accordance with the rules of procedure
that the Supreme Court may promulgate.

SECTION 64. Sourcing of Funds. — The funds needed for the implementation of
this Act shall be taken from the Special Account arising from revenues collected by
the LRA under Section 111 of Presidential Decree No. 1529, without need for any
further government approval.

SECTION 65. Separability Clause. — Should any provision herein be declared

unconstitutional, the same shall not affect the validity of the other provisions of
this Act.

SECTION 66. Repealing Clause. — The following laws, and all laws, decrees, orders,
and issuances or portions thereof, which are inconsistent with the provisions of
this Act, are hereby repealed, amended, or modified accordingly:
(a) Sections 1 to 16 of Act No. 1508, otherwise known as "The Chattel Mortgage
Law";

380

IMPLEMENTING RULES AND REGULATIONS OF THE
PERSONAL PROPERTY SECURITY ACT
RULE I
Preliminary Provisions
SECTION 1.01. Title. — These Rules shall be known and cited as the
Implementing Rules and Regulations of Republic Act No. 11057, otherwise known as
the "Personal Property Security Act" or the "PPSA."
SECTION 1.02. Purpose. — These Rules are hereby promulgated to prescribe the
procedures and guidelines for the implementation of the PPSA in order to facilitate
compliance therewith and to achieve the objectives thereof.
SECTION 1.03. Interpretation Clause. — These Rules shall be liberally construed to
ensure the fulfillment of the policy objectives of the PPSA.
SECTION 1.04. Declaration of Policy. — It is the policy of the State to promote
economic activity by increasing access to least cost credit, particularly for micro,
small, and medium enterprises, by establishing a unified and modern legal framework
for securing obligations with personal property.
SECTION 1.05. Definition of Terms. — As used in these Rules, the following terms
shall mean:
a) Commodity contract — a commodity futures contract, an option on a
commodity futures contract, a commodity option, or another contract if the
contract or option is:
i. Traded on or subject to the rules of a board of trade that has been
designated as a contract market for such a contract; or
ii. Traded on a foreign commodity board of trade, exchange, or market, and
is carried on the books of a commodity intermediary for a commodity
customer;
b) Competing claimant — a creditor of a grantor or other person with rights in
an encumbered asset that may be in competition with the rights of a secured
creditor in the same encumbered asset;
c) Consumer goods — Goods that are used or acquired for use primarily for
personal, family or household purposes;
d) Control agreement — an agreement in writing between the grantor and the
secured creditor which perfects the security interests over intangible asset.
i. With respect to intermediated securities, the control agreement is
among the issuer or the intermediary, the grantor and the secured
creditor, according to which the issuer or the intermediary agrees to
follow instructions from the secured creditor with respect to the
security, without further consent from the grantor;
381
ii. (ii) With respect to rights to a deposit account, the control agreement is
among the deposit-taking institution, the grantor and the secured
creditor, according to which the deposit-taking institution agrees to
follow instructions from the secured creditor with respect to the
payment of funds credited to the deposit account without further
consent from the grantor;
iii. With respect to commodity contracts, the control agreement is among
the grantor, secured creditor, and intermediary, according to which the
commodity intermediary will apply any value distributed on account of
the commodity contract as directed by the secured creditor without
further consent by the commodity customer or grantor.
e) Default — the failure of a debtor to pay or otherwise perform a secured
obligation, and any other event that constitutes default under the terms of an
agreement between the grantor and the secured creditor;
f) Deposit account — consists of deposits in deposit-taking institutions;
g) Deposit-taking institution — refers to a bank as defined under Republic Act
No. 8791, otherwise known as the "General Banking Law," a non-stock
savings and loan association as defined under Republic Act No. 8367, or the
"Revised Non-stock Savings and Loan Association Act of 1997," or a
cooperative as defined under Republic Act No. 9520 otherwise known as the
"Philippine Cooperative Code";
h) Equipment — means a tangible asset other than inventory or consumer goods,
or livestock, that is primarily used or intended to be used by the grantor in the
operation of its business;
i) Financial lease — "financial leasing" of movable properties as defined in
Section 3 (d) of Republic Act No. 5980, as amended by Republic Act No.
8556, or the "Financing Company Act of 1998";
j) Fixtures — property attached to an immovable or a movable;
k) Future property — moans any movable property which does not exist or
which the grantor does not have rights in or the power to encumber at the time
the security agreement is concluded;
l) Grantor —
i. The person who grants a security interest in collateral to secure its own
obligation or that of another person;
ii. A buyer or other transferee of a collateral that acquires its right subject
to a security interest;
iii. A transferor in an outright transfer of an accounts receivable; or
iv. A lessee of goods.
m) Intangible asset — means any movable property other than a tangible asset
including, but not limited to, investment property, deposit accounts,
commodity contracts and receivables;
n) Intellectual property — shall refer to "intellectual property rights" defined in
Section 4.1 of Republic Act No. 8293 or the "Intellectual Property Code of the
Philippines." It shall include copyright, trademarks, service marks, patents,
industrial designs and trade secrets;
o) Intermediary — a person, including, but not limited to, a bank, trust entity,
depositary, broker, or central securities depositary, that in the ordinary course
of business or regular activity maintains an account for such securities or
assets, for another person, and is acting in that capacity;
p) Intermediated securities — means securities credited to a securities account
and rights in securities resulting from the credit of securities to a securities
account;
q) Inventory — means tangible assets held by the grantor for sale or lease in the
ordinary course of the grantor's business, including raw materials and work in
process;
r) Investment property — means any property right arising from an investment.
The term shall include but will not be limited to property in securities and
commodity contracts;
s) Lien — a qualified right or a proprietary interest, which may be exercised over
the property of another;
t) Non-intermediated securities — means securities other than Intermediated
Securities;
u) Notice — a statement of information that is registered in the Registry relating
to a security interest or lien. The term includes an initial notice, amendment
notice, and termination notice;
v) Operating lease — an agreement by which the owner temporarily grants the
use of his property to another who undertakes to pay rent therefor;
w) Perfection — any act authorized by the PPSA and these Rules that makes a
security interest binding as against third parties;
x) Possession — the holding of a thing or the enjoyment of a right;
y) Priority — the right of a person in an encumbered asset in preference to the
right of a competing claimant;
z) Proceeds — any property received upon sale, lease or other disposition of
collateral, or whatever is collected on or distributed with respect to collateral,
claims arising out of the loss or damage to the collateral, as well as a right to
insurance payment or other compensation for loss or damage of the collateral;
aa) Product — a tangible asset which results when a tangible asset is so physically
associated or united with one or more other tangible asset of a different kind,
or when one or more tangible assets are so manufactured, assembled or
processed, that they have lost their separate identities;
bb) Purchase money security interest — a security interest in goods taken by the
seller to secure the price or by a person who gives value to enable the grantor
to acquire the goods to the extent that the credit is used for that purpose;
cc) Receivable — means a right to payment of a monetary obligation, excluding a
right to payment evidenced by a negotiable instrument, a right to payment of
funds credited to a bank account and a right to payment under a non-
intermediated security;
dd) Recognized market — an organized market in which large volumes of similar
assets are bought and sold between many different sellers and buyers, and
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accordingly one in which prices are set by the market and not negoiated
between individual sellers and buyers;
ee) Registration — the process of filing a notice as defined under these Rules with
the Registry;
ff) Registry — the centralized and nationwide electronic registry established in
the Land Registration Authority (LRA) where notice of a security interest and
a lien in personal property may be registered;
gg) Secured creditor — a person that has a security interest. For the purposes of
registration and priority only, it includes a buyer of an account receivable and
a lessor of goods under an operating lease for not less than one (1) year;
hh) Securities account — an account maintained by an intermediary to which
securities may be credited or debited;
ii) Security — shares, participation or interests in a corporation or in a
commercial enterprise or profit-making venture and evidenced by a certificate,
contract, instruments, whether written or electronic in character. It includes
but is not limited to:
i. Shares of stocks, bonds, debentures, notes as evidence of indebtedness,
asset-backed securities;
ii. Investment contracts, certificates of interest or participation in a profit-
sharing agreement, certificates of deposit for a future subscription;
iii. (iii) Fractional undivided interests in oil, gas or other mineral rights;
iv. (iv) Derivatives like options and warrants;
v. Certificates of assignments, certificates of participation, trust
certificates, voting trust certificates or similar instruments;
vi. (vi) Proprietary or nonproprietary membership certificates in
corporations; and
vii. (vii) Other instruments as may in the future be determined by the
Securities and Exchange Commission.
jj) Security interest — a property right in collateral that secures payment or other
performance of an obligation, regardless of whether the parties have
denominated it as a security interest, and regardless of the type of asset, the
status of the grantor or secured creditor, or the nature of the secured obligation;
including the right of a buyer of accounts receivable and a lessor under an
operating lease for not less than one (1) year;
kk) Tangible asset — means any tangible movable asset. Except in Rules 3.07,
3.08, 4.09, and 6.05, this term includes money, negotiable instruments,
negotiable documents and certificated non-intermediated securities but only if
the mere possession of such instruments results in the ownership of the
underlying rights or property embodied by them, in accordance with the laws
governing such instruments;
ll) Writing — for the purpose of the PPSA and these Rules, includes electronic
records.
RULE II
Scope of Application
SECTION 2.01. Scope. — These Rules shall apply to all transactions of any form that
secure an obligation with personal property, whether it is a tangible or an intangible
asset, except interests in aircraft subject to Republic Act No. 9497, or the "Civil
Aviation Authority Act of 2008," and interests in ships subject to Presidential Decree
No. 1521, or the "Ship Mortgage Decree of 1978."
SECTION 2.02. Forms of Security Arrangements. — Contracting parties are free to
enter into any form of security arrangements over movable property, as long as the
security arrangement covering the same is not inconsistent with the PPSA or these
Rules. Subject to existing law, parties may also apply these Rules to other functional
equivalents of security interest, including fiduciary transfers of title, financial lease;
assignment or transfer of receivables; and sale with retention of title.
SECTION 2.03. Security Interests in Personal Property. — A security interest may
be created over all forms of tangible or intangible asset or personal property as defined
by the Civil Code, including but not limited to:
(a) Rights arising from contracts, including but not limited to:
1. Securities
2. Commodity contracts
3. Lease of goods including financial leases and operating leases for a period
of not less than one (1) year
(b) Equipment
(c) Inventory
(d) Deposit accounts
(e) Negotiable instruments
(f) Negotiable documents of title
(g) Consumer goods
(h) Intellectual property
(i) Livestock
(j) Fixtures, accessions, and commingled goods, or
(k) Future property or after-acquired assets.
Provided, that a security interest can only be created on the asset over which the grantor
has a legal right.
RULE III
Creation of Security Interest
Creation of a Security Interest
SECTION 3.01. Creation of Security Interest. — A security interest shall be created
by a security agreement or the lease of an operating lease for not less than one (1) year.
A security agreement is likewise created by the sale of an account receivable, unless
otherwise stipulated by all the parties in the document of sale.
Section 3.02. Continuity of Security Interest. — A security interest created under the
PPSA shall continue in the collateral notwithstanding sale, lease, license, exchange, or
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other disposition of the collateral, except as otherwise provided in these Rules, or as
agreed upon by the parties.
Form of the Security Agreement
SECTION 3.03. Form of Security Agreement. — A security agreement must be
contained in a written contract signed by the parties. It must identify the collateral and
the secured obligation. It may consist of one or more writings that, taken together,
establish the intent of the parties to create a security interest.
The security agreement shall likewise provide for the language to be used in
agreements and notices. The grantor shall be given the option to have the agreement
and notices in Filipino. The Department of Finance (DOF) shall prepare model security
agreements in plain English and Filipino provided in Annex "A" of these Rules.
SECTION 3.04. Description of Collateral. — A description of collateral in the
security agreement and/or in registration notices shall be considered sufficient if it
reasonably identifies the collateral. A specific description of the collateral shall not be
required in constituting the security interest. A description such as "all personal
property," "all equipment," "all inventory," or "all personal property within a generic
category" of the grantor shall be sufficient.
Asset-Specific Rules
SECTION 3.05. Security Interests Over Future Property. —
(a) A security agreement may provide for the creation of a security interest in
future property or after-acquired assets, but the security interest in that
property is created only when the grantor acquires rights in it or the power to
encumber it.
(b) A security agreement may provide that a security interest in a tangible asset
that is transformed into a product extends to the product. A security interest
that extends to a product is limited to the value of the encumbered asset
immediately before it became part of the product.
(c) A security agreement may provide that a security interest in a tangible asset
extends to its replacement. A security interest that extends to a replacement is
limited to the value of the encumbered asset immediately before it was
replaced.
SECTION 3.06 Security Interests Over Right to Proceeds and Commingled Funds.
—
(a) A security interest in personal property shall extend to its identifiable or
traceable proceeds.
 (b) Where proceeds in the form of funds credited to a deposit account or money
are commingled with other funds or money:
i. The security interest shall extend to the commingled money or funds,
notwithstanding that the proceeds have ceased to be identifiable to
the extent they remain traceable;
ii. The security interest in the commingled funds or money shall be
limited to the amount of the proceeds immediately before they were
commingled; and
iii. If at any time after the commingling, the balance credited to the
deposit account or the amount of the commingled money is less than
the amount of die proceeds immediately before they were
commingled, the security interest against the commingled funds or
money shall be limited to the lowest amount of the commingled funds
or money between the time when the proceeds were commingled and
the time the security interest in the proceeds is claimed.
SECTION 3.07. Security Interest Over Tangible Assets Commingled in a Mass. —
(a) A security interest in a tangible asset that is commingled in a mass extends to
the mass.
(b) A security interest that extends to a mass is limited to the same proportion of
the mass as the quantity of the encumbered asset bore to the quantity of the
entire mass immediately after the commingling.
SECTION 3.08. Security Interest in Certain Accounts Receivable. —
(a) A security interest in an account receivable shall be effective notwithstanding
any agreement between the grantor and the account debtor or any secured
creditor limiting in any way the grantor's right to create a security
interest; Provided: Nothing in this section affects the right of a buyer to create
a security interest over the account receivable. Provided, further: that any
release of information is subject to agreements on confidentiality.
(b) Nothing in this section shall affect any obligation or liability of the grantor
for breach of the agreement in subsection (a).
(c) Any stipulation limiting the grantor's right to create a security interest shall
be void.
(d) This section shall apply only to accounts receivable arising from:
i. A contract for the supply or lease of goods or services other than
financial services;
ii. A construction contract or contract for the sale or lease of real
property; and
iii. A contract for the sale, lease or license of intellectual property.
SECTION 3.09. Protection of Account Debtor. — Except as otherwise provided in
the PPSA and these Rules, the creation of a security interest in a receivable does not,
without the consent of the debtor of the receivable, affect its rights and obligations,
including the payment terms contained in the contract giving rise to the receivable. A
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payment instruction may change the person, address or account to which the debtor of
the receivable is required to make payment.
SECTION 3.10. Rights to Payment of Funds Credited to a Bank Account. — A
security interest in a right to payment of funds credited to a bank account is effective
notwithstanding an agreement between the grantor and the deposit-taking institution
limiting in any way the grantor's right to create a security interest.
SECTION 3.11. Tangible Assets with Respect to which Intellectual Property is
Used. — A security interest in a tangible asset with respect to which intellectual
property is used does not extend to the intellectual property and a security interest in
the intellectual property does not extend to the tangible asset.
Extinguishment of Security Interest
SECTION 3.12. Extinguishment of Security Interest. — A security interest is
extinguished when all secured obligations have been discharged and there are no
outstanding commitments to extend credit secured by the security interest.
RULE IV
Perfection of Security Interests
Perfection of Security Interest
SECTION 4.01. Perfection of Security Interest. —
(a) On perfection, a security interest becomes effective against third parties.
(b) A security interest shall be perfected when it has been created and the secured
creditor has taken one of the actions in accordance with these Rules.
Means of Perfection
SECTION 4.02. Means of Perfection — Tangible Assets. — A security interest in
tangible assets may be perfected by either:
(a) Registration of a notice as defined under these Rules with the
Registry: Provided, that a security that is not registered remains valid
between the parties; or
(b) Possession, whether actual or constructive, of the tangible asset either by the
secured creditor or a depositary acting for the secured creditor. Provided, that
the debtor or the grantor cannot possess the collateral on behalf of the secured
creditor for purposes of perfecting and maintaining the security interest over
such collateral.
If a security interest in a tangible asset is effective against third parties, a security
interest in a mass to which the security interest extends is effective against third parties
without any further act.
SECTION 4.03. Means of Perfection — Intangible Assets. — A security interest in
intangible assets may be perfected by either:
(a) Registration of a notice as defined under these Rules with the
Registry: Provided, that a security that is not registered remains valid
between the parties; or
(b) Conclusion of a control agreement. For purposes of determining the time of
perfection of the security interest, the control agreement shall be executed
under oath, and shall indicate the date and time of its execution.
SECTION 4.04. Perfection of Security Interest in Intermediated Securities or Deposit
Accounts. — A security interest in intermediated securities or deposit accounts may
be perfected by:
(a) Registration of a notice as defined under these Rules with the
Registry: Provided, that a security that is not registered remains valid
between the parties;
(b) Creation of a security interest in favor of the deposit-taking institution or the
intermediary; or
(c) Conclusion of a control agreement.
For purposes of determining the time of perfection of the security interest, the security
agreement or control agreement shall be executed under oath, and shall include the
date and time of its execution.
Nothing in these Rules shall require a deposit-taking institution or an intermediary
under sub-section (b) to enter into a control agreement, even if the grantor so requests.
A deposit-taking institution or an intermediary that has entered into such an agreement
shall not be required to confirm the existence of the agreement to another person unless
requested to do so by the grantor.
SECTION 4.05. Perfection of Security Interest in Electronic Securities. — A security
interest in electronic non-intermediated securities may be by:
(a) Registration of a notice as defined under these Rules with the
Registry: Provided, that a security that is not registered remains valid
between the parties;
(b) The execution of a control agreement between the grantor and secured
creditor; or
(c) Control, through notation of a security interest in the books maintained by or
on behalf of the issuer for the purpose of recording the name of the holder of
the securities.
SECTION 4.06. Perfection of Security Interest in Intermediated Electronic
Securities. — A security interest in investment property that is electronic (i.e., a
scripless or uncertificated) security held by an intermediary may be by:
a) Registration of a notice as defined under these Rules with the
Registry: Provided, that a security that is not registered remains valid
between the parties;
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b) The execution of a control agreement between the intermediary, the grantor
and secured creditor.
For purposes of determining the time of perfection of the security interest, the control
agreement shall be executed under oath, and shall include the date and time, specifying
the hour and minute of its execution.
SECTION 4.07. Parties to, Form and Contents of a Control Agreement. —
(a) With respect to intermediated securities, a control agreement shall:
i. Be executed in writing by the issuer or the intermediary, the grantor
and the secured creditor;
ii. Stipulate that the issuer or the intermediary agrees to follow
instructions from the secured creditor with respect to the security,
without further consent from the grantor.
(b) With respect to rights to deposit account, a control agreement shall:
i. Be executed in writing among the deposit-taking institution, the
grantor and the secured creditor;
ii. Stipulate that the deposit-taking institution agrees to follow
instructions from the secured creditor with respect to the payment of
funds credited to the deposit account without further consent from the
grantor.
(c) With respect to commodity contracts, a control agreement shall:
i. Be executed in writing among the grantor, secured creditor, and
intermediary;
ii. Stipulate that the commodity intermediary will apply any value
distributed on account of the commodity contract as directed by the
secured creditor without further consent by the commodity customer
or grantor.
Continuity of Perfected Security Interest
SECTION 4.08. Change in Means of Perfection. — A security interest shall remain
perfected despite a change in the means for achieving perfection: Provided, that there
was no time when the security interest was not perfected.
SECTION 4.09. Disposition of Perfected Security Interest before Default. —
(a) Transferee Exceptions. — Any party who obtains, in the ordinary course of
business, any movable property containing a security interest shall take the
same free of such security interest provided he was in good faith. No such
good faith shall exist if the security interest in the movable property was
registered prior to his obtaining the property.
(b) Perfection in Proceeds. —
i. Before default, upon disposition of the collateral, a security interest
shall extend to proceeds of the collateral without further act and be
continuously perfected, if the proceeds are in the form of money,
accounts receivable, negotiable instruments or deposit accounts.
 ii. (ii) Before default, upon disposition of the collateral, if the proceeds i. assign a unique registration number;
are in a form different from money, accounts receivable, negotiable ii. create a record that bears the number assigned to the initial notice
instruments or deposit accounts, the security interest in such proceeds and the date and time of registration; and
must be perfected by one of the means applicable to the relevant type iii. maintain the record for public inspection.
of collateral within fifteen (15) days after the grantor receives such (b) The Registry shall index notices by the identification number of the grantor,
proceeds; otherwise, the security interest in such proceeds shall not except for notices containing a serial number of a motor vehicle, which shall
be effective against third parties. be indexed by serial number.
SECTION 4.10. Fixtures, Accessions, and Commingled Goods. — A perfected (c) The Registry shall provide a copy of the electronic record of the notice,
security interest in a movable property which has become a fixture, or has undergone including the registration number and the date and time of registration to the
accession or commingling shall continue provided the movable property involved can person who submitted it.
still be reasonably traced. In determining ownership over fixtures, accessions, and (d) The Registry shall maintain the capability to retrieve a record by the
commingled goods, the provisions of Book II of Republic Act No. 386 or the "Civil identification number of the grantor, and by serial number of a motor vehicle.
Code of the Philippines" shall apply. (e) The Registry shall maintain records of lapsed notices for a period of ten (10)
years after the lapse.
RULE V (f) The duties of the Registry shall be merely administrative in nature. By
The Registry registering a notice or refusing to register a notice, the Registry does not
Operation of Registry determine the sufficiency, correctness, authenticity or validity of any
information contained in the notice, or the validity of the security agreement.
SECTION 5.01. Establishment. — The LRA, within six (6) months from the
publication of these Rules, shall establish and administer the centralized, nationwide Registration of Notice
Registry, which shall contain, among others, the following information:
(a) Initial notice of security interest and lien in personal property; SECTION 5.05. Sufficiency of Notice. —
(b) Amendment notice providing new information or continuing the period of (a) An initial notice of security interest shall not be rejected:
effectiveness of an initial notice; i. If it identifies the grantor by an identification number, as further
(c) Termination notice. prescribed in the regulations;
ii. If it identifies the secured creditor or an agent of the secured creditor
The Registry shall provide electronic means for registration and searching of notices. by name;
The LRA shall issue the necessary guidelines on the use and management of the iii. If it provides an address for the grantor and secured creditor or its
Registry. agent;
iv. If it describes the collateral;
SECTION 5.02. Sourcing of Funds. — The funds needed for the implementation of v. If it states the duration of effectivity of the security interest; and
these Rules shall be taken from the Special Account arising from revenues collected vi. If the prescribed fee has been tendered, or an arrangement has been
by the LRA under Section 111 of Presidential Decree No. 1529, without need for any made for payment of fees by other means.
further government approval.
If the grantor is a natural person, that grantor shall be identified
SECTION 5.03. Fees Set by Regulation. — The fees for registering a notice and for through the name appearing in any of the grantor's government
requesting a certified search report shall be set by regulations issued by the DOF for issued identification, as may be prescribed by the LRA.
the recovery of reasonable costs of establishing and operating the Registry. Such
regulations must take into consideration the following requirements: If the grantor is a juridical person, that grantor shall be identified
(a) Fees imposed must not be burdensome to either lender or grantor. through its name in the most recently registered articles of
(b) There shall be no fee for electronic searches of the Registry records or for the incorporation, or in an agreement constituting the legal person.
registration of termination notices. (b) If the Registry rejects to register a notice, it shall promptly communicate to
(c) The Registry may charge fees for services not mentioned above. the person who submitted the notice, within three (3) days from the rejection,
SECTION 5.04. Registry Duties. — the fact of and the reason for its rejection.
(a) The Registry shall, for each registered notice:

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 (c) Each grantor must authorize the registration of an initial notice by signing a
security agreement or otherwise in writing
(d) A notice may be registered before a security agreement is concluded. Once
a security agreement is concluded, the date of registration of the notice shall
be reckoned from the date the notice was registered.
(e) A notice of lien may be registered by a lien holder without the consent of the
person against whom the lien is sought to be enforced.
(f) Description of the collateral in a notice shall be entered in English.
SECTION 5.06. One Notice Sufficient for Security Interests under Multiple Security
Agreements. — The registration of a single notice may relate to security interests
created by the grantor under one (1) or more than one security agreement.
SECTION 5.07. Effectiveness of Notice. — A notice shall be effective at the time it is
discoverable on the records of the Registry and for the duration of the term indicated
in the notice, unless a continuation notice is registered before the term lapses. The copy
of the electronic record of the notice provided to the person who submitted it indicating
the date and time of effectivity shall be conclusive.
A notice substantially complying with the requirements of this Rule shall be effective
unless it is seriously misleading. Seriously misleading notices include notices which
do not provide the identification number of the grantor.
A notice that may not be retrieved in a search of the Registry against the correct
identifier of the grantor shall be ineffective with respect to that grantor.
The registration of a notice shall neither expand nor diminish the security interest
beyond the terms of the security agreement, except as otherwise provided by the PPSA
or these Rules. Any error or misrepresentation in the notice with respect to the
description of the security interest shall not affect any rights beyond those granted in
the original security agreement.
Amendment and Termination of Notice
SECTION 5.08. Amendment of a Notice. — A notice may be amended by the
registration of an amendment notice that identifies the initial notice by its registration
number and provides new information.
The amendment notice to be valid may be filed:
(a) By the secured creditor alone, if the changes to the security interest can be
effected with the sole consent of the secured creditor; or
(b) By the grantor, if the changes to the security interest requires the grantor's
consent.
A secured creditor who files the amendment notice necessarily attests that no other
consent is necessary for the amendment to take effect.
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If the amendment notice adds collateral that is not proceeds, it must be authorized by
the grantor in writing. If the amendment notice adds a grantor, it must be authorized
by the added grantor in writing. Such amendment notices shall be effective as to the
added collateral or grantor from the date of its registration and shall be effective only
as to each secured creditor who authorizes it.
If a secured creditor assigns a perfected security interest, an amendment notice may
be registered to reflect the assignment.
SECTION 5.09. Continuation of Notice. — The period of effectiveness of a notice
may be continued for an additional days by registering an amendment notice that
identifies the initial notice by its registration number. It must be registered within six
(6) months before the expiration of the effective period of the notice.
SECTION 5.10. Compulsory Amendment by Court Order. — The court may, on
application by the grantor, issue an order that the notice be amended in accordance
with the demand, which order shall be conclusive and binding on the LRA: Provided,
that the secured creditor who disagrees with the order of the court may appeal the
order.
The court may make any other order it deems proper for the purpose of giving effect
to an issued compulsory amendment order.
The LRA shall amend a notice in accordance with a court order made under this section
as soon as reasonably practicable.
Any person who, without negligence on his part, sustains loss or damage, or is
deprived of his priority right in consequence of an erroneous or false description in the
notice made by the filing party may bring an action in any court of competent
jurisdiction for the recovery of damages from the responsible party. The same court
may also order the correction of the error or false description in the notice.
SECTION 5.11. Termination of Effectiveness of a Notice. — The effectiveness of a
notice may be terminated by registering a termination notice that identifies the initial
notice by its registration number and each secured creditor who authorizes the
registration of the termination notice. The notice is terminated from the date and time
when the information in the notice is no longer accessible to searchers of the public
registry record.
A termination notice terminates effectiveness of the notice as to each authorizing
secured creditor.
SECTION 5.12. Compulsory Termination by Court Order. — The court may, on
application by the grantor, issue an order that the notice be terminated in accordance
with the demand, which order shall be conclusive and binding on the LRA: Provided,
that the secured creditor who disagrees with the order of the court may appeal the
order.
The court may make any other order it deems proper for the purpose of giving effect
to an issued compulsory termination order.
The LRA shall terminate a notice in accordance with a court order made under this
section as soon as reasonably practicable.
SECTION 5.13. When the Grantor May Demand Amendment or Termination of a
Notice. — A grantor may give a written demand to the secured creditor for the
amendment or termination of the effectiveness of the notice in the following cases:
(a) All the obligations under the security agreement to which the registration
relates have been performed and there is no commitment to make future
advances;
(b) The secured creditor has agreed to release part of the collateral described in
the notice;
(c) The collateral described in the notice includes an item or kind of property that
is not a collateral under a security agreement between the secured creditor and
the grantor;
(d) No security agreement exists between the parties; or
(e) The security interest is extinguished in accordance with this Rule.
Upon receipt of the demand for amendment submitted by the grantor, the secured
creditor must register, within fifteen (15) working days, a notice amending the
registration to release some property that is no longer collateral or that was never
collateral under a security agreement between the secured creditor and the grantor in
a case within subsection (c) of paragraph 1 of this section.
Upon receipt of the demand for termination submitted by the grantor, the secured
creditor must register, within fifteen (15) working days, a notice terminating the
registration in a case within subsections (a), (d) or (e) of paragraph 1 of this section.
SECTION 5.14. Procedure for Noncompliance with Demand. — If the secured
creditor fails to comply with the demand within fifteen (15) working days after its
receipt, the person giving the demand under the two preceding sections may ask the
proper court to issue an order terminating or amending the notice as appropriate.
SECTION 5.15. No Fee for Compliance of Demand. — A secured creditor shall not
charge any fee for compliance with a demand received under Section 5.13 of this Rule.
Public Access and Search
SECTION 5.16. Public Record. — The electronic records of the Registry shall be the
official records. All notices registered and the information contained in such notices,
shall be considered, as part of the public record and may be searched and examined by
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any person: Provided that the processing of all information under these Rules shall be
in accordance with the provisions of Republic Act 10173, otherwise known as the
"Data Privacy Act of 2012."
Registration of a notice of the public auction in accordance with Section 7.08 (b) of
these Rules is sufficient to comply with the publication requirement therein.
SECTION 5.17. Search of Registry Records and Certified Report. — The Registry
shall communicate the following information to any person who requests it:
(a) Whether there are in the Registry any unlapsed notices that indicate the
grantor's identification number or vehicle serial number that exactly matches
the relevant criterion provided by the searcher;
(b) The registration number, and the date and time of registration of each notice;
and
(c) All of the information contained in each notice.
If requested, the Registry shall issue a certified report of the results of a search.
Certified reports of search results shall be treated as official records of the Registry,
which shall be admissible into evidence in judicial proceedings without extrinsic
evidence of its authenticity.
SECTION 5.18. When Registration and Search Constitutes Interference with Privacy
of Individual. — A person who submitted a notice for registration or carried out a
search of the Registry with a frivolous, malicious or criminal purpose or intent shall
be subject to civil and criminal penalties according to the relevant laws.
Correction of Errors
SECTION 5.19. Correction of Errors Made by the Registry. — Without delay after
discovering that it made an administrative error or omission in entering into the public
record the information contained in a notice submitted for registration or erroneously
removed from the public registry record information contained in the registered notice,
the Registry must:
(a) Register a notice to correct the error or omission, or;
(b) Restore the erroneously removed information, and send a copy of the
information in the registered notice to the person identified in the notice as
the secured creditor.
The registration of a notice referred to in letter (a) is effective as of the time the
information in the notice becomes accessible to searchers of the public registry record.
SECTION 5.20. False or Misleading Information. — The entry of false or misleading
information in any notice or lien or record entered and made publicly available in the
Registry may result in a prosecution for Data Interference, Computer-related Fraud or
Computer-related Forgery under Republic Act No. 10175, otherwise known as the
"Cybercrime Prevention Act of 2012."

RULE VI
Priority of Security Interest
General Rule
SECTION 6.01. Time of Perfection. — The priority of security interests and liens on
the same collateral shall be determined according to the time of registration of a notice
or perfection by other means, without regard to the order of creation of the security
interests and liens, or to the mode of perfection except as provided in Sections 6.02 to
6.05 of these Rules.
Priority Rules for Intangible Assets
SECTION 6.02. Priority for Investment Property and Deposit Accounts. — Subject
to Section 6.01, the following rules shall govern when applicable:
(a) A security interest in a deposit account with respect to which the secured
creditor is the deposit-taking institution or the intermediary shall have priority
over a competing security interest perfected by any method.
(b) A security interest in a deposit account or investment property that is perfected
by a control agreement shall have priority over a competing security interest
except a security interest of the deposit-taking institution or the intermediary.
(c) The order of priority among competing security interests in a deposit account
or investment property that were perfected by the conclusion of control
agreements shall be determined on the basis of the time of conclusion of the
control agreements.
(d) Any rights to set-off that the deposit-taking institution may have against a
grantor's right to payment of funds credited to a deposit account shall have
priority over a security interest in the deposit account.
(e) A security interest in electronic non-intermediated securities perfected by a
notation of the security interests in the books maintained for that purpose by
or on behalf of the issuer shall have priority over a security interest in the same
securities perfected by any other method.
(f) A security interest in electronic securities not held with an intermediary
perfected by the conclusion of a control agreement shall have priority over a
security interest in the same securities perfected by registration of a notice in
the Registry.
(g) A security interest in electronic securities held with an intermediary and
perfected through a control agreement shall have priority over a security
interest in the same securities perfected by any other method.
(h) The order of priority among competing security interests in electronic
securities not held with an intermediary perfected by the conclusion of control
agreements is determined on the basis of the time of conclusion of the control
agreements.
Priority Rules for Tangible Assets
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SECTION 6.03. Priority for Tangible Assets Embodied in Instruments. — Subject to
Section 6.01, the following rules shall govern when applicable:
(a) A security interest in a security certificate perfected by the secured creditor's
possession of the certificate shall have priority over a competing security
interest perfected by registration of a notice in the Registry.
(b) A security interest in an instrument or negotiable document that is perfected
by possession of the instrument or the negotiable document shall have priority
over a security interest in the instrument or negotiable document that is
perfected by registration of a notice in the Registry.
(c) A perfected security interest in livestock securing an obligation incurred to
enable the grantor to obtain food or medicine for the livestock shall have
priority over any other security interest in the livestock, except for a perfected
purchase money security interest in the livestock, if the secured creditor
providing credit for food or medicine gives written notification to the holder
of the conflicting perfected security interest in the same livestock before the
grantor receives possession of the food or medicine.
Priority Rules for Specific Cases
SECTION 6.04. By Operation of Law. —
(a) Priority and Right of Retention. — A person who provides services or
materials with respect to the goods, in the ordinary course of business, and
retains possession of the goods shall have priority over a perfected security
interest in the goods until payment thereof.
(b) Effect of Grantor's Insolvency. — Subject to the applicable insolvency law, a
security interest perfected prior to the commencement of insolvency
proceedings in respect of the grantor shall remain perfected and retain the
priority it had before the commencement of the insolvency proceedings.
During insolvency proceedings, the perfected security interest shall constitute a lien
over the collateral.
SECTION 6.05. Priority of Purchase Money Security Interest. —
(a) A purchase money security interest in equipment and its proceeds shall have
priority over a conflicting security interest, if a notice relating to the purchase
money security interest is registered within three (3) business days after the
grantor receives possession of the equipment.
(b) A purchase money security interest in consumer goods that is perfected by
registration of notice not later than three (3) business days after the grantor
obtains possession of the consumer goods shall have priority over a
conflicting security interest.
(c) A purchase money security interest in inventory, intellectual property or
livestock shall have priority over a conflicting perfected security interest in
the same inventory, intellectual property or livestock if:
 i. The purchase money security interest is perfected when the grantor
receives possession of the inventory or livestock, or acquires rights
to intellectual property; and
ii. Before the grantor receives possession of the inventory or livestock,
or acquires rights in intellectual property, the purchase money
secured creditor gives written notification to the holder of the
conflicting perfected security interest in the same types of inventory,
livestock, or intellectual property. The notification sent to the holder
of the conflicting security interest may cover multiple transactions
between the purchase money secured creditor and the grantor without
the need to identify each transaction.
(d) The purchase money security interest in equipment or consumer goods
perfected timely in accordance with subsections (a) and (b), shall have
priority over the rights of a buyer, lessee, or lien holder which arise between
delivery of the equipment or consumer goods to the grantor and the time the
notice is registered.
RULE VII
Enforcement of Security Interest and Secured Creditor's Rights
SECTION 7.01. Enforcement With or Without Judicial Process. — The secured
creditor may enforce its security interest whether through a judicial process or through
an extra-judicial process, including the sale of the secured assets through either a
public or private disposition. Any judicial enforcement of security interests, including
the disposition of collateral, shall be governed by rules promulgated by the Supreme
Court.
SECTION 7.02. Expedited Repossession of the Collateral (Without Judicial Process).
— The secured creditor may take possession of the collateral without judicial process
if the security agreement so stipulates: Provided, that possession can be taken without
a breach of the peace. Breach of the peace shall include entering the private residence
of the grantor without permission, resorting to physical violence or intimidation, or
being accompanied by a law enforcement officer when taking possession or
confronting the grantor.
If the collateral is a fixture, the secured creditor, if it has priority over all owners and
mortgagees, may remove the fixture from the real property to which it is affixed
without judicial process. The secured creditor shall exercise due care in removing the
fixture.
SECTION 7.03. Expedited Repossession of the Collateral (With Judicial Process). —
If, upon default, the secured creditor cannot take possession of collateral without
breach of the peace, the secured creditor may proceed as follows:
(a) The secured creditor shall be entitled to an expedited hearing upon application
for an order granting the secured creditor possession of the collateral. Such
390
application shall include a statement by the secured creditor, under oath,
verifying the existence of the security agreement attached to the application
and identifying at least one event of default by the debtor under the security
agreement;
(b) The secured creditor shall provide the debtor, grantor, and, if the collateral is
a fixture, any real estate mortgagee, a copy of the application, including all
supporting documents and evidence for the order granting the secured creditor
possession of the collateral; and
(c) The secured creditor is entitled to an order granting possession of the collateral
upon the court finding that a default has occurred under the security agreement
and that the secured creditor has a right to take possession of the collateral.
The court may direct the grantor to take such action as the court deems
necessary and appropriate so that the secured creditor may take possession of
the collateral.
SECTION 7.04. Right of Higher-Ranking Secured Creditor to Take Over
Enforcement. —
(a) Even if another secured creditor or a lien holder has commenced enforcement,
a secured creditor whose security interest has priority over that of the
enforcing secured creditor or lien holder shall be entitled to take over the
enforcement process.
(b) The right referred to in subsection (a) of this section may be invoked at any
time before the collateral is sold or otherwise disposed of, or retained by the
secured creditor or until the conclusion of an agreement by the secured creditor
for that purpose.
(c) The right of the higher-ranking secured creditor to take over the enforcement
process shall include the right to enforce the rights by any method available to
a secured creditor under the PPSA and these Rules.
SECTION 7.05. Recovery in Special Cases. — Upon default, the secured creditor
may without judicial process:
(a) Instruct the account debtor of an accounts receivable to make payment to the
secured creditor, and apply such payment to the satisfaction of the obligation
secured by the security interest after deducting the secured creditor's
reasonable collection expenses. On request of the account debtor, the secured
creditor shall provide evidence of its security interest to the account debtor
when it delivers the instruction to the account debtor;
(b) In a negotiable document where the security interest is perfected by
possession, proceed as to the negotiable document or goods covered by the
negotiable document;
(c) In a deposit account maintained by the secured creditor, apply the balance of
the deposit account to the obligation secured by the deposit account; and
(d) In other cases of a security interest in a deposit account perfected by a control
agreement, instruct the deposit-taking institution to pay the balance of the
deposit account to the secured creditor's account by providing:
 i. a copy of the security agreement that creates or provides for a
security interest; and
ii. the secured party's affidavit stating that a default has occurred, and
that the secured party is entitled to enforce the security interest non-
judicially.
SECTION 7.06. Right to Dispose of Collateral. — After default, a secured creditor
may sell or otherwise dispose of the collateral, publicly or privately, in its present
condition or following any commercially reasonable preparation or processing.
SECTION 7.07. Commercial Reasonableness Required. —
(a) In disposing of collateral, the secured creditor shall act in a commercially
reasonable manner.
(b) A disposition is commercially reasonable if the secured creditor disposes of
the collateral in conformity with commercial practices among dealers in that
type of property.
(c) A disposition is not commercially unreasonable merely because a better price
could have been obtained by disposition at a different time or by a different
method from the time and method selected by the secured creditor.
SECTION 7.08. Notification Requirements Prior to Disposition. —
(a) Not later than ten (10) days before disposition of the collateral, the secured
creditor shall notify:
i. The grantor;
ii. Any other secured creditor or lien holder who, five (5) days before
the date notification is sent to the grantor, held a security interest or
lien in the collateral that was perfected by registration; and
iii. Any other person from whom the secured creditor received
notification of a claim of an interest in the collateral if the notification
was received before the secured creditor gave notification of the
proposed disposition to the grantor.
(b) The grantor may, after default, waive the right to be notified.
(c) A notification of disposition is sufficient if it identifies the grantor and the
secured creditor; describes the collateral; states the method of intended
disposition; and states the time and place of a public disposition or the time
after which other disposition is to be made.
(d) The secured creditor shall notify the persons entitled to notification via
registered mail, private courier, electronically, or through any means where
receipt of the notice can be established by a disinterested third party.
(e) The requirement to send a notification under this section shall not apply if the
collateral is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market.
SECTION 7.09 Guidelines on Private or Public Dissposition. —
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(a) The secured creditor may dispose of the collateral through a sale open to
participation by the general public.
(b) In case of extra-judicial disposition, the secured creditor may, subject to the
guidelines below, select the method, manner, time, place and other aspects of
the sale or other disposition, lease or license, including whether to sell or
otherwise dispose of, lease or license encumbered assets individually, in
groups or altogether: Provided, that the disposition is undertaken in good
faith and satisfies the commercial reasonableness requirement under Section
7.07. Judicial dispositions shall be governed by rules promulgated by the
Supreme Court.
(c) The secured creditor shall, no later than ten (10) days before the extra-judicial
disposition of the collateral, cause the posting with the Registry of a notice
that sufficiently describes the collateral to be sold and specifies the method,
manner, time, place and other details of the sale. The Registry shall ensure
that all such notices posted are publicly accessible and searchable. In
adherence with the commercial reasonableness requirement, the secured
creditor may also cause the advertisement of the disposition through any other
means or medium as the secured creditor may deem as suitable, to maximize
awareness of the sale among dealers in the type of property to which the
collateral belongs.
(d) All collateral shall be disposed through auction and the following indicators
may be taken into account in determining whether the sale satisfies the good
faith and commercial reasonableness requirement:
i. that the person or entity who presides over the auction is an
experienced dealer in the type of property sold;
ii. that the participating bidders do not engage in collusive practices that
prevent free and open competition;
iii. that the records of the proceedings, including the identities and
respective submissions of the bidders, are documented in writing and
subsequently maintained; and
iv. that the highest bidder is duly awarded the collateral.
The winning bidder must fully pay the bid price at the conclusion of
the auction. Otherwise, the collateral may be awarded to the next
highest bidder.
(e) Any government agency that regularly undertakes public auctions in the
course of its regular activities may be engaged by any secured creditor to
preside over public auctions over securitized movable collateral under this
Section, through rules and regulations that must be submitted to the
Department of Finance for prior approval. Private entities such as auction
houses, industry groups of secured creditors, or organizations of recognized
dealers of specific movables may likewise adopt rules and regulations for the
conduct of public auctions, subject to the approval of the Department of
Finance. Any public auction of movable collateral conducted by any
government agency or private entity under rules duly approved by the
 Department of Finance shall be conclusively presumed to be commercially
reasonable.
(f) The secured creditor may buy the collateral at any public disposition, or at a
private disposition but only if the collateral is of a kind that is customarily
sold on a recognized market or the subject of widely distributed standard price
quotations.
(g) If a method of disposition of collateral has been approved in any legal
proceeding, whether judicial or administrative, it is conclusively
commercially reasonable.
SECTION 7.10. Right of Redemption. —
(a) Any person who is entitled to receive a notification of disposition in
accordance with these Rules is entitled to redeem the collateral by paying or
otherwise performing the secured obligation in full, including the reasonable
cost of enforcement.
(b) The right of redemption may be exercised, unless:
i. The person entitled to redeem has, after the default, waived in writing
the right to redeem;
ii. The collateral is sold or otherwise disposed of, acquired or collected
by the secured creditor, or when an agreement with those effects on
the collateral is concluded by the secured creditor; or
iii. The secured creditor has retained the collateral.
SECTION 7.11. Application of Proceeds. —
(a) The proceeds of disposition shall be applied in the following order:
i. The reasonable expenses of taking, holding, preparing for
disposition, and disposing of the collateral, including reasonable
attorneys' fees and legal expenses incurred by the secured creditor;
ii. The satisfaction of the obligation secured by the security interest of
the enforcing secured creditor; and
iii. The satisfaction of obligations secured by any subordinate security
interest or lien in the collateral if a written demand and proof of the
interest are received before distribution of the proceeds is
completed.
(b) The secured creditor shall account to the grantor for any surplus, and, unless
otherwise agreed, the debtor is liable for any deficiency.
(c) The reasonable expenses of holding the collateral shall include all expenses
incurred by the secured creditor in the preservation and care of the collateral
in his possession with the diligence of a good father of a family.
(d) The secured creditor shall be liable to the grantor for the value of the loss and
deterioration that may be suffered due to his failure to preserve and care for
the collateral.
SECTION 7.12. Right of Buyers and Other Third Parties. —
392
(a) If a secured creditor sells the collateral under this Chapter, the buyer shall
acquire the grantor's right in the asset free of the rights of any secured creditor
or lien holder.
(b) If a secured creditor leases or licenses the collateral under this Chapter, the
lessee or licensee shall be entitled to the benefit of the lease or license during
its term.
(c) If a secured creditor sells, leases or licenses the collateral not in compliance
with this Chapter, the buyer, lessee or licensee of the collateral shall acquire
the rights or benefits described in subsections (a) and (b) of this
section: Provided, that it had no knowledge of a violation of this Chapter that
materially prejudiced the rights of the grantor or another person.
SECTION 7.13. Retention of Collateral by Secured Creditor. —
(a) After default, the secured creditor may propose to the debtor and grantor to
take all or part of the collateral in total or partial satisfaction of the secured
obligation, and shall send a proposal to:
i. The debtor and the grantor;
ii. Any other secured creditor or lien holder who, five (5) days before
the proposal is sent to the debtor and the grantor, perfected its
security interest or lien by registration; and
iii. Any other person with an interest in the collateral who has given a
written notification to the secured creditor before the proposal is sent
to the debtor and the grantor.
(b) The secured creditor may retain the collateral in the case of:
i. A proposal for the acquisition of the collateral in full satisfaction of
the secured obligation, unless the secured creditor receives an
objection in writing from any person entitled to receive such a
proposal within twenty (20) days after the proposal is sent to that
person; or
ii. A proposal for the acquisition of the collateral in partial satisfaction
of the secured obligation, only if the secured creditor receives the
affirmative consent of each addressee of the proposal in writing
within twenty (20) days after the proposal is sent to that person.
(c) A proposal for the retention of the collateral is sufficient if it includes:
i. A statement of the amount required at the time the proposal is given
to satisfy the secured obligation, including interest and the
reasonable cost of enforcement, and the amount of the secured
obligation that is proposed to be satisfied;
ii. (ii) A statement that the secured creditor proposes to acquire the
encumbered asset described in the proposal in total or partial
satisfaction of the secured obligation;
iii. (iii) A statement of the date after which the secured creditor will
acquire the encumbered asset.
SECTION 7.14. Remedies for Secured Party's Failure to Comply with the Rules. —
 (a) Judicial orders concerning noncompliance. — If it is established that a
secured party is not proceeding in accordance with these Rules, a court may
order or restrain collection, enforcement, or disposition of collateral on
appropriate terms and conditions.
(b) Damages for noncompliance. — A party or interested person who fails to
comply with the provisions of these Rules shall be liable in the amount of any
loss resulting from such failure. Loss caused by a failure to comply may
include loss resulting from the debtor's inability to obtain, or increased costs
of, alternative financing.
(c) Person entitled to recover damages. — A person that, at the time of the
failure, was a debtor, a grantor, or held a security interest in or other lien on
the collateral may recover damages under subsection (b) for its loss.
RULE VIII
Prior Interests and the Transitional Period
SECTION 8.01. Interpretation of Transitional Provisions. — For this Rule, unless
the context otherwise requires:
(a) Existing secured creditor — means a secured creditor with a prior security
interest;
(b) Prior law — means any law that existed or in force before the effectivity of
the PPSA;
(c) Prior interest — means a security interest created or provided for by an
agreement or other transaction that was made or entered into before the
effectivity of the PPSA and that had not been terminated before the effectivity
of the PPSA, but excludes a security interest that is renewed or extended by
a security agreement or other transaction made or entered into on or after the
effectivity of the PPSA;
(d) Transitional period — means the period from the date of effectivity of the
PPSA until the date when the Registry has been established and operational.
Before the Effectivity of the PPSA
SECTION 8.02. Creation of Prior Interest. —
(a) Creation of prior interest shall be determined by prior law.
(b) A prior interest remains effective, subject to Section 8.03 of these Rules,
between the parties notwithstanding that its creation did not comply with the
creation requirements of the PPSA and these Rules.
SECTION 8.03. Perfection of Prior Interest. —
(a) A prior interest that was perfected under prior law continues to be deemed
perfected under the PPSA and these rules until the earlier of:
i. The time the prior interest would cease to be perfected under prior
law; and
ii. The beginning of full implementation of the PPSA.
393
SECTION 8.04. Priority of Prior Interest. — The priority of a prior interest as against
the rights of a competing claimant is determined by the prior law if:
(a) The priority of a prior interest as against the rights of a competing claimant
is determined by the prior law if:
i. The security interest and the rights of all competing claimant arose
before the effectivity of the PPSA; and
ii. The priority status of these rights has not changed since the
effectivity of the PPSA.
(b) For purposes of subsection (a) (ii) of this Rule, the priority status of a prior
interest has changed only if:
i. It was perfected when the PPSA took effect, but ceased to be
perfected; or
ii. It was not perfected under prior law when the PPSA took effect, and
was only perfected under the PPSA.
SECTION 8.05. Enforcement of Prior Interest. —
(a) If any step or action has been taken to enforce a prior interest before the
effectivity of the PPSA and these Rules, and such prior interest falls within
Section 8.02 (b) also of this Rule, enforcement may continue under the
prior law or may proceed under the PPSA and these Rules.
(b) Subject to subsection (a) of this Rule, prior law shall apply to a matter that
is the subject of proceedings before a court before the effectivity of the
PPSA.
During the Transitional Period
SECTION 8.06. Date of Effectivity of the Transitional Period. — The transitional
period shall begin on February 9, 2019, which is the date of effectivity of the PPSA
pursuant to Section 67 thereof.
SECTION 8.07. Creation of Security Interest. — All security interests created during
the Transitional Period are governed by the PPSA.
SECTION 8.08. Perfection of Security Interest. — The perfection of all existing
security interests created during the Transitional Period shall be governed by the
PPSA. Provided, however, that during the Transitional Period, registration of the
security agreement with the LRA shall be in accordance with Section 4 of Act No.
1508, otherwise known as "The Chattel Mortgage Law." The LRA shall also determine
a system of provisional registration of such agreements during such Transitional
Period.
(a) A written agreement between a grantor and a secured creditor creating a prior
interest is sufficient to constitute authorization by the grantor of the
registration of a notice covering assets described in that agreement under
these Rules.
 (b) If the perfection requirements of these Rules are satisfied before the ii. Article 2127 of the Civil Code of the Philippines;
perfection of a prior interest ceases in accordance with Rule 8.03, the prior iii. Articles 2241, 2243, and 2246-2247 of Civil Code of the
interest continues to be perfected under these Rules from the time when it Philippines, insofar as the preferences created by these provisions
was perfected under the prior law. are inconsistent with the priority rights of the secured creditor
(c) If a prior interest referred to in subsection (b) of this section was perfected by perfected pursuant to the PPSA and these Rules;
the registration in the registry of a notice under prior law, the time of (c) All laws, decrees, orders, and issuances or portions thereof, which are
registration under the prior law shall be the time to be used for purposes of inconsistent with the provisions of the PPSA, are hereby repealed, amended,
applying the priority rules of these Rules. or modified accordingly.
(d) If the perfection requirements of these Rules are not satisfied before the
perfection of a prior interest ceases in accordance with Rule 8.03, the prior SECTION 9.02. Interpretation. — If there is any conflict between a provision of these
interest is perfected only from the time it is perfected under these Rules. Rules and a provision of any other law and its rules, these Rules shall govern unless
the other law or its rules specifically cites or amends the conflicting provisions of these
SECTION 8.09. Priority of Security Interest. — The priority of competing security Rules.
interests shall be determined during the Transitional Period by applying the PPSA.
RULE X
SECTION 8.10. Enforcement of Security Interest. — The enforcement of all existing Effectivity
security interests during the Transitional Period shall be governed by the PPSA. SECTION 10.01. Separability Clause. — Should any provision herein be declared
unconstitutional or contrary to law, the same shall not affect the validity of the other
SECTION 8.11. Rules on Enforcement Procedure. — Subject to Section 47 of the provisions of these Rules.
PPSA and its corresponding Chapter in these Rules, the expedited hearing/proceedings
shall be conducted in a summary manner consistent with the declared policies of the SECTION 10.02. Effectivity. — These Rules shall take effect fifteen (15) days after
law and these Rules and in accordance with the rules of procedure that the Supreme its complete publication in the Official Gazette or a newspaper of general circulation.
Court may promulgate. The Office of the National Administrative Register (ONAR) of the UP Law Center
shall be provided three (3) certified copies of these Rules.
RULE IX
Laws Repealed and Amended SECTION 10.03. Implementation. — Notwithstanding the entry into force of these
Rules under Section 10.03, the implementation of the Act shall be conditioned upon
SECTION 9.01. Repealing Clause. — the Registry being established and operational under Rule IV.
(a) The following laws are hereby repealed:
i. Sections 1 to 16 of Act No. 1508, otherwise known as "The Chattel
Mortgage Law";
ii. Articles 2085-2092 of the "Civil Code of the Philippines," insofar as
movable property is concerned;
iii. Articles 2093-2123 and 2140-2141 of the Civil Code of the
Philippines;
iv. Section 13 of Republic Act No. 5980, as amended by Republic Act
No. 8556, otherwise known as the "Financing Company Act of
1998";
v. Sections 114-116 of Presidential Decree No. 1529, otherwise known
as the "Property Registration Decree";
vi. Section 5 (e) of Republic Act No. 4136, otherwise known as the
"Land Transportation and Traffic Code."
(b) The following laws are hereby amended insofar as the provisions thereof are
inconsistent with the PPSA:
i. Section 10 of Presidential Decree No. 1529;

394
 PHILIPPINE COMPETITION ACT
REPUBLIC ACT No. 10667
CHAPTER I
General Provisions
SECTION 1. Short Title. — This Act shall be known as the "Philippine Competition
Act".
SECTION 2. Declaration of Policy. — The efficiency of market competition as a
mechanism for allocating goods and services is a generally accepted precept. The State
recognizes that past measures undertaken to liberalize key sectors in the economy need
to be reinforced by measures that safeguard competitive conditions. The State also
recognizes that the provision of equal opportunities to all promotes entrepreneurial
spirit, encourages private investments, facilitates technology development and transfer
and enhances resource productivity. Unencumbered market competition also serves
the interest of consumers by allowing them to exercise their right of choice over goods
and services offered in the market.
Pursuant to the constitutional goals for the national economy to attain a more equitable
distribution of opportunities, income, and wealth; a sustained increase in the amount
of goods and services produced by the nation for the benefit of the people; and an
expanding productivity as the key to raising the quality of life for all, especially the
underprivileged and the constitutional mandate that the State shall regulate or prohibit
monopolies when the public interest so requires and that no combinations in restraint
of trade or unfair competition shall be allowed, the State shall:
(a) Enhance economic efficiency and promote free and fair competition in trade,
industry and all commercial economic activities, as well as establish a
National Competition Policy to be implemented by the Government of the
Republic of the Philippines and all of its political agencies as a whole;
(b) Prevent economic concentration which will control the production,
distribution, trade, or industry that will unduly stifle competition, lessen,
manipulate or constrict the discipline of free markets; and
(c) Penalize all forms of anti-competitive agreements, abuse of dominant position
and anti-competitive mergers and acquisitions, with the objective of protecting
consumer welfare and advancing domestic and international trade and
economic development.
SECTION 3. Scope and Application. — This Act shall be enforceable against any
person or entity engaged in any trade, industry and commerce in the Republic of the
Philippines. It shall likewise be applicable to international trade having direct,
substantial, and reasonably foreseeable effects in trade, industry, or commerce in the
Republic of the Philippines, including those that result from acts done outside the
Republic of the Philippines.
395
This Act shall not apply to the combinations or activities of workers or employees nor
to agreements or arrangements with their employers when such combinations,
activities, agreements, or arrangements are designed solely to facilitate collective
bargaining in respect of conditions of employment.
SECTION 4. Definition of Terms. — As used in this Act:
(a) Acquisition refers to the purchase of securities or assets, through contract or
other means, for the purpose of obtaining control by:
1. One (1) entity of the whole or part of another;
2. Two (2) or more entities over another; or
3. One (1) or more entities over one (1) or more entities;
(b) Agreement refers to any type or form of contract, arrangement, understanding,
collective recommendation, or concerted action, whether formal or informal,
explicit or tacit, written or oral;
(c) Conduct refers to any type or form of undertaking, collective
recommendation, independent or concerted action or practice, whether formal
or informal;
(d) Commission refers to the Philippine Competition Commission created under
this Act;
(e) Confidential business information refers to information which concerns or
relates to the operations, production, sales, shipments, purchases, transfers,
identification of customers, inventories, or amount or source of any income,
profits, losses, expenditures;
(f) Control refers to the ability to substantially influence or direct the actions or
decisions of an entity, whether by contract, agency or otherwise;
(g) Dominant position refers to a position of economic strength that an entity or
entities hold which makes it capable of controlling the relevant market
independently from any or a combination of the following: competitors,
customers, suppliers, or consumers;
(h) Entity refers to any person, natural or juridical, sole proprietorship,
partnership, combination or association in any form, whether incorporated or
not, domestic or foreign, including those owned or controlled by the
government, engaged directly or indirectly in any economic activity;
(i) Market refers to the group of goods or services that are sufficiently
interchangeable or substitutable and the object of competition, and the
geographic area where said goods or services are offered;
(j) Merger refers to the joining of two (2) or more entities into an existing entity
or to form a new entity;
(k) Relevant market refers to the market in which a particular good or service is
sold and which is a combination of the relevant product market and the
relevant geographic market, defined as follows:
1. A relevant product market comprises all those goods and/or services
which are regarded as interchangeable or substitutable by the consumer
or the customer, by reason of the goods and/or services' characteristics,
their prices and their intended use; and
 2. The relevant geographic market comprises the area in which the entity
concerned is involved in the supply and demand of goods and services,
in which the conditions of competition are sufficiently homogenous and
which can be distinguished from neighboring areas because the
conditions of competition are different in those areas.
CHAPTER II
Philippine Competition Commission
SECTION 5. Philippine Competition Commission. — To implement the national
competition policy and attain the objectives and purposes of this Act, an
independent quasi-judicial body is hereby created, which shall be known as the
Philippine Competition Commission (PCC), hereinafter referred to as the
Commission, and which shall be organized within sixty (60) days after the effectivity
of this Act. Upon establishment of the Commission, Executive Order No.
45 designating the Department of Justice as the Competition Authority is hereby
amended. The Office for Competition (OFC) under the Office of the Secretary of
Justice shall however be retained, with its powers and functions modified pursuant to
Section 13 of this Chapter.
The Commission shall be an attached agency to the Office of the President.
SECTION 6. Composition of the Commission. — The Commission shall be
composed of a Chairperson and four (4) Commissioners. The Chairperson and the
Commissioners shall be citizens and residents of the Philippines, of good moral
character, of recognized probity and independence and must have distinguished
themselves professionally in public, civic or academic service in any of the following
fields: economics, law, finance, commerce or engineering. They must have been in the
active practice of their professions for at least ten (10) years, and must not have been
candidates for any elective national or local office in the immediately preceding
elections, whether regular or special: Provided, That at least one (1) shall be a member
of the Philippine Bar with at least ten (10) years of experience in the active practice of
law, and at least one (1) shall be an economist. The Chairperson and the
Commissioners who shall have the rank equivalent of cabinet secretary and
undersecretary, respectively, shall be appointed by the President.
SECTION 7. Term of Office. — The term of office of the Chairperson and the
Commissioners shall be seven (7) years without reappointment. Of the first set of
appointees, the Chairperson shall hold office for seven (7) years and of the first four
(4) Commissioners, two (2) shall hold office for a term of seven (7) years and two (2)
for a term of five (5) years. In case a vacancy occurs before the expiration of the term
of office, the appointment to such vacancy shall only be for the unexpired term of the
predecessor.
396
The Chairperson and the Commissioners shall enjoy security of tenure and shall not
be suspended or removed from office except for just cause as provided by law.
SECTION 8. Prohibitions and Disqualifications. — The Commissioners shall not,
during their tenure, hold any other office or employment. They shall not, during their
tenure, directly or indirectly practice any profession, except in a teaching capacity,
participate in any business, or be financially interested in any contract with, or any
franchise, or special privileges granted by the government or any subdivision, agency,
or instrumentality thereof, including government-owned and -controlled corporations
or their subsidiaries. They shall strictly avoid conflict of interest in the conduct of their
office. They shall not be qualified to run for any office in the election immediately
succeeding their cessation from office: Provided, That the election mentioned hereof
is not a Barangay election or a Sangguniang Kabataan election. Provided, they shall
not be allowed to personally appear or practice as counsel or agent on any matter
pending before the Commission for two (2) years following their cessation from office.
No spouse or relative by consanguinity or affinity within the fourth civil degree of any
of the Commissioners, the Chairperson and the Executive Director of the Commission
may appear as counsel nor agent on any matter pending before the Commission or
transact business directly or indirectly therein during incumbency and within two (2)
years from cessation of office.
SECTION 9. Compensation and Other Emoluments for Members and Personnel of
the Commission. — The compensation and other emoluments for the members and
personnel of the Commission shall be exempted from the coverage of Republic Act
No. 6758, otherwise known as the "Salary Standardization Act". For this purpose, the
salaries and other emoluments of the Chairperson, the Commissioners, and personnel
of the Commission shall be set based on an objective classification system, taking into
consideration the importance and responsibilities attached to the respective positions,
and shall be submitted to the President of the Philippines for his approval.
SECTION 10. Quorum. — Three (3) members of the Commission shall constitute a
quorum and the affirmative vote of three (3) members shall be necessary for the
adoption of any rule, ruling, order, resolution, decision or other acts of the
Commission.
SECTION 11. Staff. — The Commission shall appoint, fix the compensation, and
determine the status, qualifications, and duties of an adequate staff, which shall include
an Executive Director of the Commission. The Executive Director shall be appointed
by the Commission and shall have relevant experience in any of the fields of law,
economics, commerce, management, finance or engineering for at least ten (10) years.
The members of the technical staff, except those performing purely clerical functions,
shall possess at least a Bachelor's Degree in any of the following lines of
specialization: economics, law, finance, commerce, engineering, accounting, or
management.
SECTION 12. Powers and Functions. — The Commission shall have original and
primary jurisdiction over the enforcement and implementation of the provisions of this
Act, and its implementing rules and regulations. The Commission shall exercise the
following powers and functions:
(a) Conduct inquiry, investigate, and hear and decide on cases involving any
violation of this Act and other existing competition laws motu proprio or upon
receipt of a verified complaint from an interested party or upon referral by the
concerned regulatory agency, and institute the appropriate civil or criminal
proceedings;
(b) Review proposed mergers and acquisitions, determine thresholds for
notification, determine the requirements and procedures for notification, and
upon exercise of its powers to review, prohibit mergers and acquisitions that
will substantially prevent, restrict, or lessen competition in the relevant
market;
(c) Monitor and undertake consultation with stakeholders and affected agencies
for the purpose of understanding market behavior;
(d) Upon finding, based on substantial evidence, that an entity has entered into an
anti-competitive agreement or has abused its dominant position after due
notice and hearing, stop or redress the same, by applying remedies, such as,
but not limited to, issuance of injunctions, requirement of divestment, and
disgorgement of excess profits under such reasonable parameters that shall be
prescribed by the rules and regulations implementing this Act;
(e) Conduct administrative proceedings, impose sanctions, fines or penalties for
any noncompliance with or breach of this Act and its implementing rules and
regulations (IRR) and punish for contempt;
(f) Issue subpoena duces tecum and subpoena ad testificandum to require the
production of books, records, or other documents or data which relate to any
matter relevant to the investigation and personal appearance before the
Commission, summon witnesses, administer oaths, and issue interim orders
such as show cause orders and cease and desist orders after due notice and
hearing in accordance with the rules and regulations implementing this Act;
(g) Upon order of the court, undertake inspections of business premises and other
offices, land and vehicles, as used by the entity, where it reasonably suspects
that relevant books, tax records, or other documents which relate to any matter
relevant to the investigation are kept, in order to prevent the removal,
concealment, tampering with, or destruction of the books, records, or other
documents;
(h) Issue adjustment or divestiture orders including orders for corporate
reorganization or divestment in the manner and under such terms and
conditions as may be prescribed in the rules and regulations implementing this
Act. Adjustment or divestiture orders, which are structural remedies, should
only be imposed:
1. Where there is no equally effective behavioral remedy; or
2. Where any equally effective behavioral remedy would be more
burdensome for the enterprise concerned than the structural remedy.
397
Changes to the structure of an enterprise as it existed before the
infringement was committed would only be proportionate to the
substantial risk of a lasting or repeated infringement that derives from
the very structure of the enterprise;
(i) Deputize any and all enforcement agencies of the government or enlist the aid
and support of any private institution, corporation, entity or association, in the
implementation of its powers and functions;
(j) Monitor compliance by the person or entities concerned with the cease and
desist order or consent judgment;
(k) Issue advisory opinions and guidelines on competition matters for the effective
enforcement of this Act and submit annual and special reports to Congress,
including proposed legislation for the regulation of commerce, trade, or
industry;
(l) Monitor and analyze the practice of competition in markets that affect the
Philippine economy; implement and oversee measures to promote
transparency and accountability; and ensure that prohibitions and
requirements of competition laws are adhered to;
(m) Conduct, publish, and disseminate studies and reports on anti-competitive
conduct and agreements to inform and guide the industry and consumers;
(n) Intervene or participate in administrative and regulatory proceedings requiring
consideration of the provisions of this Act that are initiated by government
agencies such as the Securities and Exchange Commission, the Energy
Regulatory Commission and the National Telecommunications Commission;
(o) Assist the National Economic and Development Authority, in consultation
with relevant agencies and sectors, in the preparation and formulation of a
national competition policy;
(p) Act as the official representative of the Philippine government in international
competition matters;
(q) Promote capacity building and the sharing of best practices with other
competition-related bodies;
(r) Advocate pro-competitive policies of the government by:
1. Reviewing economic and administrative regulations, motu proprio or
upon request, as to whether or not they adversely affect relevant market
competition, and advising the concerned agencies against such
regulations; and
2. Advising the Executive Branch on the competitive implications of
government actions, policies and programs; and
(s) Charging reasonable fees to defray the administrative cost of the services
rendered.
SECTION 13. Office for Competition (OFC), Powers and Functions. — The OFC
under the Department of Justice (DOJ-OFC) shall only conduct preliminary
investigation and undertake prosecution of all criminal offenses arising under this Act
and other competition-related laws in accordance with Section 31 of Chapter VI of this
Act. The OFC shall be reorganized and allocated resources as may be required therefor
to effectively pursue such mandate.
CHAPTER III
Prohibited Acts
SECTION 14. Anti-Competitive Agreements. —
(a) The following agreements, between or among competitors, are per
se prohibited:
1. Restricting competition as to price, or components thereof, or other terms
of trade;
2. Fixing price at an auction or in any form of bidding including cover
bidding, bid suppression, bid rotation and market allocation and other
analogous practices of bid manipulation;
(b) The following agreements, between or among competitors which have the
object or effect of substantially preventing, restricting or lessening
competition shall be prohibited:
1. Setting, limiting, or controlling production, markets, technical
development, or investment;
2. Dividing or sharing the market, whether by volume of sales or purchases,
territory, type of goods or services, buyers or sellers or any other means;
(c) Agreements other than those specified in (a) and (b) of this section which have
the object or effect of substantially preventing, restricting or lessening
competition shall also be prohibited: Provided, Those which contribute to
improving the production or distribution of goods and services or to promoting
technical or economic progress, while allowing consumers a fair share of the
resulting benefits, may not necessarily be deemed a violation of this Act.
An entity that controls, is controlled by, or is under common control with another entity
or entities, have common economic interests, and are not otherwise able to decide or
act independently of each other, shall not be considered competitors for purposes of
this section.
SECTION 15. Abuse of Dominant Position. — It shall be prohibited for one or more
entities to abuse their dominant position by engaging in conduct that would
substantially prevent, restrict or lessen competition:
(a) Selling goods or services below cost with the object of driving competition
out of the relevant market: Provided, That in the Commission's evaluation of
this fact, it shall consider whether the entity or entities have no such object
and the price established was in good faith to meet or compete with the lower
price of a competitor in the same market selling the same or comparable
product or service of like quality;
398
(b) Imposing barriers to entry or committing acts that prevent competitors from
growing within the market in an anti-competitive manner except those that
develop in the market as a result of or arising from a superior product or
process, business acumen, or legal rights or laws;
(c) Making a transaction subject to acceptance by the other parties of other
obligations which, by their nature or according to commercial usage, have no
connection with the transaction;
(d) Setting prices or other terms or conditions that discriminate unreasonably
between customers or sellers of the same goods or services, where such
customers or sellers are contemporaneously trading on similar terms and
conditions, where the effect may be to lessen competition
substantially: Provided, That the following shall be considered permissible
price differentials:
1. Socialized pricing for the less fortunate sector of the economy;
2. Price differential which reasonably or approximately reflect
differences in the cost of manufacture, sale, or delivery resulting
from differing methods, technical conditions, or quantities in which
the goods or services are sold or delivered to the buyers or sellers;
3. Price differential or terms of sale offered in response to the
competitive price of payments, services or changes in the facilities
furnished by a competitor; and
4. Price changes in response to changing market conditions,
marketability of goods or services, or volume;
(e) Imposing restrictions on the lease or contract for sale or trade of goods or
services concerning where, to whom, or in what forms goods or services may
be sold or traded, such as fixing prices, giving preferential discounts or rebate
upon such price, or imposing conditions not to deal with competing entities,
where the object or effect of the restrictions is to prevent, restrict or lessen
competition substantially: Provided, That nothing contained in this Act shall
prohibit or render unlawful:
1. Permissible franchising, licensing, exclusive merchandising or
exclusive distributorship agreements such as those which give each
party the right to unilaterally terminate the agreement; or
2. Agreements protecting intellectual property rights, confidential
information, or trade secrets;
(f) Making supply of particular goods or services dependent upon the purchase
of other goods or services from the supplier which have no direct connection
with the main goods or services to be supplied;
(g) Directly or indirectly imposing unfairly low purchase prices for the goods or
services of, among others, marginalized agricultural producers, fisherfolk,
micro-, small-, medium-scale enterprises, and other marginalized service
providers and producers;
(h) Directly or indirectly imposing unfair purchase or selling price on their
competitors, customers, suppliers or consumers, provided that prices that
develop in the market as a result of or due to a superior product or process,
 business acumen or legal rights or laws shall not be considered unfair prices;
and
(i) Limiting production, markets or technical development to the prejudice of
consumers, provided that limitations that develop in the market as a result of
or due to a superior product or process, business acumen or legal rights or
laws shall not be a violation of this Act:
Provided, That nothing in this Act shall be construed or interpreted as a
prohibition on having a dominant position in a relevant market or on
acquiring, maintaining and increasing market share through legitimate means
that do not substantially prevent, restrict or lessen competition:
Provided, further, That any conduct which contributes to improving
production or distribution of goods or services within the relevant market, or
promoting technical and economic progress while allowing consumers a fair
share of the resulting benefit may not necessarily be considered an abuse of
dominant position:
Provided, finally, That the foregoing shall not constrain the Commission or
the relevant regulator from pursuing measures that would promote fair
competition or more competition as provided in this Act.
CHAPTER IV
Mergers and Acquisitions
SECTION 16. Review of Mergers and Acquisitions. — The Commission shall have
the power to review mergers and acquisitions based on factors deemed relevant by the
Commission.
SECTION 17. Compulsory Notification. — Parties to the merger or acquisition
agreement referred to in the preceding section wherein the value of the transaction
exceeds one billion pesos (P1,000,000,000.00) are prohibited from consummating
their agreement until thirty (30) days after providing notification to the Commission
in the form and containing the information specified in the regulations issued by the
Commission: Provided, That the Commission shall promulgate other criteria, such as
increased market share in the relevant market in excess of minimum thresholds, that
may be applied specifically to a sector, or across some or all sectors, in determining
whether parties to a merger or acquisition shall notify the Commission under this
Chapter.
An agreement consummated in violation of this requirement to notify the Commission
shall be considered void and subject the parties to an administrative fine of one percent
(1%) to five percent (5%) of the value of the transaction.
399
Should the Commission deem it necessary, it may request further information that are
reasonably necessary and directly relevant to the prohibition under Section 20 hereof
from the parties to the agreement before the expiration of the thirty (30)-day period
referred. The issuance of such a request has the effect of extending the period within
which the agreement may not be consummated for an additional sixty (60) days,
beginning on the day after the request for information is received by the
parties: Provided, That, in no case shall the total period for review by the Commission
of the subject agreement exceed ninety (90) days from initial notification by the
parties.
When the above periods have expired and no decision has been promulgated for
whatever reason, the merger or acquisition shall be deemed approved and the parties
may proceed to implement or consummate it. All notices, documents and information
provided to or emanating from the Commission under this section shall be subject to
confidentiality rule under Section 34 of this Act except when the release of information
contained therein is with the consent of the notifying entity or is mandatorily required
to be disclosed by law or by a valid order of a court of competent jurisdiction, or of a
government or regulatory agency, including an exchange.
In the case of the merger or acquisition of banks, banking institutions, building and
loan associations, trust companies, insurance companies, public utilities, educational
institutions and other special corporations governed by special laws, a favorable or no-
objection ruling by the Commission shall not be construed as dispensing of the
requirement for a favorable recommendation by the appropriate government agency
under Section 79 of the Corporation Code of the Philippines.
A favorable recommendation by a governmental agency with a competition mandate
shall give rise to a disputable presumption that the proposed merger or acquisition is
not violative of this Act.
SECTION 18. Effect of Notification. — If within the relevant periods stipulated in the
preceding section, the Commission determines that such agreement is prohibited under
Section 20 and does not qualify for exemption under Section 21 of this Chapter, the
Commission may:
(a) Prohibit the implementation of the agreement;
(b) Prohibit the implementation of the agreement unless and until it is modified
by changes specified by the Commission;
(c) Prohibit the implementation of the agreement unless and until the pertinent
party or parties enter into legally enforceable agreements specified by the
Commission.
SECTION 19. Notification Threshold. — The Commission shall, from time to time,
adopt and publish regulations stipulating:
(a) The transaction value threshold and such other criteria subject to the
notification requirement of Section 17 of this Act;
(b) The information that must be supplied for notified merger or acquisition;
 (c) Exceptions or exemptions from the notification requirement; and
(d) Other rules relating to the notification procedures.
SECTION 20. Prohibited Mergers and Acquisitions. — Merger or acquisition
agreements that substantially prevent, restrict or lessen competition in the relevant
market or in the market for goods or services as may be determined by the Commission
shall be prohibited.
SECTION 21. Exemptions from Prohibited Mergers and Acquisitions. — Merger or
acquisition agreement prohibited under Section 20 of this Chapter may, nonetheless,
be exempt from prohibition by the Commission when the parties establish either of the
following:
(a) The concentration has brought about or is likely to bring about gains in
efficiencies that are greater than the effects of any limitation on competition
that result or likely to result from the merger or acquisition agreement; or
(b) A party to the merger or acquisition agreement is faced with actual or
imminent financial failure, and the agreement represents the least anti-
competitive arrangement among the known alternative uses for the failing
entity's assets:
Provided, That an entity shall not be prohibited from continuing to own and
hold the stock or other share capital or assets of another corporation which it
acquired prior to the approval of this Act or acquiring or maintaining its
market share in a relevant market through such means without violating the
provisions of this Act
Provided, further, That the acquisition of the stock or other share capital of
one or more corporations solely for investment and not used for voting or
exercising control and not to otherwise bring about, or attempt to bring about
the prevention, restriction, or lessening of competition in the relevant market
shall not be prohibited.
SECTION 22. Burden of Proof. — The burden of proof under Section 21 lies with the
parties seeking the exemption. A party seeking to rely on the exemption specified in
Section 21 (a) must demonstrate that if the agreement were not implemented,
significant efficiency gains would not be realized.
SECTION 23. Finality of Rulings on Mergers and Acquisitions. — Merger or
acquisition agreements that have received a favorable ruling from the Commission,
except when such ruling was obtained on the basis of fraud or false material
information, may not be challenged under this Act.
CHAPTER V
Disposition of Cases
SECTION 24. Relevant Market. — For purposes of determining the relevant market,
the following factors, among others, affecting the substitutability among goods or
400
services constituting such market and the geographic area delineating the boundaries
of the market shall be considered:
(a) The possibilities of substituting the goods or services in question, with others
of domestic or foreign origin, considering the technological possibilities,
extent to which substitutes are available to consumers and time required for
such substitution;
(b) The cost of distribution of the good or service, its raw materials, its
supplements and substitutes from other areas and abroad, considering freight,
insurance, import duties and non-tariff restrictions; the restrictions imposed
by economic agents or by their associations; and the time required to supply
the market from those areas;
(c) The cost and probability of users or consumers seeking other markets; and
(d) National, local or international restrictions which limit access by users or
consumers to alternate sources of supply or the access of suppliers to alternate
consumers.
SECTION 25. Control of an Entity. — In determining the control of an entity, the
Commission may consider the following:
Control is presumed to exist when the parent owns directly or indirectly, through
subsidiaries, more than one half (1/2) of the voting power of an entity, unless in
exceptional circumstances, it can clearly be demonstrated that such ownership does
not constitute control. Control also exists even when an entity owns one half (1/2) or
less of the voting power of another entity when:
(a) There is power over more than one half (1/2) of the voting rights by virtue of
an agreement with investors;
(b) There is power to direct or govern the financial and operating policies of the
entity under a statute or agreement;
(c) There is power to appoint or remove the majority of the members of the board
of directors or equivalent governing body;
(d) There is power to cast the majority votes at meetings of the board of directors
or equivalent governing body;
(e) There exists ownership over or the right to use all or a significant part of the
assets of the entity;
(f) There exist rights or contracts which confer decisive influence on the
decisions of the entity.
SECTION 26. Determination of Anti-Competitive Agreement or Conduct. — In
determining whether anti-competitive agreement or conduct has been committed, the
Commission shall:
(a) Define the relevant market allegedly affected by the anti-competitive
agreement or conduct, following the principles laid out in Section 24 of this
Chapter;
(b) Determine if there is actual or potential adverse impact on competition in the
relevant market caused by the alleged agreement or conduct, and if such
 impact is substantial and outweighs the actual or potential efficiency gains
that result from the agreement or conduct;
(c) Adopt a broad and forward-looking perspective, recognizing future market
developments, any overriding need to make the goods or services available
to consumers, the requirements of large investments in infrastructure, the
requirements of law, and the need of our economy to respond to international
competition, but also taking account of past behavior of the parties involved
and prevailing market conditions;
(d) Balance the need to ensure that competition is not prevented or substantially
restricted and the risk that competition efficiency, productivity, innovation,
or development of priority areas or industries in the general interest of the
country may be deterred by overzealous or undue intervention; and
(e) Assess the totality of evidence on whether it is more likely than not that the
entity has engaged in anti-competitive agreement or conduct including
whether the entity's conduct was done with a reasonable commercial purpose
such as but not limited to phasing out of a product or closure of a business,
or as a reasonable commercial response to the market entry or conduct of a
competitor.
SECTION 27. Market Dominant Position. — In determining whether an entity has
market dominant position for purposes of this Act, the Commission shall consider the
following:
(a) The share of the entity in the relevant market and whether it is able to fix
prices unilaterally or to restrict supply in the relevant market;
(b) The existence of barriers to entry and the elements which could foreseeably
alter both said barriers and the supply from competitors;
(c) The existence and power of its competitors;
(d) The possibility of access by its competitors or other entities to its sources of
inputs;
(e) The power of its customers to switch to other goods or services;
(f) Its recent conducts; and
(g) Other criteria established by the regulations of this Act.
There shall be a rebuttable presumption of market dominant position if the market
share of an entity in the relevant market is at least fifty percent (50%), unless a new
market share threshold is determined by the Commission for that particular sector.
The Commission shall from time to time determine and publish the threshold for
dominant position or minimum level of share in the relevant market that could give
rise to a presumption of dominant position. In such determination, the Commission
would consider the structure of the relevant market, degree of integration, access to
end-users, technology and financial resources, and other factors affecting the control
of a market, as provided in subsections (a) to (g) of this section.
401
The Commission shall not consider the acquiring, maintaining and increasing of
market share through legitimate means not substantially preventing, restricting, or
lessening competition in the market such as but not limited to having superior skills,
rendering superior service, producing or distributing quality products, having business
acumen, and the enjoyment and use of protected intellectual property rights as
violative of this Act.
SECTION 28. Forbearance. — The Commission may forbear from applying the
provisions of this Act, for a limited time, in whole or in part, in all or specific cases,
on an entity or group of entities, if in its determination:
(a) Enforcement is not necessary to the attainment of the policy objectives of this
Act;
(b) Forbearance will neither impede competition in the market where the entity or
group of entities seeking exemption operates nor in related markets; and
(c) Forbearance is consistent with public interest and the benefit and welfare of
the consumers.
A public hearing shall be held to assist the Commission in making this determination.
The Commission's order exempting the relevant entity or group of entities under this
section shall be made public. Conditions may be attached to the forbearance if the
Commission deems it appropriate to ensure the long-term interest of consumers.
In the event that the basis for the issuance of the exemption order ceases to be valid,
the order may be withdrawn by the Commission.
CHAPTER VI
Fines and Penalties
SECTION 29. Administrative Penalties. —
(a) Administrative Fines. — In any investigation under Chapter III, Sections 14
and 15, and Chapter IV, Sections 17 and 20 of this Act, after due notice and
hearing, the Commission may impose the following schedule of
administrative fines on any entity found to have violated the said sections:
1. First offense: Fine of up to one hundred million pesos
(P100,000,000.00);
2. Second offense: Fine of not less than one hundred million pesos
(P100,000,000.00) but not more than two hundred fifty million
pesos (P250,000,000.00).
3. In fixing the amount of the fine, the Commission shall have regard
to both the gravity and the duration of the violation.
(b) Failure to Comply With an Order of the Commission. — An entity which
fails or refuses to comply with a ruling, order or decision issued by the
Commission shall pay a penalty of not less than fifty thousand pesos
(P50,000.00) up to two million pesos (P2,000,000.00) for each violation and
a similar amount of penalty for each day thereafter until the said entity fully
 complies. Provided that these fines shall only accrue daily beginning forty-
five (45) days from the time that the said decision, order or ruling was
received.
(c) Supply of Incorrect or Misleading Information. — The Commission may
likewise impose upon any entity fines of up to one million pesos
(P1,000,000.00) where, intentionally or negligently, they supply incorrect or
misleading information in any document, application or other paper filed
with or submitted to the Commission or supply incorrect or misleading
information in an application for a binding ruling, a proposal for a consent
judgment, proceedings relating to a show cause order, or application for
modification of the Commission's ruling, order or approval, as the case may
be.
(d) Any other violations not specifically penalized under the relevant provisions
of this Act shall be penalized by a fine of not less than fifty thousand pesos
(P50,000.00) up to two million pesos (P2,000,000.00).
Provided that the schedule of fines indicated in this section shall be increased by the
Commission every five (5) years to maintain their real value from the time it was set.
SECTION 30. Criminal Penalties. — An entity that enters into any anti-competitive
agreement as covered by Chapter III, Section 14 (a) and 14 (b) under this Act shall,
for each and every violation, be penalized by imprisonment from two (2) to seven (7)
years, and a fine of not less than fifty million pesos (P50,000,000.00) but not more
than two hundred fifty million pesos (P250,000,000.00). The penalty of imprisonment
shall be imposed upon the responsible officers, and directors of the entity.
When the entities involved are juridical persons, the penalty of imprisonment shall be
imposed on its officers, directors, or employees holding managerial positions, who are
knowingly and willfully responsible for such violation.
CHAPTER VII
Enforcement
SECTION 31. Fact Finding; Preliminary Inquiry. — The Commission, motu
proprio, or upon the filing of a verified complaint by an interested party or upon
referral by a regulatory agency, shall have the sole and exclusive authority to initiate
and conduct a fact-finding or preliminary inquiry for the enforcement of this Act based
on reasonable grounds.
The Commission, after considering the statements made, or documents or articles
produced in the course of the fact-finding or preliminary inquiry, shall terminate the
same by:
(a) Issuing a resolution ordering its closure if no violation or infringement of this
Act is found; or
(b) Issuing a resolution to proceed, on the basis of reasonable grounds, to the
conduct of a full administrative investigation.
402
The Commission, after due notice and hearing, and on the basis of facts and evidence
presented, may issue an order for the temporary cessation or desistance from the
performance of certain acts by the respondent entity, the continued performance of
which would result in a material and adverse effect on consumers or competition in
the relevant market.
If the evidence so warrants, the Commission may file before the DOJ criminal
complaints for violations of this Act or relevant laws for preliminary investigation and
prosecution before the proper court. The DOJ shall conduct such preliminary
investigation in accordance with the Revised Rules of Criminal Procedure.
The preliminary inquiry shall, in all cases, be completed by the Commission within
ninety (90) days from submission of the verified complaint, referral, or date of
initiation by the Commission, motu proprio, of the same.
Except as provided in Section 12 (i) of Chapter II of this Act, no law enforcement
agency shall conduct any kind of fact-finding, inquiry or investigation into any
competition-related matters.
SECTION 32. Relationship with Sector Regulators. — The Commission shall have
original and primary jurisdiction in the enforcement and regulation of all competition-
related issues.
The Commission shall still have jurisdiction if the issue involves both competition and
noncompetition issues, but the concerned sector regulator shall be consulted and
afforded reasonable opportunity to submit its own opinion and recommendation on the
matter before the Commission makes a decision on any case.
Where appropriate, the Commission and the sector regulators shall work together to
issue rules and regulations to promote competition, protect consumers, and prevent
abuse of market power by dominant players within their respective sectors.
SECTION 33. Power to Investigate and Enforce Orders and Resolutions. — The
Commission shall conduct inquiries by administering oaths, issuing subpoena duces
tecum and summoning witnesses, and commissioning consultants or experts. It shall
determine if any provision of this Act has been violated, enforce its orders and carry
out its resolutions by making use of any available means, provisional or otherwise,
under existing laws and procedures including the power to punish for contempt and to
impose fines.
SECTION 34. Confidentiality of Information. — Confidential business information
submitted by entities, relevant to any inquiry or investigation being conducted
pursuant to this Act as well as any deliberation in relation thereto, shall not, in any
manner, be directly or indirectly disclosed, published, transferred, copied, or
disseminated. Likewise, the Commission shall, to the extent possible, subject such
information to the confidentiality rule provided under this section when it issues
notices, bulletins, rulings and other documents: Provided, That the confidentiality rule
shall not apply if the notifying entity consents to the disclosure, or the document or
information is mandatorily required to be disclosed by law or by a valid order of a
court of competent jurisdiction or of a government or regulatory agency, including an
exchange. The identity of the persons who provide information to the Commission
under condition of anonymity, shall remain confidential, unless such confidentiality is
expressly waived by these persons.
Any violation of this provision shall be imposed a fine of not less than one million
pesos (P1,000,000.00) but not more than five million pesos (P5,000,000.00).
SECTION 35. Leniency Program. — The Commission shall develop a Leniency
Program to be granted to any entity in the form of immunity from suit or reduction of
any fine which would otherwise be imposed on a participant in an anti-competitive
agreement as provided in Section 14 (a) and 14 (b) of this Act in exchange for the
voluntary disclosure of information regarding such an agreement which satisfies
specific criteria prior to or during the fact-finding or preliminary inquiry stage of the
case.
Immunity from suit will be granted to an entity reporting illegal anti-competitive
activity before a fact-finding or preliminary inquiry has begun if the following
conditions are met:
(a) At the time the entity comes forward, the Commission has not received
information about the activity from any other source:
(b) Upon the entity's discovery of illegal activity, it took prompt and effective
action to terminate its participation therein;
(c) The entity reports the wrongdoing with candor and completeness and provides
full, continuing, and complete cooperation throughout the investigation; and
(d) The entity did not coerce another party to participate in the activity and clearly
was not the leader in, or the originator of, the activity.
Even after the Commission has received information about the illegal activity after a
fact-finding or preliminary inquiry has commenced, the reporting entity will be
granted leniency, provided preceding conditions (b) and (c) and the following
additional requirements are complied with:
(1) The entity is the first to come forward and qualify for leniency;
(2) At the time the entity comes forward, the Commission does not have evidence
against the entity that is likely to result in a sustainable conviction; and
(3) The Commission determines that granting leniency would not be unfair to
others.
Such program shall include the immunity from any suit or charge of affected parties
and third parties, exemption, waiver, or gradation of fines and/or penalties giving
precedence to the entity submitting such evidence. An entity cooperating or furnishing
403
information, document or data to the Commission in connection to an investigation
being conducted shall not be subjected to any form of reprisal or discrimination. Such
reprisal or discrimination shall be considered a violation of this Act subject to the
sanctions provided in this Act.
Nothing in this section shall preclude prosecution for entities that report to the
Commission false, misleading, or malicious information, data or documents damaging
to the business or integrity of the entities under inquiry as a violation of said section.
An entity found to have reported false, misleading or malicious information, data, or
document may be penalized by a fine not less than the penalty imposed in the section
reported to have been violated by the entity complained of.
The DOJ-OFC may likewise grant leniency or immunity as provided in this section in
the event that there is already a preliminary investigation pending before it.
SECTION 36. Nolo Contendere. — An entity charged in a criminal proceeding
pursuant to Section 14 (a) and 14 (b) of this Act may enter a plea of Nolo
Contendere, in which he does not accept nor deny responsibility for the charges but
agrees to accept punishment as if he had pleaded guilty. The plea cannot be used
against the defendant entity to prove liability in a civil suit arising from the criminal
action nor in another cause of action: Provided, That a plea of Nolo Contendere may
be entered only up to arraignment and subsequently, only with the permission of the
court which shall accept it only after weighing its effect on the parties, the public and
the administration of justice.
SECTION 37. Non-Adversarial Remedies. — As an implementing and enforcement
policy, the Commission shall, under such rules and regulations it may prescribe,
encourage voluntary compliance with this Act and other competition laws by making
available to the parties concerned the following and other analogous non-adversarial
administrative remedies, before the institution of administrative, civil or criminal
action:
(a) Binding Ruling. — Where no prior complaint or investigation has been
initiated, any entity that is in doubt as to whether a contemplated act, course
of conduct, agreement, or decision, is in compliance with, is exempt from, or
is in violation of any of the provisions of this Act, other competition laws, or
implementing rules and regulations thereof, may request the Commission, in
writing, to render a binding ruling thereon: Provided, That the ruling is for a
specified period, subject to extension as may be determined by the
Commission, and based on substantial evidence.
In the event of an adverse binding ruling on an act, course or conduct,
agreement, or decision, the applicant shall be provided with a reasonable
period, which in no case shall be more than ninety (90) days, to abide by the
ruling of the Commission and shall not be subject to administrative, civil, or
 criminal action unless the applicant fails to comply with the provisions of this
Act;
(b) Show Cause Order. — Upon preliminary findings motu proprio or on written
complaint under oath by an interested party that any entity is conducting its
business, in whole or in part in a manner that may not be in accord with the
provisions of this Act or other competition laws, and it finds that the issuance
of a show cause order would be in the interest of the public, the Commission
shall issue and serve upon such entity or entities a written description of its
business conduct complained of, a statement of the facts, data, and information
together with a summary of the evidence thereof, with an order requiring the
said entity or entities to show cause, within the period therein fixed, why no
order shall issue requiring such person or persons to cease and desist from
continuing with its identified business conduct, or pay the administrative fine
therein specified, or re-adjust its business conduct or practices;
(c) Consent Order. — At any time prior to the conclusion by the Commission of
its inquiry, any entity under inquiry may, without in any manner admitting a
violation of this Act or any other competition laws, submit to the Commission
a written proposal for the entry of a consent order, specifying therein the terms
and conditions of the proposed consent order which shall include among others
the following:
1. The payment of an amount within the range of fines provided for
under this Act;
2. The required compliance report as well as an entity to submit
regular compliance reports;
3. Payment of damages to any private party/parties who may have
suffered injury; and
4. Other terms and conditions that the Commission deems appropriate
and necessary for the effective enforcement of this Act or other
Competition Laws:
Provided, That a consent order shall not bar any inquiry for the
same or similar acts if continued or repeated;
(d) Monitoring of Compliance. — The Commission shall monitor the compliance
by the entity or entities concerned, their officers, and employees, with the final
and executory binding ruling, cease and desist order, or approval of a consent
judgment. Upon motion of an interested party/parties, the Commission shall
issue a certification or resolution to the effect that the entity or entities
concerned have, or have not, as the case may be, complied with a final and
executory ruling, order, or approval.
(e) Inadmissibility of Evidence in Criminal Proceedings. — The request for a
binding ruling, the show cause order, or the proposal for consent order; the
facts, data, and information therein contained or subsequently supplied by the
entity or entities concerned; admissions, oral or written, made by them against
their interest; all other documents filed by them, including their evidence
presented in the proceedings before the Commission; and the judgment or
order rendered thereon; shall not be admissible as evidence in any criminal
404
proceedings arising from the same act subject of the binding ruling, show
cause order or consent order against such entity or entities, their officers,
employees, and agents.
SECTION 38. Contempt. — The Commission may summarily punish for contempt
by imprisonment not exceeding thirty (30) days or by a fine not exceeding one hundred
thousand pesos (P100,000.00), or both, any entity guilty of such misconduct in the
presence of the Commission in its vicinity as to seriously interrupt any hearing, session
or any proceeding before it, including cases in which an entity willfully fails or refuses,
without just cause, to comply with a summons, subpoena or subpoena duces
tecum legally issued by the Commission being present at a hearing, proceeding,
session or investigation, refused to be sworn as a witness or to answer questions or to
furnish information when lawfully required to do so.
SECTION 39. Appeals of the Decisions of the Commission. — Decisions of the
Commission shall be appealable to the Court of Appeals in accordance with the Rules
of Court. The appeal shall not stay the order, ruling or decision sought to be reviewed,
unless the Court of Appeals shall direct otherwise upon such terms and conditions it
may deem just. In the appeal, the Commission shall be included as a party respondent
to the case.
SECTION 40. Writ of Execution. — Upon the finality of its binding ruling, order,
resolution, decision, judgment, or rule or regulation, collectively, the Commission may
issue a writ of execution to enforce its decision and the payment of the administrative
fines provided in the preceding sections.
SECTION 41. Basic Necessities and Prime Commodities. — If the violation involves
the trade or movement of basic necessities and prime commodities as defined
by Republic Act No. 7581, as amended, the fine imposed by the Commission or the
courts, as the case may be, shall be tripled.
SECTION 42. Immunity from Suit. — The Chairperson, the Commissioners, officers,
employees and agents of the Commission shall not be subject to any action, claim or
demand in connection with any act done or omitted by them in the performance of
their duties and exercise of their powers except for those actions and omissions done
in evident bad faith or gross negligence.
SECTION 43. Indemnity. — Unless the actions of the Commission or its Chairperson,
any of its Commissioners, officers, employees and agents are found to be in willful
violation of this Act, performed with evident bad faith or gross negligence, the
Commission, its Chairperson, Commissioners, officers, employees and agents are held
free and harmless to the fullest extent permitted by law from any liability, and they
shall be indemnified for any and all liabilities, losses, claims, demands, damages,
deficiencies, costs and expenses of whatsoever kind and nature that may arise in
connection with the exercise of their powers and performance of their duties and
functions.
The Commission shall underwrite or advance litigation costs and expenses, including
legal fees and other expenses of external counsel, or provide legal assistance to its
Chairperson, Commissioners, officers, employees, or agents in connection with any
civil, criminal, administrative or any other action or proceeding, to which they are
made a party by reason of, or in connection with, the exercise of authority or
performance of duties and functions under this Act: Provided, That such legal
protection shall not apply to any civil, criminal, administrative, or any action or
proceeding that may be initiated by the Commission, against such Chairperson,
Commissioners, officers, employees, or agents: Provided, further, That the
Chairperson, Commissioners, officers, employees, or agents, who shall resign, retire,
transfer to another agency or be separated from the service, shall continue to be
provided with such legal protection in connection with any act done or omitted to be
done by them in good faith during their tenure or employment with the
Commission: Provided, finally, That in the event of a settlement or compromise,
indemnification shall be provided only in connection with such matters covered by the
settlement as to which the Commission is advised by counsel that the persons to be
indemnified did not commit any negligence or misconduct.
The costs and expenses incurred in defending the aforementioned action, suit or
proceeding may be paid by the Commission in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
Chairperson, Commissioner, officer, employee, or agent to repay the amount advanced
should it ultimately be determined by the Commission that one is not entitled to be
indemnified as provided in this section.
SECTION 44. Jurisdiction of the Regional Trial Court. — The Regional Trial Court
of the city or province where the entity or any of the entities whose business act or
conduct constitutes the subject matter of a case, conducts its principal place of
business, shall have original and exclusive jurisdiction, regardless of the penalties and
fines herein imposed, of all criminal and civil cases involving violations of this Act
and other competition-related laws. If the defendant or anyone is charged in the
capacity of a director, officer, shareholder, employee, or agent of a corporation or other
juridical entity who knowingly and willfully authorized the commission of the offense
charged, the Regional Trial Court of the city or province where such corporation or
juridical entity conducts its principal place of business, shall have jurisdiction.
SECTION 45. Private Action. — Any person who suffers direct injury by reason of
any violation of this Act may institute a separate and independent civil action after the
Commission has completed the preliminary inquiry provided under Section 31.
CHAPTER VIII
Other Provisions
405
SECTION 46. Statute of Limitations. — Any action arising from a violation of any
provision of this Act shall be forever barred unless commenced within five (5) years
from:
(a) For criminal actions, the time the violation is discovered by the offended party,
the authorities, or their agents; and
(b) For administrative and civil actions, the time the cause of action accrues.
SECTION 47. Prohibition on the Issuance of Temporary Restraining Orders,
Preliminary Injunctions and Preliminary Mandatory Injunctions. — Except for the
Court of Appeals and the Supreme Court, no other court shall issue any temporary
restraining order, preliminary injunction or preliminary mandatory injunction against
the Commission in the exercise of its duties or functions: Provided, That, this
prohibition shall apply in all cases, disputes or controversies instituted by a private
party, including, but not limited to, cases filed by entities or those claiming to have
rights through such entities: Provided, however, That, this prohibition shall not apply
when the matter is of extreme urgency involving a constitutional issue, such that the
non-issuance of a temporary restraining order will result in grave injustice and
irreparable injury to the public: Provided, further, That, the applicant shall file a bond,
in an amount to be fixed by the Court, but in no case shall it exceed twenty percent
(20%) of the imposable fines provided for under Chapter VI, Section 29 of this
Act: Provided, finally, That in the event that the court finally decides that the applicant
was not entitled to the relief applied for, the bond shall accrue in favor of the
Commission.
Any temporary restraining order, preliminary injunction or preliminary mandatory
injunction issued in violation of this section is void and of no force and effect. Any
judge who violates this section shall be penalized by suspension of at least one (1) year
without pay in addition to other criminal, civil or administrative penalties.
SECTION 48. Trade Associations. — Nothing contained in this Act shall be
construed to prohibit the existence and operation of trade associations organized to
promote quality standards and safety issues: Provided, That, these associations shall
not in any way be used to justify any violation of this Act: Provided, however, That it
shall not be illegal to use the association as a forum to discuss or promote quality
standards, efficiency, safety, security, productivity, competitiveness and other matters
of common interest involving the industry: Provided, further, That such is done
without any anti-competitive intent or effect.
SECTION 49. Congressional Oversight Committee. — To oversee the
implementation of this Act, there shall be created a Congressional Oversight
Committee on Competition (COCC) to be composed of the Chairpersons of the Senate
Committees on Trade and Commerce, Economic Affairs, and Finance, the
Chairpersons of the House of Representatives Committees on Economic Affairs, Trade
and Industry, and Appropriations and two (2) members each from the Senate and the
House of Representatives who shall be designated by the Senate President and the
Speaker of the House of Representatives: Provided, That one (1) of the two (2)
Senators and one (1) of the two (2) House Members shall be nominated by the
respective Minority Leaders of the Senate and the House of Representatives. The
Congressional Oversight Committee shall be jointly chaired by the Chairpersons of
the Senate Committee on Trade and Commerce and the House of Representatives
Committee on Economic Affairs. The Vice Chairperson of the Congressional
Oversight Committee shall be jointly held by the Chairpersons of the Senate
Committee on Economic Affairs and the House of Representatives Committee on
Trade and Industry.
The Secretariat of the COCC shall be drawn from the existing personnel of the Senate
and House of Representatives committees comprising the Congressional Oversight
Committee.
CHAPTER IX
Final Provisions
SECTION 50. Implementing Rules and Regulations. — Within one hundred eighty
(180) days from the effectivity of this Act, the Commission, in consultation with the
DOJ-OFC and concerned sector regulators shall promulgate the necessary
implementing rules and regulations for the implementation of this
Act: Provided, That, the Commission may revise such implementing rules and
regulations as it deems necessary: Provided, however, That such revised implementing
rules and regulations shall only take effect fifteen (15) days following its publication
in two (2) newspapers of general circulation.
SECTION 51. Appropriations and Use of Fees, Charges and Penalties. — The initial
budgetary requirements of the Commission of three hundred million pesos
(P300,000,000.00) is hereby appropriated.
All fees, fines, penalties collected by the Commission shall not be retained by the
Commission, but will be remitted to the National Treasury and shall accrue to the
general funds.
Such funds necessary for the continuous and effective operation of the Commission
shall be included in the annual General Appropriations Act.
SECTION 52. Transparency Clause. — Final decisions, orders and rulings of the
Commission shall be published on the official website subject to Section 34 of this
Act.
Records of public proceedings shall be made available to the public subject to Section
34 of this Act.
406
SECTION 53. Transitional Clause. — In order to allow affected parties time to
renegotiate agreements or restructure their business to comply with the provisions of
this Act, an existing business structure, conduct, practice or any act that may be in
violation of this Act shall be subject to the administrative, civil and criminal penalties
prescribed herein only if it is not cured or is continuing upon the expiration of two (2)
years after the effectivity of this Act: Provided, That this section shall not apply to
administrative, civil and criminal proceedings against anti-competitive agreement or
conduct, abuse of dominant position, and anti-competitive mergers and acquisitions,
initiated prior to the entry into force of this Act: Provided, further, That during the said
two (2)-year period, the government shall undertake an advocacy program to inform
the general public of the provisions of this Act.
SECTION 54. Separability Clause. — If any clause, sentence, section or part of this
Act shall be adjudged by a court of competent jurisdiction to be invalid, such judgment
shall not affect, impair or invalidate the remainder of this Act, but shall be confined in
its operation to the clause, sentence, paragraph, section, or part thereof directly
involved in the controversy.
SECTION 55. Repealing Clause. — The following laws, and all other laws, decrees,
executive orders and regulations, or part or parts thereof inconsistent with any
provision of this Act, are hereby repealed, amended or otherwise modified
accordingly:
(a) Article 186 of Act No. 3815, otherwise known as the Revised Penal
Code: Provided, That violations of Article 186 of the Revised Penal
Code committed before the effectivity of this Act may continue to be
prosecuted unless the same have been barred by prescription, and subject to
the procedure under Section 31 of this Act;
(b) Section 4 of Commonwealth Act No. 138;
(c) Section 43 (u) on Functions of the ERC of Republic Act No. 9136, entitled
"An Act Ordaining Reforms in the Electric Power Industry, Amending for the
Purpose Certain Laws and for Other Purposes", otherwise known as the
"Electric Power Industry Reform Act of 2001", insofar as the provision thereof
is inconsistent with this Act;
(d) Section 24 on Illegal Acts of Price Manipulation and Section 25 on Penalty
for Illegal Acts of Price Manipulation of Republic Act No. 9502, entitled "An
Act Providing for Cheaper and Quality Medicines, Amending for the
Purpose Republic Act No. 8293 or the Intellectual Property Code, Republic
Act No. 6675 or the Generics Act of 1988, and Republic Act No. 5921 or
the Pharmacy Law, and for Other Purposes", otherwise known as the
"Universally Accessible Cheaper and Quality Medicines Act of 2008", insofar
as the provisions thereof are inconsistent with this Act; and
(e) Executive Order No. 45, Series of 2011, Designating the Department of Justice
as the Competition Authority, Department of Justice Circular 005 Series of
2015, and other related issuances, insofar as they are inconsistent with the
provisions of this Act.
SECTION 56. Effectivity Clause. — This Act shall take effect fifteen (15) days
following its publication in the Official Gazette or at least two (2) national newspapers
of general circulation. Notwithstanding any provision herein, this Act shall have no
retroactive effect.

407

IMPLEMENTING RULES AND REGULATIONS OF THE
PHILIPPINE COMPETITION ACT
To effectively carry out the provisions of Republic Act No. 10667, or the Philippine
Competition Act (Act), the Philippine Competition Commission, pursuant to the
powers vested in it under said Act, hereby issues, adopts and promulgates the
following rules and regulations. The Commission may revise and supplement these
rules and regulations and issue related guidelines, circulars and other subsidiary
issuances as it deems necessary for the effective implementation of the various
provisions of this Act.
RULE 1
Title and Scope
SECTION 1. Title. —
These rules and regulations shall be referred to as the "Implementing Rules and
Regulations of Republic Act No. 10667" (Rules).
SECTION 2. Scope. —
(a) These Rules shall apply to any entity engaged in trade, industry or commerce
in the Republic of the Philippines or in international trade, industry or
commerce having direct, substantial and reasonably foreseeable effects in the
Philippines, including those that result from acts done outside the territory of
the Philippines.
(b) These Rules shall not apply to the combinations or activities of workers or
employees nor to agreements or arrangements with their employers when such
combinations, activities, agreements, or arrangements are designed solely to
facilitate collective bargaining in respect of conditions of employment.
RULE 2
Definition of Terms
The following definition of terms shall apply for purposes of these Rules:
(a) "Acquisition" refers to the purchase or transfer of securities or assets, through
contract or other means, for the purpose of obtaining control by:
1. One (1) entity of the whole or part of another;
2. Two (2) or more entities over another; or
3. One (1) or more entities over one (1) or more entities;
(b) "Agreement" refers to any type or form of contract, arrangement,
understanding, collective recommendation, or concerted action, whether
formal or informal, explicit or tacit, written, or oral;
408
(c) "Conduct" refers to any type or form of undertaking, collective
recommendation, independent or concerted action or practice, whether
formal or informal;
(d) "Commission" refers to the Philippine Competition Commission created
under the Act;
(e) "Confidential business information" refers to information, which concerns or
relates to the operations, production, sales, shipments, purchases, transfers,
identification of customers, inventories, or amount or source of any income,
profits, losses, expenditures, which are not generally known to the public or
to other persons who can obtain economic value from its disclosure or use, or
is liable to cause serious harm to the person who provided it, or from whom
it originates, and is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy;
(f) "Control" refers to the ability to substantially influence or direct the actions
or decisions of an entity, whether by contract, agency or otherwise;
(g) "Dominant position" refers to a position of economic strength that an entity
or entities hold which makes it capable of controlling the relevant market
independently from any or a combination of the following: competitors,
customers, suppliers, or consumers;
(h) "Entity" refers to any person, natural or juridical, sole proprietorship,
partnership, combination or association in any form, whether incorporated or
not, domestic or foreign, including those owned or controlled by the
government, engaged directly or indirectly in any economic activity;
(i) "Joint venture" refers to a business arrangement whereby an entity or group
of entities contribute capital, services, assets, or a combination of any or all
of the foregoing, to undertake an investment activity or a specific project,
where each entity shall have the right to direct and govern the policies in
connection therewith, with the intention to share both profits and risks and
losses subject to agreement by the entities;
(j) "Market" refers to the group of goods or services that are sufficiently
interchangeable or substitutable and the object of competition, and the
geographic area where said goods or services are offered;
(k) "Merger" refers to the joining of two (2) or more entities into an existing
entity or to form a new entity, including joint ventures;
(l) "Relevant market" refers to the market in which a particular good or service
is sold and which is a combination of the relevant product market and the
relevant geographic market, defined as follows:
1. a relevant product market comprises all those goods and/or services
which are regarded as interchangeable or substitutable by the
consumer or the customer, by reason of the goods and/or services'
characteristics, their prices, and their intended use; and
2. the relevant geographic market comprises the area in which the
entity concerned is involved in the supply and demand of goods and
services, in which the conditions of competition are sufficiently
 homogenous and which can be distinguished from neighboring areas
because the conditions of competition are different in those area;
(m) "Ultimate parent entity" is the juridical entity that, directly or indirectly,
controls a party to the transaction, and is not controlled by any other entity.
RULE 3
Prohibited Acts
SECTION 1. Anti-Competitive Agreements. —
(a) The following agreements, between or among competitors, are per
se prohibited:
1. Restricting competition as to price, or components thereof, or other
terms of trade;
2. Fixing the price at an auction or in any form of bidding, including
cover bidding, bid suppression, bid rotation and market allocation,
and other analogous practices of bid manipulation.
(b) The following agreements, between or among competitors, which have the
object or effect of substantially preventing, restricting, or lessening
competition shall be prohibited:
1. Setting, limiting, or controlling production, markets, technical
development, or investment;
2. Dividing or sharing the market, whether by volume of sales or
purchases, territory, type of goods or services, buyers or sellers, or
any other means.
(c) Agreements other than those specified in (a) and (b) of this Section, which
have the object or effect of substantially preventing, restricting, or lessening
competition shall also be prohibited. Provided, that those which contribute to
improving the production or distribution of goods and services or to
promoting technical or economic progress, while allowing consumers a fair
share of the resulting benefits, may not necessarily be deemed a violation of
the Act.
(d) For purposes of this Section, entities that control, are controlled by, or are
under common control with another entity or entities, have common
economic interests, and are not otherwise able to decide or act independently
of each other, shall not be considered competitors.
SECTION 2. Abuse of Dominant Position. —
(a) It shall be prohibited for one or more entities to abuse their dominant position
by engaging in conduct that would substantially prevent, restrict, or lessen
competition, including:
1. Selling goods or services below cost with the object of driving
competition out of the relevant market. Provided, that in the
Commission's evaluation of this fact, it shall consider whether such
entity or entities had no such object and that the price established
was in good faith to meet or compete with the lower price of a
409
competitor in the same market selling the same or comparable
product or service of like quality.
2. Imposing barriers to entry or committing acts that prevent
competitors from growing within the market in an anti-competitive
manner, except those that develop in the market as a result of or
arising from a superior product or process, business acumen, or legal
rights or laws;
3. Making a transaction subject to acceptance by the other parties of
other obligations which, by their nature or according to commercial
usage, have no connection with the transaction;
4. Setting prices or other terms or conditions that discriminate
unreasonably between customers or sellers of the same goods or
services, where such customers or sellers are contemporaneously
trading on similar terms and conditions, where the effect may be to
lessen competition substantially; Provided, that the following shall
be considered permissible price differentials:
i. Socialized pricing for the less fortunate sector of the
economy;
ii. Price differentials which reasonably or approximately
reflect differences in the cost of manufacture, sale, or
delivery resulting from differing methods, technical
conditions, or quantities in which the goods or services are
sold or delivered to the buyers or sellers;
iii. Price differential or terms of sale offered in response to the
competitive price of payments, services, or changes in the
facilities furnished by a competitor; and
iv. Price changes in response to changing market conditions,
marketability of goods or services, or volume.
5. Imposing restrictions on the lease or contract for sale or trade of
goods or services concerning where, to whom, or in what forms
goods or services may be sold or traded, such as:
i. fixing prices, or
ii. giving preferential discounts or rebate upon such price, or
iii. imposing conditions not to deal with competing entities,
where the object or effect of the restrictions is to prevent,
restrict or lessen competition substantially: Provided, that
nothing contained in the Act shall prohibit or render
unlawful:
1) Permissible franchising, licensing, exclusive
merchandising, or exclusive distributorship
agreements, such as those which give each party the
right to unilaterally terminate the agreement, unless
found by the Commission to have substantial anti-
competitive effect;
 2) Agreements protecting intellectual property rights,
confidential information, or trade secrets;
6. Making supply of particular goods or services dependent upon the
purchase of other goods or services from the supplier which have no
direct connection with the main goods or services to be supplied;
7. Directly or indirectly imposing unfairly low purchase prices for the
goods or services of, among others, marginalized agricultural
producers, fisherfolk, micro-, small-, medium-scaled enterprises,
and other marginalized service providers and producers;
8. Directly or indirectly imposing unfair purchase or selling price on
their competitors, customers, suppliers, or consumers, Provided that
prices that develop in the market as a result of or due to a superior
product or process, business acumen or legal rights or laws shall not
be considered unfair prices; and
9. Limiting production, markets, or technical development to the
prejudice of consumers, Provided, that limitations that develop in
the market as a result of or due to a superior product or process,
business acumen, or legal rights or laws shall not be a violation of
this Act.
(b) Nothing in the Act or these Rules shall be construed or interpreted as a
prohibition on having a dominant position in a relevant market, or on
acquiring, maintaining, and increasing market share through legitimate
means that do not substantially prevent, restrict, or lessen competition.
(c) Any conduct which contributes to improving production or distribution of
goods or services within the relevant market, or promoting technical and
economic progress, while allowing consumers a fair share of the resulting
benefit may not necessarily be considered an abuse of dominant position.
(d) The foregoing shall not constrain the Commission or the relevant regulator
from pursuing measures that would promote fair competition or more
competition as provided in the Act.
SECTION 3. Determination of Exceptions. —
In Section 2, par. (a) (2), (8) and (9), the concerned entity or entities invoking the
exception shall clearly establish to the Commission's satisfaction, that the barrier to
entry or anti-competitive act is an indispensable and natural result of the superior
product or process, business acumen, or legal rights or laws.
RULE 4
Mergers and Acquisitions
SECTION 1. Review of Mergers and Acquisitions. —
The Commission, motu proprio or upon notification as provided under these Rules,
shall have the power to review mergers and acquisitions having a direct, substantial
and reasonably foreseeable effect on trade, industry, or commerce in the Philippines,
based on factors deemed relevant by the Commission.
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(a) In conducting this review, the Commission shall:
1. Assess whether a proposed merger or acquisition is likely to
substantially prevent, restrict, or lessen competition in the relevant
market or in the market for goods and services as may be determined
by the Commission; and
2. Take into account any substantiated efficiencies put forward by the
parties to the proposed merger or acquisition, which are likely to
arise from the transaction.
(b) In evaluating the competitive effects of a merger or acquisition, the
Commission shall endeavor to compare the competitive conditions that would
likely result from the merger or acquisition with the conditions that would
likely have prevailed without the merger or acquisition.
(c) In its evaluation, the Commission may consider, on a case-to-case basis, the
broad range of possible factual contexts and the specific competitive effects
that may arise in different transactions, such as:
1. the structure of the relevant markets concerned;
2. the market position of the entities concerned;
3. the actual or potential competition from entities within or outside of
the relevant market;
4. the alternatives available to suppliers and users, and their access to
supplies or markets;
5. any legal or other barriers to entry.
SECTION 2. Notifying Entities. —
(a) Parties to a merger or acquisition that satisfy the thresholds in Section 3 of
this Rule are required to notify the Commission before the execution of the
definitive agreements relating to the transaction.
(b) If notice to the Commission is required for a merger or acquisition, then all
acquiring and acquired pre-acquisition ultimate parent entities or any entity
authorized by the ultimate parent entity to file notification on its behalf must
each submit a Notification Form (the "Form") and comply with the procedure
set forth in Section 5 of this Rule. The parties shall not consummate the
transaction before the expiration of the relevant periods provided in this Rule.
(c) In the formation of a joint venture (other than in connection with a merger or
consolidation), the contributing entities shall be deemed acquiring entities,
and the joint venture shall be deemed the acquired entity.
SECTION 3. Thresholds for Compulsory Notification. —
Parties to a merger or acquisition are required to provide notification when:
(a) The aggregate annual gross revenues in, into or from the Philippines, or value
of the assets in the Philippines of the ultimate parent entity of at least one of
the acquiring or acquired entities, including that of all entities that the
ultimate parent entity controls, directly or indirectly, exceeds One Billion
Pesos (PhP1,000,000,000.00); and
(b) The value of the transaction exceeds One Billion Pesos
(PhP1,000,000,000.00), as determined in subsections (1), (2), (3) or (4), as
the case may be.
1. With respect to a proposed merger or acquisition of assets in the
Philippines if either:
i. the aggregate value of the assets in the Philippines
being acquired in the proposed transaction exceeds
One Billion Pesos (PhP1,000,000,000.00); or
ii. the gross revenues generated in the Philippines by
assets acquired in the Philippines exceed One Billion
Pesos (PhP1,000,000,000.00).
2. With respect to a proposed merger or acquisition of assets
outside the Philippines, if
i. the aggregate value of the assets in the Philippines of
the acquiring entity exceeds One Billion Pesos
(PhP1,000,000,000.00); and
ii. the gross revenues generated in or into the Philippines
by those assets acquired outside the Philippines exceed
One Billion Pesos (PhP1,000,000,000.00).
3. With respect to a proposed merger or acquisition of assets inside
and outside the Philippines, if
i. the aggregate value of the assets in the Philippines of
the acquiring entity exceeds One Billion Pesos
(PhP1,000,000,000.00); and
ii. the aggregate gross revenues generated in or into the
Philippines by assets acquired in the Philippines and
any assets acquired outside the Philippines collectively
exceed One Billion Pesos (PhP1,000,000,000.00).
4. With respect to a proposed acquisition of (i) voting shares of a
corporation or of (ii) an interest in a non-corporate entity
i. If the aggregate value of the assets in the Philippines
that are owned by the corporation or non-corporate
entity or by entities it controls, other than assets that
are shares of any of those corporations, exceed One
Billion Pesos (PhP1,000,000,000.00); or
ii. The gross revenues from sales in, into, or from the
Philippines of the corporation or non-corporate entity
or by entities it controls, other than assets that are
shares of any of those corporations, exceed One
Billion Pesos (PhP1,000,000,000.00); and
iii. If
A. as a result of the proposed acquisition of the
voting shares of a corporation, the entity or
entities acquiring the shares, together with
their affiliates, would own voting shares of
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the corporation that, in the aggregate, carry
more than the following percentages of the
votes attached to all the corporation's
outstanding voting shares:
I. Thirty-five percent (35%), or
II. Fifty percent (50%), if the entity or
entities already own more than the
percentage set out in subsection I
above, as the case may be, before the
proposed acquisition; or
B. as a result of the proposed acquisition of an
interest in a non-corporate entity, the entity or
entities acquiring the interest, together with
their affiliates, would hold an aggregate
interest in the non-corporate entity that
entitles the entity or entities to receive more
than the following percentages of the profits
of the non-corporate entity or assets of that
non-corporate entity on its dissolution:
I. Thirty-five percent (35%), or
II. Fifty percent (50%), if the entity or
entities acquiring the interest are
already entitled to receive more than
the percentage set out in subsection
I immediately above before the
proposed acquisition.
(c) Where an entity has already exceeded the 35% threshold for an acquisition of
voting shares, or the 35% threshold for an acquisition of an interest in a non-
corporate entity, another notification will be required if the same entity will
exceed 50% threshold after making a further acquisition of either voting
shares or an interest in a non-corporate entity.
(d) In a notifiable joint venture transaction, an acquiring entity shall be subject
to the notification requirements if either (i) the aggregate value of the assets
that will be combined in the Philippines or contributed into the proposed joint
venture exceeds One Billion Pesos (PhP1,000,000,000.00) or (ii) the gross
revenues generated in the Philippines by assets to be combined in the
Philippines or contributed into the proposed joint venture exceed One Billion
Pesos (PhP1,000,000,000.00). In determining the assets of the joint venture,
the following shall be included:
1) All assets which any entity contributing to the formation of the joint
venture has agreed to transfer, or for which agreements have been
secured for the joint venture to obtain at any time, whether or not
such entity is subject to the requirements of the act; and
 2) Any amount of credit or any obligations of the joint venture which
any entity contributing to the formation has agreed to extend or
guarantee, at any time.
(e) A merger or acquisition consisting of successive transactions, or acquisition
of parts of one or more entities, which shall take place within a one-year
period between the same parties, or any entity they control or are controlled
by or are under common control with another entity or entities, shall be
treated as one transaction. If a binding preliminary agreement provides for
such successive transactions or acquisition of parts, the entities shall provide
notification on the basis of such preliminary agreement. If there is no binding
preliminary agreement, notification shall be made when the parties execute
the agreement relating to the last transaction which, when taken together with
the preceding transactions, satisfies the thresholds under this Section.
(f) For purposes of calculating notification thresholds:
1. The aggregate value of assets in the Philippines shall be as stated on
the last regularly prepared balance sheet or the most recent audited
financial statements in which those assets are accounted for.
2. The gross revenues from sales of an entity shall be the amount stated
on the last regularly prepared annual statement of income and
expense of that entity.
(g) A transaction that meets the thresholds and does not comply with the
notification requirements and waiting periods set out in Section 5 shall be
considered void and will subject the parties to an administrative fine of one
percent (1%) to five percent (5%) of the value of the transaction.
(h) In the case of a merger or acquisition of banks, banking institutions, building
and loan associations, trust companies, insurance companies, public utilities,
educational institutions, and other special corporations governed by special
laws, a favorable or no-objection ruling by the Commission shall not be
construed as dispensing with the requirement for a favorable recommendation
by the appropriate government agency under Section 79 of the Corporation
Code of the Philippines.
(i) A favorable recommendation by a governmental agency with a competition
mandate shall give rise to a disputable presumption that the proposed merger
or acquisition is not violative of the Act or these Rules, Provided, that the
recommendation must arise directly from the exercise of the agency's
mandate to determine any anti-competitive effect of the proposed merger or
acquisition.
SECTION 4. Consultations Preceding the Submission of Notification. —
(a) Prior to filing a notification pursuant to this Rule, parties to a proposed merger
or acquisition that are required to notify may inform the Commission of their
proposed merger or acquisition and request a pre-notification consultation
with the staff of the Commission.
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To request a meeting, the parties must provide the following information in
writing:
1. the names and business contact information of the entities
concerned;
2. the type of transaction; and
3. the markets covered or lines of businesses by the proposed merger
or acquisition.
(b) During such pre-notification consultations, the parties may seek non-binding
advice on the specific information that is required to be in the notification.
SECTION 5. Procedure for Notification and Review. —
(a) Each party to a merger or acquisition required to give notification to the
Commission shall submit the Notification Form and pay such applicable fees
as may be determined by the Commission. An electronic copy of the Form
and a scanned copy of the certification referred to in subparagraph (b) of this
Section, contained in a secure electronic storage device, shall likewise be
submitted to the Commission, simultaneous with the filing of the
aforementioned hard copy.
(b) The Form must be signed by a general partner of a partnership, an officer or
director of a corporation, or in the case of a natural person, the natural person
or his/her legal representative, and certified that the contents of the Form are
true and accurate of their own personal knowledge and/or based on authentic
records. In all cases, the certifying individual must possess actual authority
to make the certification on behalf of the entity filing the notification.
(c) The parties may notify, on the basis of a binding preliminary agreement in
any form, such as a memorandum of agreement, term sheet, or letter of intent.
Each of the acquired and acquiring entities must submit an affidavit with their
Forms, attesting to the fact that a binding preliminary agreement has been
executed and that each party has an intention of completing the proposed
transaction in good faith.
(d) Both the certification and the affidavit must be notarized or otherwise
authenticated.
(e) Except as described below, the waiting period begins after all notifying
entities have filed their respective Forms, together with the corresponding
certifications and affidavits, and have been notified by the Commission that
the Forms are complete.
1. In voting securities acquisitions, such as tender offers, third party and
open market transactions, in which the acquiring entity proposes to buy
voting securities from shareholders of the acquired entity, rather than
from the entity itself:
i. the acquiring entity is required to serve notice on the issuer of
those shares to ensure the acquired entity is aware of its reporting
obligation;
 ii. only the acquiring entity must submit an affidavit. The acquiring
entity must state in the affidavit that it has an intention of
completing the proposed transaction in good faith, and that it has
served notice on the acquired entity as to its potential reporting
obligations (and in tender offers, the acquiring entity also must
affirm that the intention to make the tender offer has been publicly
announced); and
iii. the waiting period begins after the acquiring entity files a
complete Form.
(f) Upon submission of the Form, the Commission shall determine within fifteen
(15) days whether the Form and other relevant requirements have been
completed in accordance with applicable rules or guidelines, and shall inform
the parties of other information and/or documents it may have failed to
supply, or issue a notice to the parties that the notification is sufficient for
purposes of commencing Phase I review of the merger or acquisition.
(g) The waiting period under this Section shall commence only upon the
Commission's determination that the notification has been completed in
accordance with applicable rules and guidelines.
(h) Within thirty (30) days from commencing Phase I review, the Commission
shall, if necessary, inform the parties of the need for a more comprehensive
and detailed analysis of the merger or acquisition under a Phase II review,
and request other information and/or documents that are relevant to its
review.
(i) The issuance of the request under the immediately preceding paragraph has
the effect of extending the period within which the agreement may not be
consummated for an additional sixty (60) days. The additional sixty (60) day
period shall begin on the day after the request for information is received by
the parties; Provided, that, in no case shall the total period for review by the
Commission of the subject agreement exceed ninety (90) days from the time
the initial notification by the parties is deemed complete as provided under
paragraph (f) of this Section; Provided further, that should the parties fail to
provide the requested information within fifteen (15) days from receipt of the
said request, the notification shall be deemed expired and the parties must
refile their notification. Alternatively, should the parties wish to submit the
requested information beyond the fifteen (15) day period, the parties may
request for an extension of time within which to comply with the request for
additional information, in which case, the period for review shall be
correspondingly extended.
(j) Parties to a proposed transaction under review shall inform the Commission
of any substantial modifications to the transaction. On the basis of the
information provided, the Commission shall determine if a new notification
is required.
(k) Where notification of a transaction is not required, then the periods provided
above for the Commission to conclude its review shall not apply.
413
(l) The Commission, in its discretion, may terminate a waiting period prior to its
expiration.
(m) When either waiting period set out ends on a Saturday, Sunday or holiday,
the waiting period is extended until the next business day.
(n) When the above periods have expired and no decision has been promulgated
for whatever reason, the merger or acquisition shall be deemed approved and
the parties may proceed to implement or consummate it.
(o) All notices, documents, and information provided to or emanating from the
Commission under Sections 4 and 5 of this Rule shall be subject to the
confidentiality rule under Section 34 of the Act and Section 13 of this Rule,
except for the purpose of enforcing the Act or these Rules, or when the release
of information contained therein is with the consent of the notifying entity or
is mandatorily required to be disclosed by law or by a valid order of a court
of competent jurisdiction, or of a government or regulatory agency, including
an exchange.
SECTION 6. Effect of Notification. —
If within the relevant periods stipulated in the preceding section, the Commission
determines that the merger or acquisition agreement is prohibited under Section 20 of
the Act and Section 9 of this Rule, and does not qualify for exemption under Section
21 of the Act and Section 10 of this Rule, the Commission may:
(a) Prohibit the implementation of the agreement;
(b) Prohibit the implementation of the agreement unless and until it is modified
by changes specified by the Commission; or
(c) Prohibit the implementation of the agreement unless and until the pertinent
party or parties enter into legally enforceable agreements specified by the
Commission.
SECTION 7. Publication of Notification Summary. —
(a) When additional information or documents requested by the Commission for
the purpose of a Phase II review of a notified merger or acquisition has been
submitted by the parties, the Commission shall publish on its website the
following information related to the notification on the basis of the Form
submitted by the parties:
1. the name of the involved entities;
2. the type of the transaction;
3. the markets covered or lines of businesses by the proposed merger
or acquisition; and
4. the date when the complete notification was received.
(b) When publishing this information, the Commission shall take into account
the legitimate interest of the entities regarding the protection of their trade
secrets and other confidential information.
SECTION 8. Modifications to Thresholds on Compulsory Notification. —
The Commission shall publish, from time to time, regulations adopting, modifying,
rescinding or otherwise changing:
(a) The transaction value threshold and such other criteria subject to compulsory
notification;
(b) The information that must be supplied for notified mergers or acquisitions;
(c) Exceptions or exemptions from the notification requirement; and
(d) Other rules relating to the notification procedures.
SECTION 9. Prohibited Mergers and Acquisitions. —
Merger or acquisition agreements that substantially prevent, restrict, or lessen
competition in the Philippines in the relevant market or in the market for goods or
services, as may be determined by the Commission, shall be prohibited.
SECTION 10. Exemptions from Prohibited Mergers and Acquisitions. —
Merger or acquisition agreements prohibited under Section 20 of the Act and Section
9 of this Rule may, nonetheless, be exempt from prohibition by the Commission when
the parties establish either of the following:
(a) The concentration has brought about or is likely to bring about gains in
efficiencies that are greater than the effects of any limitation on competition
that result or are likely to result from the merger or acquisition agreement; or
(b) A party to the merger or acquisition agreement is faced with actual or
imminent financial failure, and the agreement represents the least anti-
competitive arrangement among the known alternative uses for the failing
entity's assets.
Provided, that an entity shall not be prohibited from continuing to own and hold the
stock or other share capital or assets of another corporation, which it acquired prior to
the approval of the Act, or from acquiring or maintaining its market share in a relevant
market through such means without violating the provisions of the Act and these
Rules;
Provided, further, that the acquisition of the stock or other share capital of one or more
corporations solely for investment and not used for voting or exercising control and
not to otherwise bring about, or attempt to bring about the prevention, restriction or
lessening of competition in the relevant market shall not be prohibited.
SECTION 11. Burden of Proof. —
The burden of proof under Section 10 of this Rule lies with the parties seeking the
exemption. A party seeking to rely on the exemption specified in Section 21 (a) of the
Act or Section 10 (a) of this Rule must demonstrate that if the agreement were not
implemented, significant efficiency gains would not be realized.
SECTION 12. Finality of Rulings on Mergers and Acquisitions. —
Merger or acquisition agreements that have received a favorable ruling from the
Commission, except when such ruling was obtained on the basis of fraud or false
material information, may not be challenged under the Act or these Rules.
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SECTION 13. Treatment of Confidential Information. —
(a) Information, including documents, shall not be communicated or made
accessible by the Commission, insofar as it contains trade secrets or other
confidential information, the disclosure of which is not considered necessary
by the Commission for the purpose of the review.
(b) Any entity or party that supplies information, including documents, to the
Commission, shall clearly identify any material that it considers to be
confidential, provide a justification for the request of confidential treatment of
the information supplied and the time period within which confidentiality is
requested, and provide a separate non-confidential version by the date set by
the Commission.
(c) The Commission may require the parties to the merger or acquisition and other
interested parties to identify any part of a decision or case summary adopted
by the Commission, if any, which in their view contains trade secrets or other
confidential information. Where trade secrets or other confidential
information are identified, the parties to the merger or acquisition and other
interested parties shall provide a justification for the request of confidential
treatment and provide a separate non-confidential version by the date set by
the Commission.
(d) Whenever the Commission, pursuant to Section 13 (c) of this Rule, deems that
the justification for confidential treatment provided by the party is insufficient
or not grounded, it shall inform the interested party of its decision to make the
information accessible.
(e) If a merger or acquisition is under review in multiple jurisdictions, parties to
the transaction may waive the confidentiality protections contained in this
Rule, so as to allow the Commission to exchange otherwise protected
information with competition authorities in other countries.
RULE 5
Determination of the Relevant Market
SECTION 1. For purposes of determining the relevant market, the following factors,
among others, affecting the substitutability among goods or services constituting such
market, and the geographic area delineating the boundaries of the market shall be
considered:
(a) The possibilities of substituting the goods or services in question with others
of domestic or foreign origin, considering the technological possibilities, the
extent to which substitutes are available to consumers and the time required
for such substitution;
(b) The cost of distribution of the good or service, its raw materials, its
supplements and substitutes from other areas and abroad, considering freight,
insurance, import duties, and non-tariff restrictions; the restrictions imposed
by economic agents or by their associations; and the time required to supply
the market from those areas;
 (c) The cost and probability of users or consumers seeking other markets; and
(d) National, local or international restrictions which limit the access by users or
consumers to alternate sources of supply or the access of suppliers to alternate
consumers.
RULE 6
Determination of Control
SECTION 1. What Constitutes Control of an Entity. —
Control refers to the ability to substantially influence or direct the actions or decisions
of an entity, whether by contract, agency or otherwise.
In determining the control of an entity, the Commission may consider the following:
(a) Control is presumed to exist when the parent owns directly or indirectly,
through subsidiaries, more than one half (1/2) of the voting power of an
entity, unless in exceptional circumstances, it can clearly be demonstrated
that such ownership does not constitute control.
(b) Control also exists even when an entity owns one half (1/2) or less of the
voting power of another entity when:
1. There is power over more than one half (1/2) of the voting rights by
virtue of an agreement with investors;
2. There is power to direct or govern the financial and operating
policies of the entity under a statute or agreement;
3. There is power to appoint or remove the majority of the members of
the board of directors or equivalent governing body;
4. There is power to cast the majority votes at meetings of the board of
directors or equivalent governing body;
5. There exists ownership over or the right to use all or a significant
part of the assets of the entity; or
6. There exist rights or contracts which confer decisive influence on
the decisions of the entity.
RULE 7
Determination of Anti-Competitive Agreement or Conduct
SECTION 1. Determination of an Anti-Competitive Agreement or Conduct. —
In determining whether an anti-competitive agreement or conduct substantially
prevents, restricts, or lessens competition, the Commission, in appropriate cases,
shall, inter alia:
(a) Define the relevant market allegedly affected by the anti-competitive
agreement or conduct, following the principles laid out in Section 24 of the
Act and Rule 5 of these Rules;
(b) Determine if there is actual or potential adverse impact on competition in the
relevant market caused by the alleged agreement or conduct, and if such
impact is substantial and outweighs the actual or potential efficiency gains
that result from the agreement or conduct;
415
(c) Adopt a broad and forward-looking perspective, recognizing future market
developments, any overriding need to make the goods or services available
to consumers, the requirements of large investments in infrastructure, the
requirements of law, and the need of our economy to respond to international
competition, but also taking account of past behavior of the parties involved
and prevailing market conditions;
(d) Balance the need to ensure that competition is not prevented or substantially
restricted and the risk that competition efficiency, productivity, innovation,
or development of priority areas or industries in the general interest of the
country may be deterred by overzealous or undue intervention; and
(e) Assess the totality of evidence on whether it is more likely than not that the
entity has engaged in anti-competitive agreement or conduct, including
whether the entity's conduct was done with a reasonable commercial purpose,
such as but not limited to, phasing out of a product or closure of a business,
or as a reasonable commercial response to the market entry or conduct of a
competitor.
RULE 8
Determination of Dominance
SECTION 1. Existence of Dominance. —
Dominance can exist on the part of one entity (single dominance) or of two or more
entities (collective dominance).
SECTION 2. Assessment of Dominance. —
In determining whether an entity has a market dominant position for purposes of this
Act and these Rules, the Commission shall consider the following illustrative and non-
exhaustive criteria, as may be appropriate:
(a) The share of the entity in the relevant market and the ability of the entity to fix
prices unilaterally or to restrict supply in the relevant market;
(b) The share of other market participants in the relevant market;
(c) The existence of barriers to entry and the elements which could foreseeably
alter both the said barriers and the supply from competitors;
(d) The existence and power of its competitors;
(e) The credible threat of future expansion by its actual competitors or entry by
potential competitors (expansion and entry);
(f) Market exit of actual competitors;
(g) The bargaining strength of its customers (countervailing power);
(h) The possibility of access by its competitors or other entities to its sources of
inputs;
(i) The power of its customers to switch to other goods or services;
(j) Its recent conduct;
(k) Its ownership, possession or control of infrastructure which are not easily
duplicated;
(l) Its technological advantages or superiority, compared to other competitors;
 (m) Its easy or privileged access to capital markets or financial resources;
(n) Its economies of scale and of scope;
(o) Its vertical integration; and
(p) The existence of a highly developed distribution and sales network.
SECTION 3. Presumption of Dominance. —
There shall be a rebuttable presumption of market dominant position if the market
share of an entity in the relevant market is at least fifty percent (50%), unless a new
market share threshold is determined by the Commission for that particular sector.
SECTION 4. Setting the Thresholds for Dominance. —
The Commission shall, from time to time, determine and publish the threshold for
dominant position or the minimum level of share in the relevant market that could give
rise to a presumption of dominant position. In such a determination, the Commission
would consider:
(a) The structure of the relevant market;
(b) The degree of integration;
(c) Access to end-users;
(d) Technology and financial resources; and
(e) Other factors affecting the control of a market, as provided in Section 2 of
this Rule.
SECTION 5. Exceptions. —
The Commission shall not consider the acquisition, maintenance and increase of
market share through legitimate means that does not substantially prevent, restrict, or
lessen competition in the market, such as but not limited to, having superior skills,
rendering superior service, producing or distributing quality products, having business
acumen, and enjoying the use of protected intellectual property rights as violative of
the Act and these Rules, Provided, that the concerned entity or entities invoking the
exception shall clearly establish to the Commission's satisfaction, that the barrier to
entry or anti-competitive act is an indispensable and natural result of the superior
product or process, business acumen, or legal rights or laws.
(c) Forbearance is consistent with public interest and the benefit and welfare of
the consumers; and
(d) Forbearance is justified in economic terms;
Provided, that forbearance will be granted for a maximum period of one year. Any
extension to the period will have to be expressly approved by the Commission. Any
extension of the duration of an exemption shall not be longer than one year.
SECTION 2. Public Hearing. —
(a) A public hearing shall be held to assist the Commission in making its
determination under Section 1 of this Rule.
(b) The Commission's order exempting the relevant entity, or group of entities
under this Rule shall be made public. Conditions may be attached to the
forbearance if the Commission deems it appropriate to ensure the long-term
interests of consumers.
(c) In the event that the basis for the issuance of the exemption order ceases to
be valid, the order may be withdrawn by the Commission.
RULE 10
Final Provisions
SECTION 1. Revisions of These Rules. —
The Commission may revise these Rules whenever it deems necessary and after due
consultation with affected stakeholders.
SECTION 2. Separability Clause. —
Should any provision herein be subsequently declared unconstitutional, the same shall
not affect the validity or legality of the other provisions.
SECTION 3. Effectivity. —
These Rules shall take effect fifteen (15) days after the date of its publication in at least
two (2) newspapers of general circulation.

RULE 9
Forbearance

SECTION 1. Forbearance of the Commission. —

The Commission, motu proprio or upon application, prior to its initiation of an inquiry,
may forbear from applying the provisions of the Act or these Rules, for a limited time,
in whole or in part, in all or specific cases, on an entity or group of entities, if in its
determination:
(a) Enforcement is not necessary to the attainment of the policy objectives of this
Act;
(b) Forbearance will neither impede competition in the market where the entity or
group of entities seeking exemption operates nor in related markets;

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