I.

INSURANCE

A. Concept of insurance

"(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.

A contract of insurance, to be binding from the date of application, must have been a completed
contract (Perez vs. CA, GR No. 112329, January 28, 2000). Thus, it must have all the essential elements
of a valid contract as enumerated in Art. 1318 of the New Civil Code:

1. Subject matter in which the insured has an insurable interest; 2. Consideration, which is the premium
paid by the insured, for the insurer’s promise to indemnify the former upon the happening of the event
or peril insured against; 3. Meeting of minds of the parties.

B. Elements of an insurance contract

SPEAR: 1. Scheme to distribute losses – Such assumption of risk is part of a general scheme to distribute
actual losses among a large group or substantial number of persons bearing a similar risk. 2. Payment of
premium – As consideration for the insurer’s promise, the insured makes a ratable contribution called
“premium,” to a general insurance fund. 3. Existence of insurable interest – The insured possesses an
interest of some kind susceptible of pecuniary estimation, known as “insurable interest.” 4. Assumption
of Risk – The insurer assumes that risk of loss for a consideration. 5. Risk of loss – The insured is subject
to a risk of loss through the destruction or impairment of that interest by the happening of designated
peril.

NOTE: The inherent uncertainty of events is normally described in terms of risk. A contract possessing
only the last three elements enumerated above is a risk-shifting device, but NOT a contract of insurance
which is a risk-distributing device. (De Leon, 2006)

Consequently, however, the existence of insurance could have the perverse effect of increasing the
probability of loss. This is when the insured, having in mind the indemnification for loss or damage
caused by the happening of the event insured against, would have reduced incentive to take steps to
protect himself or his property, subject of insurance. This phenomenon is called moral hazard (ibid).

C. Characteristics and nature of insurance contracts

1. Consensual – It is perfected by the meeting of the minds of the parties as to the object, cause and
consideration of the insurance contract. There should be acceptance of the application for insurance.
2. Voluntary – The parties may incorporate such terms and conditions as they may deem convenient:
Provided they do not contravene any provision of law and are not opposed to public policy, law, morals,
good customs, or public order.

GR: The taking out of an insurance contract is not compulsory.

XPN: Liability insurance may be required by law in certain instances (E.g. compulsory motor vehicle
liability insurance, or employees under Labor Code, or as a condition to granting a license to conduct a
business or calling affecting the public safety or welfare).

3. Aleatory – The liability of the insurer depends upon some contingent event. An aleatory contract is a
contract where one or both of the parties reciprocally bind themselves to give or do something upon the
happening of an event which is uncertain, or which is to occur at an indeterminate time. (NCC, Art.
2010)

4. Unilateral – It imposes legal duties only on the insurer who promises to indemnify in case of loss.

It is executed as to the insured after the payment of the premium, and executory on the part of the
insurer in the sense that it is not executed until payment for a loss.

5. Conditional – It is subject to conditions, the principal one of which is the happening of the event
insured against.

6. Contract of indemnity – Recovery is commensurate with the amount of the loss suffered.

GR: The insurer promises to make good only the loss of the insured.

XPN: The principle is not applicable to life and accident insurance where the result is death because life
is not capable of pecuniary estimation. The only situation where the principle of indemnity is applicable
to life insurance is when the interest of a person insured is capable of exact pecuniary measurement. An
example would be in a case where a creditor insures the life of his debtor to the extent of the latter’s
debt to the former.
7. Personal – Each party having in view the character, credit and conduct of the other. The law presumes
that the insurer considered the personal qualifications of the insured in approving the insurance
application. (Sundiang Sr. & Aquino, 2014)

8. Property – Since insurance is a contract, it is property in legal contemplation.

9. Risk-distributing device – Insurance serves to distribute the risk of economic loss among as many as
possible of those who are subject to the same kind of loss. By paying a pre-determined amount into a
general fund out of which payment will be made for an economic loss of a defined type, each member
contributes to a small degree toward compensation for losses suffered by any member of the group.
This broad sharing of economic risk is the principle of risk-distribution. (Sundiang Sr. & Aquino, 2014) 10.
Onerous – There is a valuable consideration called the premium.

D. Classes

1. Marine

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.

2. Fire
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.

3. Casualty
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.

4. Suretyship
A contract of suretyship is an agreement whereby a party called the surety guarantees the
performance by another party called the principal or obligor of an obligation or undertaking in favor of
a third party called the obligee. It includes official recognizances, stipulations, bonds or undertakings
issued by any company by virtue of and under the provisions of Act No. 536, as amended by Act No.
2206.

5. Life

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.

6. Microinsurance

Microinsurance is a financial product or service that meets the risk protection needs of the poor
where:

"(a) The amount of contributions, premiums, fees or charges, computed on a daily basis,
does not exceed seven and a half percent (7.5%) of the current daily minimum wage rate for
nonagricultural workers in Metro Manila; and
 "(b) The maximum sum of guaranteed benefits is not more than one thousand (1,000) times
of the current daily minimum wage rate for nonagricultural workers in Metro Manila.

"Section 188. No insurance company or mutual benefit association shall engage in the business of
microinsurance unless it possesses all the requirements as may be prescribed by the
Commissioner. The Commissioner shall issue such rules and regulations governing microinsurance.

7. Compulsory motor vehicle liability insurance

8. Compulsory insurance coverage for agency-hired workers

E. Variable contracts

. (a) No insurance company authorized to transact business in the Philippines shall issue, deliver,
sell or use any variable contract in the Philippines, unless and until such company shall have
satisfied the Commissioner that its financial and general condition and its methods of operations,
including the issue and sale of variable contracts, are not and will not be hazardous to the public or
to its policy and contract owners. No foreign insurance company shall be authorized to issue, deliver
or sell any variable contract in the Philippines, unless it is likewise authorized to do so by the laws of
its domicile.

"(b) The term variable contract shall mean any policy or contract on either a group or on an individual
basis issued by an insurance company providing for benefits or other contractual payments or
values thereunder to vary so as to reflect investment results of any segregated portfolio of
investments or of a designated separate account in which amounts received in connection with such
contracts shall have been placed and accounted for separately and apart from other investments
and accounts. This contract may also provide benefits or values incidental thereto payable in fixed or
variable amounts, or both. It shall not be deemed to be a security or securities as defined in The
Securities Act, as amended, or in the Investment Company Act, as amended, nor subject to
regulations under said Acts.

"(c) In determining the qualifications of a company requesting authority to issue, deliver, sell or use
variable contracts, the Commissioner shall always consider the following:

"(1) The history, financial and general condition of the company: Provided, That such
company, if a foreign company, must have deposited with the 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.

F. Insurable interest

Microinsurance is a financial product or service that meets the risk protection needs of the poor
where:

"(a) The amount of contributions, premiums, fees or charges, computed on a daily basis,
does not exceed seven and a half percent (7.5%) of the current daily minimum wage rate for
nonagricultural workers in Metro Manila; and

"(b) The maximum sum of guaranteed benefits is not more than one thousand (1,000) times
of the current daily minimum wage rate for nonagricultural workers in Metro Manila.

"Section 188. No insurance company or mutual benefit association shall engage in the business of
microinsurance unless it possesses all the requirements as may be prescribed by the
Commissioner. The Commissioner shall issue such rules and regulations governing microinsurance.

1. In life/health

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.

Insurance upon one’s life – are those taken out by the insured upon his own life (IC, Section 10[a]) for
the benefit of himself, or of his estate, in case it matures only at his death, for the benefit of third
person who may be designated as beneficiary.

The question of insurable interest is immaterial where the policy is procured by the person whose life is
insured. A person who insures his own life can designate any person as his beneficiary, whether or not
the beneficiary has an insurable interest in the life of the insured subject to the limits under Articles 739
and 2012 of the New Civil Code. (De Leon, 2010)

2. Insurance upon life of another – are those taken out by the insured upon the life of another. Where a
person names himself beneficiary in a policy he takes on the life of another, he must have insurable
interest in the life of the latter (De Leon, 2010). This class includes the following: a. His spouse and of his
children. b. 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. d. Of
any person upon whose life any estate or interest vested in him depends (IC, Sec. 10).

NOTE: In paragraph (a) of Section 10 of the Insurance Code, mere relationship is sufficient while the rest
(pars. b, c, and d) requires pecuniary interest. Thus, the interest of the creditor over the life of the
debtor ceases upon full payment. (Sundiang Sr. & Aquino, 2009)

2. In property

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.

Every interest in property, whether real or personal, or any relation thereto, or liability in respect
thereof, of such nature that contemplated peril might directly damnify the insured, is insurable interest
(IC, Sec. 13).

Insurable interest in property may consist of the following (1991 Bar):

1. An existing interest – The existing interest in the property may be legal or equitable title.

Examples of insurable interest arising from legal title: a. Trustee, as in the case of the seller of property
not yet delivered; b. Mortgagor of the property mortgaged; c. Lessor of the property leased (De Leon,
supra).

Examples of insurable interest arising from equitable title: a. Purchaser of property before delivery or
before he has performed the conditions of the sale; b. Mortgagee of property mortgaged; c. Mortgagor,
after foreclosure but before the expiration of the period within which redemption is allowed (De Leon,
2010).
2. An inchoate interest founded on an existing interest.

Example: A stockholder has an inchoate interest in the property of the corporation of which he is a
stockholder, which is founded on an existing interest arising from his ownership of shares in the
corporation. (De Leon, 2014)

3. An expectancy coupled with an existing interest in that out of which the expectancy arises.

NOTE: Existence of insurable interest is a matter of public policy. Hence, the principle of estoppel cannot
be invoked. (Sundiang Sr. & Aquino, 2014)

3. Double insurance and over insurance

A double insurance exists where the same person is insured by several insurers separately in
respect to the same subject and interest.

"Section 96. Where the insured in a policy other than life is over insured by double insurance:

"(a) The insured, unless the policy otherwise provides, may claim payment from the insurers
in such order as he may select, up to the amount for which the insurers are severally liable
under their respective contracts;

"(b) Where the policy under which the insured claims is a valued policy, any sum received by
him under any other policy shall be deducted from the value of the policy without regard to
the actual value of the subject matter insured;

"(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.

Over insurance

There is over insurance whenever the insured obtains a policy in an amount exceeding the value of his
insurable interest. (Perez, 2006)
4. Multiple or several interests on same property

Instances where more than one insurable interest may exist in the same property

1. In trust, both trust or and trustee have insurable interest over the property in trust. 2. In a
corporation, both the corporation and its stockholders have insurable interest over the assets. 3. In
partnership both the firm and partners have insurable interest over its assets. 4. In assignment both the
assignor and assignee have insurable interest over the property assigned. 5. In lease, the lessor, lessee
and sub-lessees have insurable interest over the property in lease. 6. In mortgage, both the mortgagor
and mortgagee have insurable interest over the property mortgaged.

G. Perfection of the contract of insurance

1. Offer and acceptance/consensuality

The contract of insurance is perfected when the assent or consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to constitute the contract. Mere offer
or proposal is not contemplated (De Lim v. Sun Life Assurance Co., G.R. No. L-15774, November 29,
1920)

a. Delay in acceptance

The acceptance of an insurance policy must be unconditional, but it need not be by a formal act. (De
Leon, 2010)

Delay in acceptance of the insurance application will not result in a binding contract. Court cannot
impose upon the parties a contract if they did not consent. However, in proper cases, the insurer may be
liable for tort. (Sundiang Sr. & Aquino, 2014)

Unreasonable delay in returning the premium raises the presumption of acceptance of the insurance
application. (Gloria v. Philippine American Life Ins. Co., CA 73 O.G. [No.37] 8660)

b. Delivery of policy

Delivery is not necessary in the formation of the contract of insurance since the contract of insurance is
consensual. (Sundiang Sr. & Aquino, 2014).

The mere delivery of an insurance policy to someone does not give rise to the formation of a contract in
the absence of proof that he had agreed to be insured.
Two types of delivery

1. Actual – delivery to the person of the insured. 2. Constructive a. By mail –If policy was mailed already
and premium was paid and nothing is left to be done by the insured, the policy is considered
constructively delivered if insured died before receiving the policy. b. By agent –If delivered to the agent
of the insurer, whose duty is ministerial, or delivered to the agent of the insured, the policy is
considered constructively delivered. (De Leon, 2010)

2. Premium payment

Premium

It is an agreed price for assuming and carrying the risk – that is, the consideration paid to an insurer for
undertaking to indemnify the insured against a specified peril. (De Leon, 2010)

The burden is on an insured to keep a policy in force by the payment of premiums, rather than on the
insurer to exert every effort to prevent the insured from allowing a policy to elapse through a failure to
make premium payments. The continuance of the insurer's obligation is conditional upon the payment
of premiums, so that no recovery can be had upon a lapsed policy, the contractual relation between the
parties having ceased. (Philippine Phoenix Surety & Insurance Company Vs. Woodworks, Inc. G.R. No. L-
25317 August 6, 1979)

. 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.

3. Non-default options in life insurance

Devices used to prevent the forfeiture of a life insurance after the payment of the first premium

1. Grace period – After the payment of the first premium, the insured is entitled to a grace period of 30
days within which to pay the succeeding premiums. (Sec. 233 [a], ibid) 2. Cash surrender value – The
amount the insurer agrees to pay to the holder of the policy if he surrenders it and releases his claim
upon it. (Cyclopedia Law Dictionary, 3rd ed.) 3. Extended insurance – It is where the insured is given a
right, upon default, after payment of at least three full annual premiums (IC, Sec. 233 [f]) to have the
policy continued in force from the date of default for a time either stated or equal to the amount as the
net value of the policy taken as a single premium, will purchase. (De Leon, 2010) 4. Paid up Insurance –
The insured is given a right, upon default, after the payment of at least three annual premiums to have
the policy continued in force from the date of default for the whole period of the insurance without
further payment of premiums. It results to a reduction of the original amount of insurance, but for the
same period originally stipulated. (6 Couch 2d., 355; 37 C.J.S. 364) 5. Automatic Loan Clause – A
stipulation in the policy providing that upon default in payment of premium, the same shall be paid from
the loan value of the policy until that value is consumed. In such a case, the policy is continued in force
as fully and effectively as though the premiums had been paid by the insured from funds derived from
other sources. (6 Couch 2d., 383) 6. Reinstatement – Provision that the holder of the policy shall be
entitled to reinstatement of the contract at any time within 3 years from the date of default in the
payment of premium, unless the cash surrender value has been paid, or the extension period expired,
upon production of evidence of insurability satisfactory to the company and the payment of all overdue
premiums and any indebtedness to the company upon said policy. (IC, Sec. 233 [j])

4. Reinstatement of a lapsed policy of life insurance

Purpose of the reinstatement provision

The purpose of the provision is to clarify the requirements for restoring a policy to premiumpaying
status after it has been permitted to lapse.

The law requires that the policy owner be permitted to reinstate the policy, subject to the violations
specified, any time within three (3) years from the date of default of premium payment. A longer period,
being more favorable to the insured, may be used.

Reinstatement is not an absolute right of the insured, but discretionary on the part of the insurer, which
has the right to deny reinstatement if it were not satisfied as to the insurability of the insured, and if the
latter did not pay all overdue premiums and other indebtedness to the insurer. (McGuire vs.
Manufacturer’s Life Ins. Co., G.R. No. L3581, September 21, 1950)

5. Refund of premiums

Instances when the insured entitled to recover premiums already paid or a portion thereof (2000 Bar)

1. Whole: a. When no part of the thing insured has been exposed to any of the perils insured against.
(IC, Sec. 80) b. When the contract is voidable because of the fraud or misrepresentations of the insurer
of his agent. (IC, Sec. 82) c. When the insurance is voidable because of the existence of facts of which
the insured was ignorant without his fault. (IC, Sec. 82) d. When the insurer never incurred any liability
under the policy because of the default of the insured other than actual fraud. (IC, Sec. 82) e. When
rescission is granted due to insurer’s breach of contract. (IC, Sec. 74)
NOTE: When the contract is voidable, a person insured is entitled to a return of the premium when such
contract is subsequently annulled under the provisions of the New Civil Code.

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. (IC, Sec. 82)

H. Rescission of insurance contracts

Instances wherein a contract of insurance may be rescinded (1991, 1994, 1996 - 1998 Bar)

1. Concealment 2. Misrepresentation/ omission 3. Breach of warranties

Instances wherein a contract of insurance may be canceled by the insurer

1. Nonpayment of premium; 2. Conviction of a crime arising out of acts increasing the hazard insured
against; 3. Discovery of fraud or material misrepresentation; 4. Discovery of willful or reckless acts or
omissions increasing the hazard insured against; 5. Physical changes in the property insured which result
in the property becoming uninsurable; 6. Discovery of other insurance coverage that makes the total
insurance in excess of the value of the property insured; or 7. A determination by the Commissioner that
the continuation of the policy would violate or would place the insurer in violation of the Insurance
Code. (IC, Sec. 64)

1. Concealment
A neglect to communicate that which a party knows and ought to communicate, is called a
concealment.

Concealment

Concealment is a neglect to communicate that which a party knows and ought to communicate. (IC, Sec.
26)

Under Section 27 of the Insurance Code, “a concealment entitles the injured party to rescind a contract
of insurance.” Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the
insurance contract in case of an alteration in the use or condition of the thing insured. (Malayan
Insurance Company vs. PAP Co. (Phil. Branch), G.R. No. 200784, August 7, 2013, in Divina 2014)

Requisites
1. A party knows a fact which he neglects to communicate or disclose to the other party 2. Such party
concealing is duty bound to disclose such fact to the other 3. Such party concealing makes no warranty
as to the fact concealed 4. The other party has no means of ascertaining the fact concealed 5. The fact
must be material

Test of materiality (2000 Bar)

It is 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. (IC, Sec. 31)

NOTE: As long as the facts concealed are material, concealment, whether intentional or not, entitles the
injured party to rescind. (IC, Sec.27)

2. Misrepresentation/omissions

Representation

An oral or written statement of a fact or condition affecting the risk made by the insured to the
insurance company, tending to induce the insurer to assume the risk.

Representation should be made, altered or withdrawn at the time of or before the issuance of the
policy. (Sec. 37, Insurance Code). It may be altered or withdrawn before the insurance is effected, but
not afterwards. (Sec.41, ibid)

Characteristics of representation

1. Not a part of the contract but merely a collateral inducement to it 2. Oral or written 3. Made at the
time of, or before issuing the policy and not after 4. Altered or withdrawn before the insurance is
effected but not afterwards 5. Must be presumed to refer to the date the contract goes into effect. (IC,
Sec. 42)

3. Breach of warranties
Statements or promises by the insured set forth in the policy itself or incorporated in it by proper
reference, the untruth or non-fulfillment of which in any respect, and without reference to whether the
insurer was in fact prejudiced by such untruth or non-fulfillment render the policy voidable by the
insurer.

Purpose of warranties

To eliminate potentially increasing moral or physical hazards which may either be due to the acts of the
insured or to the change of the condition of the property.

Basis of warranties

The insurer took into consideration the condition of the property at the time of effectivity of the policy.

I. Claims settlement and subrogation

1. Notice and proof of loss

The injury, damage or liability sustained by the insured in consequence of the happening of one or more
of the perils against which the insurer, in consideration of the premium, has undertaken to indemnify
the insured. It may be total, partial, or constructive in marine insurance.

Notice of loss

It is the more or less formal notice given the insurer by the insured or claimant under a policy of the
occurrence of the loss insured against.

Purposes of notice of loss (IFC) 1. To give insurer Information by which he may determine the extent
of his liability; 2. To afford the insurer a means of detecting any Fraud that may have been practiced
upon him; and 3. To operate as a Check upon extravagant claims.

. In case of loss upon an insurance against fire, an insurer is exonerated, if written notice thereof be
not given to him by an insured, or some person entitled to the benefit of the insurance, without
unnecessary delay. For other non-life insurance, the Commissioner may specify the period for the
submission of the notice of loss.

"Section 91. When a preliminary proof of loss is required by a policy, the insured is not bound to give
such proof as would be necessary in a court of justice; but it is sufficient for him to give the best
evidence which he has in his power at the time.
2. Guidelines on claims settlement

Claim Settlement

Claim settlement is the indemnification of the suffered by the insured. The claimant may be the insured
or reinsured, the insurer who is entitled to subrogation, or a third party who has a claim against the
insured.

Purpose of the rule

To eliminate unfair claim settlement practices.

Rules in claim settlement

1. No insurance company doing business in the Philippines shall refuse, without justifiable cause, to pay
or settle claims arising under coverage provided by its policies, nor shall any such company engage in
unfair claim settlement practices. 2. Evidence as to numbers and types of valid and justifiable
complaints to the Commissioner against an insurance company, and the Commissioner’s complaint
experience with other insurance companies writing similar lines of insurance shall be admissible in
evidence in an administrative or judicial proceeding brought under this section. (IC, Sec. 247 [b])

Claims settlement in life insurance

1. The proceeds shall be paid immediately upon the maturity of the policy if there is such a maturity
date.

2. If the policy matures by the death of the insured, within sixty (60) days after presentation of the claim
and filing of the proof of the death of the insured. (Sundiang Sr. & Aquino, 2014; IC, Section 248)

Claims settlement in property insurance

1. Proceeds 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 or by arbitration. 2. If no
ascertainment is made within sixty (60) days after receipt of proof of loss, it shall be paid within ninety
(90) days after such receipt. (Sundiang Sr. & Aquino, 2014; IC, Sec. 249)
a. Unfair claims settlement; sanctions

The following constitutes unfair settlement practices: 1. Knowingly misrepresenting to claimant’s

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.

Sanction for the insurance companies which engaged to unfair settlement practices

The sanction for insurance companies engaged in unfair settlement practices can either be [a]
suspension; or [b] revocation of an insurance company’s certificate of authority. (IC, Sec 247)

Effect of refusal or failure to pay the claim within the time prescribed

The insurer shall be liable to pay interest twice the ceiling prescribed by the Monetary Board on the
proceeds of the insurance from the date following the time prescribed under the Insurance Code, until
the claim is fully satisfied. (Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc. G.
R. No. 151890, June 20, 2006)

NOTE: Refusal or failure to pay the loss or damage will entitle the assured to collect interest UNLESS
such refusal or failure to pay is based on the ground that the claim is fraudulent.

Where the mortgagor and the mortgagee were, both claiming the proceeds of a fire insurance policy
and the creditors of the mortgagor also attached the proceeds, the insurance company cannot be held
liable for damages for withholding payment since the delay was not malevolent. (Rizal Commercial Bank
Corporation v. Court of Appeals, supra)

b. Prescription of action

Rules on the prescriptive period for filing an insurance claim

1. The parties to a contract of insurance may validly agree that an action on the policy should be brought
within a limited period of time, provided such period is not less than 1 year from the time the cause of
action accrues. If the period agreed upon is less than 1 year from the time the cause of action accrues,
such agreement is void. (IC, Sec. 63, 1996 Bar) a. The stipulated prescriptive period shall begin to run
from the date of the insurer’s rejection of the claim filed by the insured or beneficiary and not from the
time of loss. b. In case the claim was denied by the insurer but the insured filed a petition for
reconsideration, the prescriptive period should be counted from the date the claim was denied at the
first instance and not from the denial of the reconsideration. (Sun Life Office, Ltd. vs. CA, supra) 2. If
there is no stipulation or the stipulation is void, the insured may bring the action within 10 years in case
the contract is written. 3. In a comprehensive motor vehicle liability insurance (CMVLI), the written
notice of claim must be filed within 6 months from the date of the accident; otherwise, the claim is
deemed waived even if the same is brought within 1 year from its rejection. (Vda. De Gabriel vs. CA, GR
No. 103883, Nov 14, 1996) 4. The suit for damages, either with the proper court or with the Insurance
Commissioner, should be filed within 1 year from the date of the denial of the claim by the insurer,
otherwise, claimant’s right of action shall prescribe. (IC, Sec. 397)

NOTE: Notwithstanding the fact that the case was filed beyond the one-year prescriptive period
provided for under COGSA, the suit will not be dismissed if the delay was not due to the claimant’s fault.
The insurer therefore should bear the loss with interest on account of such delay. (New World
International Development Phils. Inc. vs. NYKFILJAPAN Shipping Corp., G.R. No. 171468, August 24, 2011,
in Divina, 2014)

Prescriptive period in motor vehicle insurance

It is one (1) year from denial of the claim and not from the date of the accident.

c. Subrogation

Principle of Subrogation

If the plaintiff’s property has been insured, and he has received indemnity from the insurance company
for the injury or loss arising out of wrong or breach of contract complained of, the insurance company
shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated
the contract. (NCC, Art. 2207)

The insurer, upon happening of the risk insured against and after payment to the insured is subrogated
to the rights and cause of action of the latter. As such, the insurer has the right to seek reimbursement
for all the expenses paid. (Eastern Shipping Lines vs. Prudential Guarantee and Assurance, Inc., G.R. No.
174116, September 1, 2009)

NOTE: The principle of subrogation inures to the insurer without any formal assignment or any express
stipulation to that effect in the policy. Said right is not dependent upon nor does it grow out of any
private contract. Payment to the insured makes the insurer a subrogee in equity. (Malayan Insurance
Co., Inc. v. CA, G.R. No. L-36413, Sept. 26, 1988)
Incapacity of the insured will not affect the capacity of the subrogee because capacity is personal to the
holder. (Lorenzo Shipping v. Chub and Sons, Inc., G.R. No. 147724, June 8, 2004)

Purposes of subrogation

1. To make the person who caused the loss legally responsible for it. 2. To prevent the insured from
receiving double recovery from the wrongdoer and the insurer. 3. To prevent the tortfeasors from being
free from liability and is thus founded on consideration of public policy.

Rules on subrogation

1. Applicable only to property insurance – the value of human life is regarded as unlimited and
therefore, no recovery from a third party can be deemed adequate to compensate the insured’s
beneficiary. 2. The right of insurer against a third party is limited to the amount recoverable from latter
by the insured.

J. Business of insurance; requirements

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.

"Section 191. The provisions of the Corporation Code, as amended, shall apply to all insurance
corporations now or hereafter engaged in business in the Philippines insofar as they do not conflict
with the provisions of this chapter.

"Section 192. No corporation, partnership, or association of persons shall transact any insurance
business in the Philippines except as agent of a corporation, partnership or association authorized to
do the business of insurance in the Philippines, unless possessed of the capital and assets required
of an insurance corporation doing the same kind of business in the Philippines and invested in the
same manner; unless the Commissioner shall have granted it a certificate to the effect that it has
complied with all the provisions of this Code.

"Every entity receiving any such certificate of authority shall be subject to the insurance and other
applicable laws of the Philippines and to the jurisdiction and supervision of the Commissioner.

K. Insurance Commissioner and its powers

The Insurance Commissioner shall be appointed by the President of the Republic of the Philippines
for a term of six (6) years without reappointment and who shall serve as such until the successor
shall have been appointed and qualified. If the Insurance Commissioner is removed before the
expiration of his term of office, the reason for the removal must be published.

"The Insurance Commissioner shall have the duty to see that all laws relating to insurance,
insurance companies and other insurance matters, mutual benefit associations, and trusts for
charitable uses are faithfully executed and to perform the duties imposed upon him by this Code,
and shall, notwithstanding any existing laws to the contrary, have sole and exclusive authority to
regulate the issuance and sale of variable contracts as defined in Section 238 hereof and to provide
for the licensing of persons selling such contracts, and to issue such reasonable rules and
regulations governing the same.

"The Commissioner may issue such rulings, instructions, circulars, orders and decisions as may be
deemed necessary to secure the enforcement of the provisions of this Code, to ensure the efficient
regulation of the insurance industry in accordance with global best practices and to protect the
insuring public. Except as otherwise specified, decisions made by the Commissioner shall be
appealable to the Secretary of Finance.

"In addition to the foregoing, the Commissioner shall have the following powers and functions:

"(a) Formulate policies and recommendations on issues concerning the insurance industry,
advise Congress and other government agencies on all 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.

"Section 438. In addition to the administrative sanctions provided elsewhere in this Code, the
Insurance Commissioner is hereby authorized, at his discretion, to impose upon insurance
companies, their directors and/or officers and/or agents, for any willful failure or refusal to comply
with, or violation of any provision of this Code, or any order, instruction, regulation, or ruling of the
Insurance Commissioner, or any commission or irregularities, and/or conducting business in an
unsafe or unsound manner as may be determined by the Insurance Commissioner, the following:

"(a) Fines not less than Five thousand pesos (P5,000.00) and not more than Two hundred
thousand pesos (P200,000.00); and
 "(b) Suspension, or after due hearing, removal of directors and/or officers and/or agents.

"Section 439. The Commissioner shall have the power to adjudicate claims and complaints involving
any loss, damage or liability for which an insurer may be answerable under any kind of policy or
contract of insurance, or for which such insurer may be liable under a contract of suretyship, or for
which a reinsurer may be sued under any contract of reinsurance it may have entered into; or for
which a mutual benefit association may be held liable under the membership certificates it has
issued to its members, where the amount of any such loss, damage or liability, excluding interest,
cost and attorney’s fees, being claimed or sued upon any kind of insurance, bond, reinsurance
contract, or membership certificate does not exceed in any single claim Five million pesos
(P5,000,000.00).

"The power of the Commissioner does not cover the relationship between the insurance company
and its agents/brokers but is limited to adjudicating claims and complaints filed by the insured
against the insurance company.

"The Commissioner may authorize any officer or group of officers under him to conduct investigation,
inquiry and/or hearing and decide claims and he may issue rules governing the conduct of
adjudication and resolution of cases. The Rules of Court shall have suppletory application.

"The party filing an action pursuant to the provisions of this section thereby submits his person to the
jurisdiction of the Commissioner. The Commissioner shall acquire jurisdiction over the person of the
impleaded party or parties in accordance with and pursuant to the provisions of the Rules of Court.

"The authority to adjudicate granted to the Commissioner under this section shall be concurrent with
that of the civil courts, but the filing of a complaint with the Commissioner shall preclude the civil
courts from taking cognizance of a suit involving the same subject matter.

"Any decision, order or ruling rendered by the Commissioner after a hearing shall have the force and
effect of a judgment. Any party may appeal from a final order, ruling or decision of the Commissioner
by filing with the Commissioner within thirty (30) days from receipt of copy of such order, ruling or
decision a notice of appeal to the Court of Appeals in the manner provided for in the Rules of Court
for appeals from the Regional Trial Court to the Court of Appeals.

"For the purpose of any proceeding under this section, the Commissioner, or any officer thereof
designated by him is empowered to administer oaths and affirmation, 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.

II. PRE-NEED

A. Definition
1. Pre-need plans
"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.

2. Pre-need company
"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.

B. Registration of pre-need plans

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 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.

C. Licensing of sales counselor and general agent

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.

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.

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.

D. Default and termination

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.
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.

E. Claims settlement

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.

Any dividend declared under the preceding paragraph shall be reported to the Commission within
thirty (30) days after such declaration.

III. TRANSPORTATION LAW

A. COMMON CARRIERS

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.
1. Diligence required of common carriers

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.

It is that extreme measure of care and caution which persons of unusual prudence and circumspection
use for securing and preserving their own property or rights. The law requires common carriers to
render service with the greatest skill and utmost foresight (Loadmasters Services v. Glodel Brokerage,
G.R. 197446, January 10, 2011).

2. Liabilities of common carriers

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.

3. Classification of transport network vehicle services and transport network companies

B. VIGILANCE OVER GOODS

1. Exempting causes

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.

a. Requirement of absence of negligence

Requisites of a fortuitous event (FEU-I)

1. The common carrier must be Free from any participation in or aggravation of the injury to the
creditor. 2. The Event must be such as to render it impossible for the common carrier to fulfill his
obligation in a normal manner. 3. The event must be Unforeseen or unavoidable. 4. The cause of the
breach of obligation must be Independent of the will of the common carrier (Real v. Belo, G.R. No.
146224, January 26, 2007

b. Absence of delay

Rules regarding the time of delivery of goods and delay

1. If there is an agreement as to time of delivery – delivery must be within the time stipulated in the
contract or bill of lading. 2. If there is no agreement – delivery must be within a reasonable time (Saludo,
Jr. v. CA, G.R. No. 95536, March 23, 1992).

Delay in the delivery of goods

The carrier shall be liable for damages immediately and proximately resulting from such neglect of duty
(Ibid; Art. 1170, NCC).
In the absence of a special contract, a carrier is not an insurer against delay in the transportation of
goods. The effects of delay follow: a. Excusable delay in carriage merely suspends and generally does not
terminate the contract of carriage. b. The carrier shall be made liable when vessel or vehicle is
unreasonably delayed. c. Carrier remains duty bound to exercise extraordinary diligence. d. Natural
disaster shall not free the carrier from responsibility. (Dimaampao & DumlaoEscalante, 2014)

However, where the delay in the transportation of the remains of a deceased person was due to the
fault of the mortuary service, who erroneously switched the casket with that of another deceased
person, the airline company cannot be held liable for damages because of the delay (Saludo v. CA,
supra).

c. Due diligence to prevent or lessen the loss

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 or an act of a public enemy in order that the
common carrier may be exempted from liability for the loss, destruction, or deterioration of the goods
(Art. 1739, NCC).

This exemption from liability also requires that the common carrier must prove that the natural disaster
or the act of the public enemy is the proximate and only cause of the loss. Further, if the common
carrier negligently incurs delay in transporting the goods, a natural disaster shall not free such carrier
from responsibility (Art. 1740, NCC).

If the loss, destruction, or deterioration of the goods was caused by the character of the goods, or the
faulty nature of the packing or the containers, the common carrier must exercise due diligence to
forestall or lessen the loss.

2. Contributory negligence

Contributory negligence is the failure of a person who has been exposed to injury by the fault or
negligence of another, to use such degree of care for his safety and protection an ordinarily prudent
man would use under the circumstances (Martin, 1989, citing Rakes v. Atlantic Gulf Co., G.R. No. 1719,
January 23, 1907).

Contributory negligence on the part of the passenger does not justify the common carrier’s exemption
from liability (Martin, 1989).

3. Duration of liability
a. Delivery of goods to common carrier

b. Actual or constructive delivery

Party to whom delivery should be made

It must be delivered, actually or constructively, to the consignee or to the person who has a right to
receive them (Art.1736, NCC).

Delivery of the cargo to the customs authorities is not delivery to the consignee, or to the person who
has a right to receive them (Lu Do & Lu Ym Corp. vs. Binamira, G.R. No. L-9840, April 22, 1957).

Constructive delivery

There is constructive delivery when delivery is effected not by actually transferring the possession of
thing to the vendee (in this case, the other party, either the carrier or the consignee) but by legal
formalities or by symbolic tradition (Pineda, 2010).

c. Temporary unloading or storage

Right of stoppage in transitu

It is the right exercised by the seller by stopping the delivery of the goods to a certain buyer or
consignee (because of insolvency) when such goods are already in transit (Art. 1530, NCC).

The seller may exercise this right either by obtaining actual possession of the goods or by giving notice
of his claim to the carrier or other bailee in whose possession the goods are. Such notice may be given
either to the person in actual possession of the goods or to his principal. In the latter case, the notice, to
be effectual, must be given at such time and under such circumstances that the principal, by the exercise
of reasonable diligence, may prevent a delivery to the buyer (Art. 1532, NCC).

GR: The common carrier’s duty to observe extraordinary diligence in the vigilance over the goods
remains in full force and effect even when they are temporarily unloaded or stored in transit.

XPN: When the shipper or owner has made use of the right of stoppage in transit (Art. 1737, NCC).
The diligence required is ordinary diligence because of the following: 1. It is holding the goods in the
capacity of an ordinary bailee or warehouseman and not as a carrier. 2. There is a change of contract
from a contract of carriage to a contract of deposit (Art. 1737, NCC).

Obligation required of the common carrier in case of stoppage in transitu

When notice of stoppage in transitu is given by the seller to the carrier, he must redeliver the goods to,
or according to the directions of, the seller. The expenses of such delivery must be borne by the seller
(Art. 1532, NCC).

NOTE: If the seller instructs to deliver it somewhere else, a new contract of carriage is formed and the
carrier must be paid accordingly.

The duty to exercise due diligence ends if the seller has made use of his right of stoppage in transitu
because in legal effect, the contract of carriage terminates when the right is exercised. Thereafter the
carrier becomes an ordinary bailee (Aquino and Hernando, 2016).

4. Stipulation for limitation of liability

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.

a. Void stipulations

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.

b. Limitation of liability to fixed amount

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.

c. Limitation of liability in absence of declaration of greater value

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.

5. Liability for baggage of passengers

a. Checked-in baggage

The provisions of Articles 1733 to 1753, NCC shall apply (Art. 1754, NCC).

An airline company is liable for moral damages where it left behind the luggage of a passenger, and its
employees did not assist the passenger in locating his luggage but instead treated him boorishly (Pan
American World Airways v. Intermediate Appellate Court, G.R. No. 68988, June 21, 1990).

In one case, the Court held that the cause of the loss was the negligence of the carrier in not ensuring
that the doors of the baggage compartment of the bus were securely fastened (Sarkies Tours
Philippines, Inc. v. CA, G.R. No. 108897, October 2, 1997

b. Baggage in possession of passengers

The deposit of effects made by travellers in hotels or inns shall also be regarded as necessary. The
keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was
given to them, or to their employees, of the effects brought by the guests and that, on the part of the
latter, they take the precautions which said hotel-keepers or their substitutes advised relative to the
care and vigilance of their effects. (1783)
Article 1999. The hotel-keeper is liable for the vehicles, animals and articles which have been
introduced or placed in the annexes of the hotel. (n)

Article 2000. The responsibility referred to in the two preceding articles shall include the loss of, or
injury to the personal property of the guests caused by the servants or employees of the keepers of
hotels or inns as well as strangers; but not that which may proceed from any force majeure. The fact
that travellers are constrained to rely on the vigilance of the keeper of the hotels or inns shall be
considered in determining the degree of care required of him. (1784a)

Article 2001. The act of a thief or robber, who has entered the hotel is not deemed force majeure,
unless it is done with the use of arms or through an irresistible force. (n)

Article 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the
guest, his family, servants or visitors, or if the loss arises from the character of the things brought
into the hotel. (n)

Article 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the
effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-
keeper and the guest whereby the responsibility of the former as set forth in articles 1998 to 2001 is
suppressed or diminished shall be void. (n)

C. SAFETY OF PASSENGERS
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.

1. Void stipulations

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.

he reduction of fare does not justify any limitation of the common carrier's liability.

The passenger must be carried gratuitously. If it is only a reduction of fare, then any limitation of the
common carrier’s liability is not justified (2001, 2009 Bar).

XPN to the XPN: Notwithstanding the exception, common carriers will be liable nevertheless for willful
acts or gross negligence.

2. Duration of liability
Observance of extraordinary diligence in transportation of goods commences from the moment the
person who purchases the ticket from the carrier presents himself at the proper place and in a proper
manner to be transported, and continues until the passenger has been landed at the port of destination
and has left the vessel owner’s dock or premises

a. Waiting for carrier or boarding of carrier

CONTINUING OFFER RULE

The act of the driver in stopping their conveyances is a continuous offer to riders. The passenger is
deemed to be accepting the offer if he is already attempting to board the conveyances and the contract
of carriage is perfected from that point.

It is the duty of common carriers of passengers, including common carriers by railroad train, streetcar,
or motorbus, to stop their conveyances a reasonable length of time in order to afford passengers an
opportunity to board and enter, and they are liable for injuries suffered by boarding passengers
resulting from the sudden starting up or jerking of their conveyances while they are doing so (Dangwa
vs. CA, G.R. No. 95582, October 7, 1991).

b. Arrival at destination

Liability for death or injury to passengers upon arrival at destination

Once created, the relationship will not ordinarily terminate until the passenger has, after reaching his
destination, safely alighted from the carrier's conveyance or had a reasonable opportunity to leave the
carrier's premises. All persons who remain on the premises a reasonable time after leaving the
conveyance are to be deemed passengers, and what is a reasonable time or a reasonable delay within
this rule is to be determined from all the circumstances, and includes a reasonable time to see after his
baggage and prepare for his departure (La Mallorca v. CA, G.R. No. L-21486, May 14, 1966).

Carrier-passenger relationship continues until the passenger has been landed at the port of destination
and has left the vessel-owner’s premises. The victim’s presence in a vessel after one (1) hour from his
disembarkation is not enough in order to absolve the carrier from liability in his death. (Aboitiz Shipping
Corporation v. CA, G.R. No. 84458, November 6, 1989).

3. Liability for acts of others

a. Employees

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.

b. Other passengers and strangers

The registered owner of the vehicle may be held liable for damages suffered by a third person in the
course of the operation of the vehicle

The registered owner of a public service vehicle is responsible for damages that may arise from
consequences incident to its operation or that may be caused to any of the passengers therein (Gelisan
vs. Alday, G.R. No. L-30212, September 30, 1987).

Also, the liability of the registered owner of a public service vehicle for damages arising from the
tortious acts of the driver is primary, direct, and joint and several or solidary with the driver (Philtranco
Service Enterprises, Inc. vs. CA, G.R. No. 120553, June 17, 1997).

Extent of liability of common carriers for acts of co-passengers or strangers (1997, 2005 Bar)

A common carrier is responsible for injuries suffered by a passenger on account of the willful acts or
negligence of other passengers or of strangers, if the carrier’s employees through the exercise of the
diligence of a good father of a family would have prevented or stopped the act or omission (NCC, Art.
1763).
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.

4. Liability for delay in commencement of voyage

5. Liability for defects in equipment and facilities

6. Extent of liability for damages

of death of a passenger

1. An indemnity for the Death of the victim 2. An indemnity for loss of Earning capacity of the deceased;
3. Moral damages; 4. Exemplary damages; 5. Attorney's fees and expenses of litigation; 6. Interest in
proper cases (Briñas v. People, G.R. No. L-30309, Nov. 25, 1983). 7. Hospital and funeral expenses
Carrier is not liable for exemplary damages where there is no proof that it acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.

NOTE: In case of death, the plaintiff is entitled to the amount he spent during the wake and funeral of
the deceased. However, it has been ruled that expenses after the burial are not compensable (Victory
Liner, Inc. v. Heirs of Andres Malecdan, G.R. No. 154278).

D. BILL OF LADING

It is a written acknowledgment of receipt of goods and agreement to transport them to a specific place
and to a named person or to his order (Unsworth Transport International [Phils] vs. CA, G.R. No. 166520,
26 July 2010; 1992, 1998 Bar).

1. Three-fold character

1. As a receipt, it recites the date and place of shipment, describes the goods as to quantity, weight,
dimensions, identification marks and condition, quality, and value. 2. As a contract, it names the
contracting parties, which include the consignee, fixes the route, destination, and freight rate or
charges, and stipulates the rights and obligations assumed by the parties (Phoenix Assurance Co., Ltd. vs.
United States Lines, G.R. No. L-24033, Feb. 22, 1968). 3. As a document of title, it regulates the relations
between a carrier and a holder of the same.

2. Delivery of goods

The surrender of the bill of lading is necessary upon delivery of the goods. If the carrier fails to require
such surrender:

1. If non-negotiable – Action against the carrier does not lie 2. If negotiable – Action by the shipper may
lie against the carrier

a. Period for delivery

1. Period has been fixed – It must be made within such time, and, for failure to do so, the carrier shall
pay the indemnity stipulated in the bill of lading, neither the shipper nor the consignee being entitled to
anything else (Code of Commerce [CC], Art. 370).

2. No period of time fixed - the carrier shall be under the obligation to forward them with the first
shipment of the same or similar merchandise he may make to the point where he must deliver them,
and should he not do so, the damages occasioned by the delay shall be suffered by him (CC, Art. 358).

b. Delivery without surrender of bill of lading

However, where the seller instructed the shipping company to deliver the cargoes to the buyer without
requiring the presentation of the bill of lading, the shipping company is not liable for releasing the
cargoes to the buyer (Macam vs. CA, G.R. No. 125524, August 25, 1999).

The surrender of the original bill of lading is not a condition precedent for a common carrier to be
discharged of its contractual obligation. If surrender of the original bill of lading is not possible,
acknowledgment of the delivery by signing the delivery receipt suffices (National Trucking and
Forwarding Corporation vs. Lorenzo Shipping Corporation, G.R. No. 153563, February 27, 2005).

c. Refusal of consignee to take delivery

Grounds for the refusal of a consignee to take delivery of the goods (PLD2)

1. When a Part of the goods transported are delivered and the consignee is able to prove that he cannot
make use of the part without the others; (CC, Art. 365) 2. If the cargo consists of Liquids and they have
leaked out, nothing remaining in the containers but one-fourth (¼) of their contents, on account of
inherent defect of cargo; (CC, Art. 687) 3. If the goods are Damaged and such damage renders the
goods useless for the particular purpose for which there are to be used; (CC, Art. 365) 4. When there is
Delay on account of the fault of the carrier; (CC, Art. 371)

In all cases, the shipper may exercise the right of abandonment by notifying the carrier. Ownership over
damaged goods passes to the carrier and

3. Period for filing claims

1. If the damage is apparent – Immediately after delivery; or 2. If the damage is not apparent – within
24 hours from delivery (Code of Commerce, Art. 366)

Claim for damages under Art. 366 of Code of Commerce

It applies in case of domestic transportation (interisland) where there is damage to the goods
transported.

The filing of claim is a condition precedent for recovery of damages.

Requisites:
1. Consignment of goods through a common carrier, by a consignor in one place to a consignee in
another place; and 2. The delivery of the merchandise by the carrier to the consignee at the place of
destination (New Zealand Ins. Co., Ltd. vs. Choa Joy, G.R. No. L-7311, Sept. 30, 1955).

4. Period for filing actions

1. For coastwise or carriage within the Philippines, within 6 years if no bill of lading has been issued or
within 10 years if a bill of has been issued. 2. For international carriage from foreign port to the
Philippines, within 1 year from delivery of goods or the date when the goods have been delivered.

The compliance with a requirement in the bill of lading that the consignee must file a claim for loss or
damage to the goods shipped within thirty days from delivery is a condition precedent to the accrual of
a right of action against the carrier (Philippine American General Insurance Co. v. Sweet Lines, Inc., G.R.
No. 87434, August 5, 1992).

5. Effects of stipulations

If no indemnity has been stipulated and the delay exceeds the time fixed in the bill of lading, the carrier
shall be liable for the damages which the delay may have caused (CC, Art. 370).

E. MARITIME COMMERCE

1. Charter parties

A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner
to another person for a specified time or use in consideration of the payment of freight (Caltex vs.
Sulpicio Lines, G.R. No. 131166, September. 30, 1999).

a. Bareboat/demise charter

The ship owner gives possession of the entire vessel to the charterer. In turn, the charterer supplies,
equips, and mans the vessel. The charterer is the owner pro hac vice (2004 Bar).

As owner pro hac vice of the vessel, the charterer assumes the rights and liabilities of the owner to third
parties who deal with the vessel, it is the charterer and its agent who are liable for the wages of seamen
hired by the master of the vessel, as the master of the vessel is acting in behalf of the charterer (Litonjua
Shipping Co., Inc. vs. National Seamen Board, G.R. No. L-51910, August 10, 1989, 1991 Bar). The
charterer is considered the owner of the vessel for the voyage or service stipulated. The charterer, not
the owner of the vessel, is liable for vessel’s expenses, including seaman’s wages.

b. Time charter

1. Time charter– Vessel is chartered for a particular time or duration. While the ship owner still retains
possession and control of the vessel, the charterer has the right to use all vessel’s facilities. The
charterer may likewise designate vessel’s destination.
c. Voyage/trip charter

Voyage charter– Vessel is chartered for a carriage of goods from one or more ports of loading to one or
more ports of unloading.

157

A voyage charter is a contract wherein the ship was leased for a single voyage for the conveyance of
goods, in consideration of the payment of freight. An owner who retains possession of the ship remains
liable as carrier and must answer for loss or non-delivery of the goods received for transportation (Cebu
Salvage Corp. vs. Philippine Home Assurance Corp., G.R. No. 150403, Jan. 25, 2007

2. Liability of shipowners and shipping agents

a. Liability for acts of captain

Cases where the ship owner/agent shall be liable to the damages caused by the captain

1. Damages suffered by the vessel and its cargo by reason of want of skill or negligence on his part; 2.
Thefts committed by the crew, reserving his right of action against the guilty parties; 3. Losses, fines, and
confiscations imposed on account of violation of customs, police, health, and navigation laws and
regulations; 4. 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 timely
use of all his authority to prevent or avoid them; 5. Those caused by the misuse of the powers; 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 exceptions whatsoever shall exempt him from this obligation; 7.
For those arising by reason of his voluntarily entering a port other than that of his destination, outside of
the cases or without the formalities referred to in Article 612; and 8. For those arising by reason of non-
observance of the provisions contained in the regulations on situation of lights and maneuvers for the
purpose of preventing collisions (Code of Commerce, Art. 618).

Ship owner/agent is not liable for the obligations contracted by the captain if the latter exceeds his
powers and privileges inherent in his position of those which may have been conferred upon him by the
former. However, if the amount claimed were used for the benefit of the vessel, the ship owner or ship
agent is liable.

b. Exceptions to limited liability

Doctrine of limited liability (1991, 1994, 1997, 2000, 2008 Bar)

Also called the “no vessel, no liability doctrine”, it provides that liability of ship owner is limited to ship
owner’s interest over the vessel. Consequently, in case of loss, the ship owner’s liability is also
extinguished. Limited liability likewise extends to ship’s appurtenances, equipment, freightage, and
insurance proceeds. The ship owner’s or agent’s liability is merely co-extensive with his interest in the
vessel, such that a total loss of the vessel results in the liability’s extinction. The vessel’s total destruction
extinguishes maritime liens because there is no longer any res to which they can attach (Monarch
Insurance vs. CA, G.R. No. 92735, June 8, 2000).

Instances where Doctrine of Limited Liability shall not apply

1. Repairs and provisioning of the vessel before the loss of the vessel; (CC, Art. 586) 2. Insurance
proceeds. If the vessel is insured, the proceeds will go to the persons entitled to claim from the ship
owner; (Vasquez vs. CA, G.R. No. L42926, Sept. 13, 1985) 3. Claims of the crew under the Workmen’s
Compensation Act; 4. When the ship owner is guilty of fault or negligence; 5. When the vessel is not
abandoned; and 6. When vessel is not seaworthy.

By necessary implication, the ship agent’s or ship owner’s liability is confined to that which he is entitled
as of right to abandon—the vessel with all her equipment and the freight it may have earned during the
voyage and to the insurance thereof, if any (Yango vs. Laserna, 73 Phil. 330, 1941).

3. Accidents and damages in maritime commerce

a. General average

Averages

All extraordinary or accidental expenses which may be incurred during the voyage for the preservation
of the vessel or cargo or both. Average may either be general or particular

General average- Damages or expenses deliberately caused in order to save the vessel, its cargo, or both
from real and known risk. Both the ship and cargo are subject to the same danger. There is a deliberate
sacrifice of part of the vessel, cargo, or both. Damage or expenses incurred to the vessel, its cargo, or
both, redounded to the benefit of the respective owners. All those who have benefited shall satisfy the
average .

b. Collisions and allisions

Collision is impact of two moving vessels. It is an impact or sudden contact of a vessel with another
whether both are in motion or one stationary (Aquino and Hernando, 2016)

Allision is impact between a moving vessel and a stationary one.

4. Carriage of Goods by Sea Act

a. Application

It will only be applied in terms of loss or damage of goods transported to and from Philippine ports in
foreign trade.

It may also apply to domestic trade when there is a paramount clause in the contract. Paramount Clause
is a stipulation or clause either on the bill of lading or charter party stipulating the laws that the parties
agreed to be used of that particular transport. In the event that there will be a breach, the parties shall
follow the law stipulated in the paramount clause (Martin, 1989).

The Carriage of Goods by Sea Act applies up to the final port of destination even if the transshipment
was made on an inter-island vessel (Sea Land Service Inc. vs. IAC, G.R. No. 75118, August 31, 1987).

Cases covered under the COGSA

It applies only in case of non-delivery or damage, and not to misdelivery or conversion of goods (Ang vs.
American Steamship Agencies, Inc., G.R. No. L22491, Jan. 27, 1967).

Also, the deterioration of goods due to delay in their transportation is not covered by Sec. 6 of COGSA
(Mitsui O.S.K. Lines Ltd. vs. CA, G.R. No. 119571, March 11, 1998).

b. Notice of loss or damage

The notice of claim must be made within three days from delivery if the damage is not apparent. If the
damage is apparent, notice should be made immediately. The same period is not mandatory. However,
the prescriptive period of one year from delivery for the filing of the case is a condition precedent or
mandatory.

NOTE: Notice is not required to be filed in case of damage to goods under the COGSA. There is no
consequence on the right to bring suit if no notice is filed unlike under the Code of Commerce. It only
gives rise to a presumption that the goods are delivered in the same condition as they are shipped.

Failure to file notice of loss does not bar an action against the carrier if the action was filed within one
year (Belgian Overseas Chartering & Shipping N.V. vs. Philippine First Insurance Company, Inc, G.R. No.
143133, June 5, 2002).
There is also no consequence if the transportation charges and expenses are paid unlike under the Code
of Commerce.

c. Period of prescription

The suit for loss or damage should be brought within one year from: 1. Delivery of the goods, in case of
damage; or 2. The date when the goods should have been delivered, in case of loss.

The one-year period is computed from the delivery of goods to the operator and not to the consignee.

The parties may agree to extend the one-year period to file a case under the Carriage of Goods by Sea
(Universal Shipping Lines, Inc. vs. Intermediate Appellate Court, G.R. No. 74125, July 31, 1990).

Instances when the one-year period applies (AFLS)

1. Amendment of pleadings for suing the wrong party 2. Filing of third party complaint 3. Loss or
damage to cargo, excluding delay or misdelivery 4. Subrogation (NCC, Art 2207).

NOTE: Art. 1155 of the Civil Code (providing that the prescription of actions is interrupted by the making
of an extrajudicial written demand by the creditor) is not applicable to actions brought under the
COGSA. Written claims do not toll the running of the one-year prescriptive period under the COGSA
since matters affecting the transportation of goods by sea must be decided as soon as possible (Dole
Philippines, Inc. vs. Maritime Company of the Philippines, G.R. No. L-61352, February 27, 1987).

The one-year prescriptive period within which to file a case against the carrier also applies to a claim
filed by an insurer who stands as a subrogee to the insured. Also, whether the insurer files a third party
complaint or maintains an independent action is of no moment (Filipino Merchants Insurance Co., Inc.
vs. Alejandro, G.R. No. L-54140, Oct. 14, 1986).

Where an insurer was sued by the consignee of imported goods filed a third-party complaint against the
carrying vessel more than a year after the delivery of the goods, the third party complaint is barred by
the one-year prescriptive period under the COGSA, as otherwise the prescriptive period can be avoided
by the consignee by filing a claim against the insurer (Filipino Merchant Insurance Co., Inc. vs. Alejandro,
ibid).
NOTE: The ruling in the above-cited case should apply only to suits against the carrier filed either by the
shipper, the consignee or the insurer, not to suits by the insured against the insurer. The basis of the
insurer’s liability is the insurance contract and such claim prescribes in 10 years, in accordance with Art.
1144 of the Civil Code (Mayer Steel Pipe Corporation vs. CA, G.R. No. 124050, June 19, 1997).

The prescriptive period for an action against a broker is ten years and not one year under the COGSA,
since the broker is not a carrier, charterer or holder of the bill of lading (Reyma Brokerage Inc. vs.
Philippine Home Assurance Corporation, G.R. No. 93464, October 7, 1991).

d. Limitation of liability

Amount of the carrier’s liability under the COGSA

1. The liability limit is set at $500 per package or customary freight unless the nature and value of such
goods is declared by the shipper. 2. Shipper and carrier may agree on another maximum amount, but
not more than amount of damage actually sustained.

NOTE: When the packages are shipped in a container supplied by carrier and the number of such units is
stated in the bill of lading, each unit, and not the container, constitute the “package.”

Instances where there is no liability under COGSA (FDUD)

1. If the nature or value of goods knowingly and fraudulently misstated by shipper 2. If damage
resulted from Dangerous nature of shipment loaded without consent of carrier 3. If Unseaworthiness
not due to negligence 4. If Deviation was to save life or property at sea.

F. PUBLIC SERVICE ACT

1. Definition of public utility

2. Necessity for certificate of public convenience

a. Requisites

i. Citizenship

ii. Promotion of public interests

iii. Financial capability

b. Prior operator rule

i. Meaning
ii. Exceptions

iii. Ruinous competition

3. Fixing of rate

a. Rate of return

b. Exclusion of income tax as expense

4. Unlawful arrangements

a. Boundary system

b. Kabit system

5. Approval of sale, encumbrance or lease of property

G. THE WARSAW CONVENTION

The Warsaw Convention for Unification of Certain Rules Relating to International Carriage by Air
(Warsaw Convention) provides for rules applicable to international transportation by air. The Philippines
is one of the signatories to the Warsaw Convention (Santos III vs. Northwest Orient Airlines, G.R. No.
101538, June 23, 1992). Hence, this has the force and effect of law in the Philippines (Cathay Pacific
Airways, Ltd. vs. CA, G.R. No. 60501, March 5, 1993).

1. Applicability

The Warsaw Convention applies to all international carriage of persons, luggage or goods performed by
aircraft for reward. It applies equally to gratuitous carriage by aircraft performed by an air transport
undertaking (Warsaw Convention, Art. 1[1]).

International carriage

Any carriage in which, according to the contract made by the parties, the place of departure and the
place of destination, whether or not there be a break in the carriage or a transshipment, are situated
either:

1. Within the territories of two High Contracting Parties; or 2. 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 the
Convention (Warsaw Convention, Art. 1[2]).
High Contracting Parties are the signatories to the Warsaw Convention and those which subsequently
adhered to it. (Mapa vs. CA, G.R. No. 122308, July 8, 1997)

Scope of Application

1. This Convention applies to all international carriage of persons, baggage or cargo performed by
aircraft for reward. It applies equally to gratuitous carriage by aircraft performed by an air transport
undertaking.

2. For the purposes of this Convention, the expression international carriage means any carriage in
which, according to the agreement between the parties, the place of departure and the place of
destination, whether or not there be a break in the carriage or a transhipment, are situated either within
the territories of two States Parties, or within the territory of a single State Party if there is an agreed
stopping place within the territory of another State, even if that State is not a State Party. Carriage
between two points within the territory of a single State Party without an agreed stopping place within
the territory of another State is not international carriage for the purposes of this Convention.

3. Carriage to be performed by several successive carriers is deemed, for the purposes of this
Convention, to be one undivided carriage if it has been regarded by the parties as a single operation,
whether it had been agreed upon under the form of a single contract or of a series of contracts, and it
does not lose its international character merely because one contract or a series of contracts is to be
performed entirely within the territory of the same State.

4. This Convention applies also to carriage as set out in Chapter V, subject to the terms contained
therein.

2. Limitation of liability

a. Liability to passengers -In the carriage of persons – 250,000 francs for each passenger. Nevertheless,
by special contract, the carrier and the passenger may agree to a higher limit of liability.

b. Liability for checked baggage-Two hundred and fifty (250) francs per kilogram, unless the passenger
or consignor has made, at the time when the package was handed over to the carrier, a special
declaration of interest in delivery at destination and has paid a supplementary sum if the case so
requires.

c. Liability for hand-carried baggage- Five thousand (5,000) francs per passenger (Warsaw Convention,
Art. 22

3. Willful misconduct

Carrier is not entitled to the limitation of liability if the damage is caused by willful misconduct or default
on its part (Warsaw Convention, Art. 25). The definition of "willful misconduct" depends in some
measure on which court is deciding the issue. Some common factors that courts will consider are: 1.
Knowledge that an action will probably result in injury or damage 2. Reckless disregard of the
consequences of an action, or 3. Deliberately failing to discharge a duty related to safety.
NOTE: Courts may also consider other factors.

The failure of the carrier to deliver the passenger’s luggage at the designated time and place does not
ipso facto constitutes willful misconduct. There must be a showing that the acts complained of were
impelled by an intention to violate the law, or were in persistent disregard of one's rights. It must be
evidenced by a flagrantly or shamefully wrong or improper conduct (Luna vs. CA, GR No. 100374-75,
November 27, 1992).

The act of the carrier in guessing which luggage contained the firearm constitutes willful misconduct.
The guessing of which luggage contained the firearms amounted to willful misconduct under Section
25(1) of the Warsaw Convention (Northwest Airlines vs. CA, GR No. 120334, January 20, 1998).

The allegation of willful misconduct resulting in a tort is insufficient to exclude the case from the realm
of Warsaw Convention. A cause of action based on tort did not bring the case outside the sphere of the
Warsaw Convention (Lhuiller vs. British Airways, GR No. 171092, March 15, 2010).

NOTE: There is no willful misconduct if the airplane was lost without a trace. In such case, no willful
misconduct can be proved because if the airplane is lost without a trace, there is no proof of the act or
omission or the proximate cause of the accident (Wyman and Barlett v. Pan American Airways, Inc., CCH
1 AVI 1093 (1943)

IV. BUSINESS ORGANIZATIONS

A. PARTNERSHIPS

1. General provisions

a. Definition

b. Elements

c. Characteristics

d. Rules to determine existence

e. Partnership term

f. Partnership by estoppel

g. Partnership as distinguished from joint venture

h. Professional partnership

i. Management

2. Rights and obligations of partnership and partners

a. Rights and obligations of the partnership

b. Obligations of partners among themselves

c. Obligations of partnership/partners to third persons

3. Dissolution and winding up

4. Limited Partnership

B. CORPORATIONS

1. Definition of corporation
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.

2. Classes of corporations
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.

3. Nationality of corporations

Tests in determining the nationality of corporations

1. Place of Incorporation test 2. Control test 3. Grandfather rule – Nationality is attributed to the
percentage of equity in the corporation used in nationalized or partly nationalized area. This test is an
exception to the Control Test and was applied by the SEC in several cases. 4. Domiciliary test –
Determined by the principal place of business of the corporation

a. Control test

Control test

In determining the nationality of a corporation, the control test uses the nationality of the controlling
stockholders or members of the corporation.

This test was adopted by the Foreign Investment Act of 1991 (RA 7042) as a general guideline in
determining the nationality of corporations engaged in a nationalized activity. (Sec Opinion No. 07-20,
November 20, 2007)

Requisites of the control test (CFC)

1. Control, not mere majority or complete stock control, but Complete domination, not only of finances
but of policy and business practice in respect to the transaction attacked such that the corporate entity
as to this transaction had at that time no separate mind, will or existence of its own; 2. Such control
must have been used by the defendant to commit Fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest or unjust act in contravention of plaintiffs legal right;
and 3. The control and breach of duty must proximately Cause the injury or unjust loss complained of.
(Velarde v. Lopez, Inc., G.R. No. 153886, January 14, 2004; Heirs of Ramon Durano, Sr. v. Uy, G.R. No.
136456, October 24,

b. Grandfather rule

Application of the Grandfather Rule in determining the nationality of a corporation

To ensure compliance with the constitutional limitation(s) of corporations engaging in nationalized

activities, the nationality of a corporation must be determined by ascertaining if 60% of the investing
corporation’s outstanding capital stock is owned by “Filipino citizens”, or as interpreted, by natural or
individual Filipino citizens. If such investing corporation is in turn owned to some extent by another
investing corporation, the same process must be observed. (Redmont Consolidated MinesCorporation
vs. McArthur Mining Corporation, SEC En Banc Case No. 09-09-177, March 25, 2010)

Reason: One must not stop until the citizenships of the individual or natural stockholders of layer after
layer of investing corporations have been established, for this is the very essence of the Grandfather
Rule. (ibid)

Rules governing the application of the Grandfather Rule

1. The grandfather rule should be used in determining the nationality of a corporation engaged in a
partly nationalized activity. (SECOGC Opinion No. 10-31, December 9, 2010) This applies in cases where
the stocks of a Corporation are owned by another corporation with foreign stockholders exceeding 40%
of the capital stock of the corporation. 2. The Grandfather Rule will not apply in cases where the 60-40
Filipino-alien equity ownership in a particular natural resource corporation is not in doubt (DOJ Opinion
No. 19, s. 1989). If the stockholder corporation is 60% or more owned by Filipinos, all the stock held by
the stockholder corporation is deemed to be held by Filipinos. 3. When there is doubt as to the actual
extent of Filipino equity in the investee corporation, the SEC is not precluded from using the
Grandfather Rule. (SEC-OGC Opinion No. 22-07 dated December 7, 2007)

4. Corporate juridical personality

a. Doctrine of separate juridical personality

The doctrine of corporate juridical personality states that a corporation is a juridical entity with legal
personality separate and distinct from those acting for and in its behalf and, in general, from the people
comprising it. (Francisco v. Mallen Jr. G.R. No. 173169, September 22, 2010)

i. Liability for tort and crimes

A corporation may be held liable for torts

The corporation is liable for every tort which it expressly directs or authorizes. (PNB v. CA, G.R. No. L-
27155, May 18, 1978)

Reason for liability in cases of torts

A corporation is civilly liable in the same manner as natural persons for torts, because generally
speaking, the rules governing the liability of a principal or master for a tort committed by an agent or
servant are the same, whether the servant or agent is a natural or artificial person. (ibid)

Corporations incapable of intent

Corporations are incapable of intent, hence they cannot commit felonies that are punishable under the
Revised Penal Code. They cannot commit crimes that are punishable under special laws because crimes
are personal in nature. In addition, the penalty of imprisonment cannot be imposed. However, the
corporation may be dissolved for violations of the Corporation Code. (CC, Sec. 144)

Liability of a corporation in cases of crimes

GR: A corporation is not liable in cases of crimes. Since a corporation is a mere creation of legal fiction, it
cannot be held liable for a crime committed by its officers, since it does not have the essential element
of malice; in such case the responsible officers would be criminally liable. (People v. Tan Boon Kong, G.R.
No. L-32066, March 15, 1930)

XPN: If the penalty of the crime is only fine or forfeiture of license or franchise. (Ching v Secretary of
Justice, supra)

ii. Recovery of damages

 GR: A corporation is not entitled to moral damages because it has no feelings, no emotions, no senses.
(ABS-CBN Broadcasting Corporation v. CA, G.R. No. 128690 January 21, 1999 and Phillip Brothers
Oceanic, Inc, G.R. No. 126204, November 20, 2001)

XPNs: 1. The corporation may recover moral damages under item 7 of Article 2219 of the New Civil Code
because said provision expressly authorizes the recovery of moral damages in cases of libel, slander, or
any other form of defamation.

Article 2219(7) does not qualify whether the injured party is a natural or juridical person. Therefore, a
corporation, as a juridical person, can validly complain for libel or any other form of defamation and
claim for moral damages. (Filipinas Broadcasting Network, Inc. v. AMECBCCM, G.R. No. 141994, January
17, 2005)

2. When the corporation has a reputation that is debased, resulting in its humiliation in the business
realm. (Manila Electric Company v. T.E.A.M. Electronics Corporation, et. al., G.R. No. 131723, December
13, 2007)

b. Doctrine of piercing the corporate veil

The doctrine of piercing the corporate veil is the doctrine that allows the State to disregard for certain
justifiable reasons the notion that a corporation has a personality separate and distinct from the persons
composing it.

NOTE: This is an exception to the Doctrine of Separate Corporate Entity.

i. Grounds for application of doctrine

It applies upon the following circumstances: (FACO)

a. if the fiction is used to perpetrate fraud (Fraud Test); b. the complete control of one corporate entity
to another which perpetuated the wrong is the proximate cause of the injury (Control Test); c. if a
certain corporation is only an adjunct or an extension of the personality of the corporation (Alter ego or
Instrumentality Test); and d. if the fiction is pierced to make the stockholders liable for the obligation of
the corporation (Objective Test)

ii. Test in determining applicability

The following are the tests in determining the applicability of the doctrine of piercing the corporate veil:
(ECAO)

1. When the corporation is used to defeat public convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; (Equity Cases) 2. In fraud cases or when the corporate
entity is used to justify a wrong, protect fraud, or defend a crime; (Control Test) 3. In Alter ego cases,
where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or
where the corporation is so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation. (Timoteo H. Sarona vs.
National Labor Relations Commission, Royale Security Agency, et al., G.R. No. 185280, January 18, 2012)
4. The Objective test where the end result in piercing the veil of corporate fiction is to make the
stockholders liable for debts and obligations of the Corporation not to make the Corporation liable for
the debts and obligations of the stockholders. (Umali v CA, G.R. No. 89561, September 13, 1990)

Three-pronged test to determine the application of the alter ego/ instrumentality theory: 1. Control,
not mere majority or complete stock control, but complete domination, not only of finances but of
policy and business practice in respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own (Instrumentality or Control
test); 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of
plaintiff’s legal right; (Fraud test) and 3. The aforesaid control and breach of duty must have proximately
caused the injury or unjust loss complained of (Harm test).

5. Capital structure

a. Number and qualifications of incorporators

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.

b. Subscription requirements
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.

c. Corporate term

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 articles of incorporation: Provided, That any change in the
corporate 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 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.

d. Classification of shares

Section 6. Classification of Shares. - The classification of shares, their corresponding rights,

priviledges, restrictions, and their stated par value, if any, must be indicated in the articles of
incorporations. Each share shall be equal in all respects to every other share, except as otherwise
provided 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 share 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 be a class or series of
shares with complete voting rights.
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, echange, 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 (₱5.00)
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.

i. Preferred shares versus common shares

1i. Scope of voting rights subject to classification

iii. Founder's shares
Section 7. Founders' Shares. - Founders' shares may be given certain rights and privileges not
enjoyed by the owners of other stock. 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 otherwise known as "Foreign
Investments Act of 1991"; and other pertinent laws.

iv. Redeemable shares

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. 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.

v. Treasury shares
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.

6. Incorporation and organization

a. Promoter

i. Liability of promoter

1i. Liability of corporation for promoter's contracts

b. Subscription contract

c. Pre-incorporation subscription agreements

d. Consideration for stocks

e. Articles of Incorporation

i. Contents

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 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 hsall 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, and subscribers, amount
subscribed and paid by each on the subscription, and a statement that some or all of the
shares are without par value, if applicable;

(i) If it be a nonstock corporation, the amount of its capital, the names, 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.1âwphi1

The Articles of incorporation and applications for amendments thereto may be filed with the
Commission in the form of an electronic document, in accordance with the Commission's rule and
regulations on electronic filing.

1i. Non-amendable items

f. Corporate name; limitations on use of corporate name

Corporation Name. - No corporate name shall be allowed by the Commission if it is not

distinguishable from that already reserved or registered for the use if another corporation, or if such
name is already protected by 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 ofone if 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 coroporate 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.

g. Registration, incorporation and commencement of corporate existence

Section 18. Registration, Incorporation and Commencement of Corporation 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 regulation, 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 document s 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
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.

h. Election of directors or trustees

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 posseses all of the qualifications and none of the
disqualifications 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 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 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 by 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.

i. Adoption of by-laws

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 on 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 maybe adopted and filed prior to
incorporation; in such case, such bylaws shall be approved and signed by all 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 any other corporations governed by special laws, unless accompanied by
a certificate of the appropriate government agency to the effect that such by laws or amendments
are in accordance with law.

i. Contents of by-laws

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 trustees 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 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 maybe provided in the bylaws pursuant to Section 181 of this Code .

1i. Binding effects

iii. Amendments

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 owner of two-thirds (2/3) of the outstanding capital stock
or two-third (2/3) of the members in a nonstock corporation mat 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 trustee to amend or repeal the bylaws or adopt new bylaws
shall be considered as revoke 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 and/or adopt new bylaws, duly certified
under oath by the corporate secretary and majority of the directors or trustees.

The amended or new bylaws shall only be effective upon the issuance by the Commission of
certification that the same is in accordance with this Code and other relevant laws.

j. Effects of non-use of corporate charter

Effects of Non-Use of Corporate Charter and Continous Inoperation. - If a corporation does not
formally organize and commence its business within five (5) year 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 commence 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 prescribed. Upon the 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.

7. Corporate powers

a. General powers; theory of general capacity

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 purpose s 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.

b. Specific powers; theory of specific capacity

c. Power to extend or shorten corporate term

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 capital stock or of its membrs. Written notice of the
proposed action and the time and place of the meeting shall be sent to the 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.
d. Power to increase or decrease capital stock or incur, create, increase bonded indebtedness

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 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,
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 ot increased;

(e) The amount of stock represented at the meeting; and

(f) The vote authorizing the increase or decrease of capital stock, or incurring, creating or
increasing of 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 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 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.

e. Power to deny pre-emptive rights

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
previously contracted debt.

f. Power to sell or dispose corporate assets

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, stock, 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 stockholders representing at least two-thirds (2/3) of the outstanding
capital stock, or at least two-thirds (2/3) of the members, meeting duly called for the purpose.

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
statemments. 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 of 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.

g. Power to acquire own shares

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 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.

h. Power to invest corporate funds in another corporation or business

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 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 place of residence as shown in the books of the corporation and deposited to the
addressee in the post office with the 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.

1. Power to declare dividends

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 be first be applied to the unpaid balance on th subscription
plus costs and expenses, while stock holders 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 restraining surplus profits in excess of one hundred percent
(100%} of their paid-in capital stock, except: (a) when justified by the 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.

j. Power to enter into management contract

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 the 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, or 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 if the members of the board of directors of
the managing corporation also constitute a majority of the members of the board of directors of the
managed corporation, then the management contract must be approved by the stockholders of the
managed corporation owning at least two-thirds (2/3) of the total outstanding capital stock entitled to
vote, or by at least two-thirds (2/3) of the members in the case of a nonstock corporation.

These shall apply to any contract whereby a corporation undertakes to manage or operate all or
substantially all of the called services 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 entered into such periods as may be
provided by the pertinent laws or regulations.

No management contracts shall be entered into for period longer that five (5) years for any one term.

k. Limitations

i. Ultra vires acts

Ultra Vires Acts of the 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.
(a) Applicability of ultra vires doctrine

(b) Consequences of ultra vires acts

1. Doctrine of individuality of subscription

m. Doctrine of equality of shares

n. Trust fund doctrine

i. How exercised

(a) By the shareholders

(b) By the board of directors

( c) By the officers

8. Stockholders and members

a. Fundamental rights of a stockholder

b. Participation in management

i. Proxy

Section 57. Manner of Voting; Proxies. - Stockholders and members may vote in person or 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.

ii. Voting trust

Section 58. Voting Trusts. - One or more stockholders of 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 specially 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 load. 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 uneforceable. The certificate or certificates of stock
covered by the voting trust agreement shall be cancelled and new ones shall be 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 term 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 certificate of stock in the
name of the 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.

iii. Cases when stockholders' action is required

(a) By a majority vote

(b) By a two-thirds vote

( c) By cumulative voting

iv. Manner of voting

c. Proprietary rights

i. Right to dividends

ii. Appraisal right

(a) When available

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.

(b) Manner of exercise of right

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 perios 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 form 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 or 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.

iii. Right to inspect

iv. Preemptive right

v. Right to vote

vi. Right to dividends

d. Remedial rights

i. Individual suit

ii. Representative suit

iii. Derivative suit

e. Obligations of a stockholder

f. Meetings

i. Regular or special

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 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, 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 the vote tabulation procedures used in the
previous meetings;

(2) A description of the opportunity given to stockholders or members to ask

questions and record of the question s 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 director 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 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 wit this Code and the rules and 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 representation in other corporations;

(g) A director or trustee attendance report, indicating the attendance of 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 ir seeking election or reelection.

A director, trustee, stockholder, or member may propose any other matter for inclusion in the agenda
at may 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.

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.

ii. Notice of meetings

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 he 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.

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 sate 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 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 stockholders or members, structure, and other factors consistent with
the protection and promotion of shareholders' or members' meetings.

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 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.

iii. Place and time of 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 of 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 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.

iv. Quorum
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 pr a
majority of the members in the case of nonstock corporations.

v. Minutes and agenda of meetings

9. Board of directors and trustees

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, condict all business, and control all properties of the corporation.

Directors shall be elected for a term of one (10 Year from among the holders of stocks registered in
the corporation's book 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 (50,000,000.00) 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 any
business or other relationship which could, or could reasonable be received 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 membership and other requirements that the Commission will prescribed
to strengthen their independence and align with international best practices.

a. Repository of corporate powers

b. Tenure, qualifications and disqualifications of directors

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 Philippine Competition Commission may impose in its promotion of
good corporate governance or as a sanction in its administrative proceedings.

c. Requirement of independent directors

d. Elections

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 posseses all of the qualifications and none of the
disqualifications 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 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 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 by 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 an elect: (a) a president, who must be a director; (b) a treasurer, who must be a
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 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, 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 unjustifiable 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 other
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 by laws 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 case to hold office, the secretary or
the director, trustee or officer of the corporation, shall, within seven (7) days form knowledge thereof,
report in writing such fact to the Commission.

i. Cumulative voting

ii. Quorum

e. Removal

Section 27. Removal of Director or Trustees. - Any director or trustee of a corporation may be
removed fro office by 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
member 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
stockholders 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 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 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 representation to which they may be
entitled under Section 23 of this Code.

The Commission shall, motu propio 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.

f. Filling of vacancies

Section 28. Vacancies in the Office of Director or Trustee; Emergency Board. - Any vacancy
occurring in the board of directors or trustees other that by removal or 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 that 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 vacancy shall be referred to as replacement 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 consituting 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 form 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 a 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 Section 23 and 25 of this
Code shall apply.

g. Compensation

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 received 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.

h. Disloyalty

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, nothwithstanding the fact that the
director risked one's own funds in the venture.

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 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.

i. Business judgment rule

j. Solidary liabilities for damages

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 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.

k. Personal liabilities

1. Responsibility for crimes

m. Special fact doctrine

n. Inside information

o. Contracts

i. By self-dealing directors with 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 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 a majority of the independent directors voting to approved 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.

ii. Between corporations with interlocking directors

Section 32. Contaracts 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.

Stockholding exceeding twenty percent (20%) of the outstanding capital stock shall be considered
substantial for purposes of interlocking directors.

p. Executive and other special committees

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 of 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) filing
of vacancies in the board; (c) amendment or repeal of bylaws or the adoption of new bylaws; (d)
amendment or term is not amendable or repealable; and (e) distribution of cash divendends 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.

i. Creation

ii. Limitations on its powers

q. Meetings

i. Regular or special

(a) When and where

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 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, 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 the vote tabulation procedures used in the
previous meetings;

(2) A description of the opportunity given to stockholders or members to ask

questions and record of the question s 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 director 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 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 wit this Code and the rules and 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 representation in other corporations;

(g) A director or trustee attendance report, indicating the attendance of 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 ir seeking election or reelection.

A director, trustee, stockholder, or member may propose any other matter for inclusion in the agenda
at may 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 he 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.

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 sate 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 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 stockholders 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 of 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 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.

(b) Notice

( c) Attendance in meetings

1i. Who presides

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.

iii. Quorum

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 pr a
majority of the members in the case of nonstock corporations.

Section 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 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
requirments of Section 31 of this Code.

iv. Rule on abstention

10. Capital affairs

a. Certificate of stock

i. Nature of the certificate

1i. Uncertificated shares

iii. Negotiability; requirements for valid transfer of stocks

iv. Issuance

(a) Full payment

(b) Payment pro-rata

v. Stock and transfer book

(a) Contents

(b) Who may make valid entries

( c) Stock transfer agent

v1. Lost or destroyed certificates

vii. Situs of the shares of stock

b. Watered stocks

i. Definition

ii. Liability of directors for watered stocks

iii. Trust fund doctrine for liability for watered stocks

c. Payment of balance of subscription

i. Call by board of directors

ii. Notice requirement

d. Sale of delinquent shares

i. Effect of delinquency

1i. Call by resolution of the board of directors

iii. Notice of sale

iv. Auction sale

e. Alienation of shares

i. Allowable restrictions on the sale of shares

1i. Sale of partially paid shares

iii. Sale of a portion of shares not fully paid

iv. Sale of all of shares not fully paid

v. Sale of fully paid shares

vi. Requisites of a valid transfer

vii. Involuntary dealings

f. Corporate books and records

i. Records to be kept at principal office

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
trsutees. Such minutes shall set forth in detail among others; the time and the 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, stock holder 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 record or minutes of such corporation or of any other corporation, or
was not acting in good faith 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 interest 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 prescribed, 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 or 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 stock corporation is not precluded from performing or making
transfer of its own stocks, in which case all the rules and regulations imposed on stock transfer
agents, except the payment of a license fee herein provided, shall be applicable: 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 (₱600,000.00), 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

ii. Right to inspect corporate records

iii. Effect of refusal to inspect corporate records

11. Dissolution and liquidation

a. Modes of dissolution
i. Voluntary dissolution

(a) Where no creditors are affected

Section 134. Voluntarily 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 fo 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 th 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 general
circulation in the Philipines.

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 form 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 approved the request and issue the certificate of
dissolution. The dissolution shall take effect only upon the issuance by the Commission of 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.

(b) Where creditors are affected

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 directors or trustees, verified by its president or secretary or one of its
director 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 member at a meeting of its stockholder 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 where given; and (c) the date, place and time of the
meeting in which 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 lease one 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 obejection 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.

( c) By shortening of corporate term

Section 136. Dissolution by Shortening Corporation 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 dissolve 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 of
the 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.

( d) Withdrawal 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, trustees, shareholder,
or member and signed by the same number of incorporators, directors, trustees, 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, 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 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.

ii. Involuntary dissolution

Section 138. Involuntary Dissolution. - A corporation may be dissolve by the Commission motu
propio or upon filing of a verified complaint by any interested party. The following may be grounds for
dissolution of the corporation:
 (a) None-use of corporate charter as provided under Section 21 of his 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 the 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 violation, 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.

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 for 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.

b. Methods of liquidation

i. By the corporation itself

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 article 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 Section 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.

1i. Conveyance to a trustee within a three-year period

iii. By management committee or rehabilitation receiver

iv. Liquidation after three years

12. Other corporations

a. Close corporations

i. Characteristics of a close corporation

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. Nothwithstanding 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 shall
primarily govern close corporations: Provided, That other Titles in this Code shall apply suppletorily,
except as otherwise provided under this Title.

1i. Validity of restrictions on transfer of shares

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 more onerous than granting the existing stockholders or the corporation the option to purchase
the shares of the transferring stockholder may sell their shares to any third person.
iii. Issuance or transfer of stock in breach of qualifying conditions

Section 98. Effects if 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 of 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 has been issued or transferred has or is conclusively presumed to have
notice of the fact that 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 tansfer 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 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 transfeer 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.

1v. When board meeting is unnecessary or improperly held

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 prompt objection in writing.

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.

v. Preemptive right
Section 101. Preemptive Right in Close Corporations. - The preemptive right of stockholders in
close corporations shall extend to all stock to be issues, including reissuance of services, or in
payment or corporate debts, unless the article s of incorporation provide otherwise.

vi. Amendment of articles of incorporation

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 affirmative vote of
at least two-thirds (2/3) of the outstanding capital, 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 this
purpose.

vii. Deadlocks

Section 103. Deadlocks. Nowithstanding 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 canot be obtained, with the consequence that the business and affairs that the votes required
for that the business of the corporation can lo 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 o 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, ot any stockholders' agreement; (b) cancelling, altering or enjoining a
resolution or act of the corporation or its board of directors, stockholders, officers, or other person
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 or unrestricted retained earnings in its, books or by
the other stockholder; (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 pr by all the stockholders. The
compensation of the provisional director shall be determined by agreement between such
provisional director and the corporation.

b. Non-stock corporations

i. Definition

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 of
purposes for which the corporation was organized, subject to the provisions of this Title.

The provisions governing the stock corporations, when pertinent, shall be applicable to nonstock
corporations except as may be covered by specific provisions of this Title.

1i. Purposes
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.

iii. Treatment of profits

iv. Plan and distribution of assets upon dissolution

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 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.

c. Educational corporations
Section 105. Incorporation. - Education 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 themeselves 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.

d. Religious corporations

i. Corporation sole; nationality

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.

ii. Religious societies

Section 114. Religious Societies. - Unless forbidden by the competent authority, the Constitution,
pertinent, rules, regulations, or discipline of the religious denomination, sect or church of which it is
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 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 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 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)
no 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.

e. 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 suppletory,
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.

i. Excepted corporations

1i. Capital stock requirement

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.

iii. Articles of incorporation and by-laws

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.

iv. Corporate name

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.

v. Corporate structure and officers

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 or 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.

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 he names, residence addresses, and contact
details of all known legal heirs; and

(d) Call the nominee or alternate nominee and the known legal heir to 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.
vi. Nominee

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 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 sot 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 heors 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.

vii. Minutes and records

Section 127. Minute 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 for all
purposes under this Code.

v111. Liability

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.
ix. Conversion of corporation to one person corporations and vice-versa

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 later 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 later and be legally
responsible for all the latter's outstanding liabilities as of the date of conversion.

Section 132. Conversion from 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 requirement a have been complied
with, the Commission shall issue a certificate of filing or amended articles of incorporation reflecting
the conversion.

In case of death if 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 One Person Corporation shall succeed the latter and
be legally responsible for all the latter's outstanding liabilities as of the date of conversion.

f. Foreign corporations
Section 140. Definition of Righs 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 certificate of authority from the appropriate government agency.

i. Bases of authority over foreign corporations

(a) Consent

(b) Doctrine of "doing business"

ii. Necessity of a license to do business

(a) Requisites for issuance of a license

Section 142. Application ofr a License. - A foreign corporation applying for a license to transact
buisness 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 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 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.

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, whether
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
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 satisfactorily to the Commission, consisting of bonds or other evidence of the
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
(₱500,000.00) 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 (₱10,000,000.00). The Commission shall also require the licensee to deposit additional
securities financial instruments if the actual market 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 of
those already on deposit as long as the licensee is solvent. Shall licensee is 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 the Philippine residents, including
the Government of the Republic of the Philippines. For purposes of computing the securities
deposits, the composition of gross income and allowable deductions therefrom shall be in
accordance with the rules of the Commission.

(b) Resident agent

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 be likewise be of sound financial standing and must show proof that it is in good standing as
certified by the Commission.
Section 145. Rsident 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 he
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
processes may be served in all actions or legal proceedings against such corporation, and
consenting that service upon such resident agent shall be admitted and held as valid if served upon
the duly authorized officers of 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 Philipines, 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 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.

( c) Amendment of license
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.

iii. Personality to sue

iv. Suability of foreign corporations

v. Instances when unlicensed foreign corporations may be allowed to sue (isolated transactions)

vi. Grounds for revocation of license

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 mater 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 Philippine; or

(i) Any other ground as would render it unfit to transact business in the Philippines.

13. Merger and consolidation

a. Definition and concept

b. Distinguish: constituent and consolidated corporation

c. Plan of merger or 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 constituents 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
approved a plan of merger or consolidation, shall approved a plan of 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.

d. Articles 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.

e. Procedure

f. Effectivity

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 or 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 he 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.
g. Limitations

h. Effects

Section 79. Effects of Merger or Consolidation. - The merger of consolidation shall have the
following effects:

(a) The constituent corporations shall become a single corporation 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 right, 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 constituents corporation,
shall be deemed transferred to and vested in such surviving or consolidated 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.

14. Investigations, offenses, and penalties

a. Authority of Commissioner

i. Investigation and prosecution of offenses

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.

ii. Administration of oath and issuance of subpoena

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.

iii. Cease and desist power

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) says, 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.

iv. Contempt
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
(₱30,000.00). 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 (₱1,000.00)
until the order, decision, or subpoena is complied with.

b. Sanctions for violations

i. Administrative sanctions

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 (₱5,000.00) to Two million pesos
(₱2,000,000.00), and not more that One thousand pesos (₱1,000.00) for each day of
continuing violation but in no case to exceed Two million pesos (₱2,000,000.00);

(b) Issuance of the 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.
ii. Prohibited Acts

Section 159. Unauthorized Use of Corporate Name; Penalties. - The unauthorized use of corporate
name shall be punished with a fine ranging from Ten thousand pesos (₱10,000.00) to Two hundred
thousand pesos (₱200,000.00).

Section 160. Violation of Disqualification Provision; Penalties. - When, despite the knwoledge 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 (₱10,000.00) to Two hundred
thousand pesos (₱200,000.00) 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
(₱20,000.00) to Four hundred thousand pesos (₱400,000.00).

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 Section s 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 (₱10,000.00) to Two hundred thousand pesos (₱200,000.00),
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 (₱20,000.00) to Four hundred thousand pesos
(₱400,000.00).

The penalties impose 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 (₱20,000.00) to Two hundred
thousand pesos (₱200,000.00). 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 (₱40,000.00) to Four hundred thousand pesos (₱400,000.00).

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 (₱80,000.00) to Five hundred thousand pesos
(₱500,000.00). 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 (₱100,000.00) to Six hundred thousand pesos (₱600,000.00).

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 (₱200,000.00) to Two million pesos
(₱2,000,000.00). When the violation of this provision is injurious or detrimental to the public, the
penalty is a fine ranging from Four hundred thousand pesos (₱400,000.00) to Five million pesos,
(₱5,000,000.00).

Section 165. Fraudulent Conduct of Business; Penalties. - A corporation that conduct its business
through fraud shall be punished with a fine ranging from Two hundred thousand pesos
(₱200,000.00) to Two million pesos (₱2,000,000.00). When the violation of this provision is injurious
or detrimental to the public, the penalty is a fine ranging from Four hundred thousand pesos
(₱400,000.00) to Five million pesos (₱5,000,000.00).

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 (₱100,000.00) to Five
million pesos (₱5,000,000.00).

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 corruption 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 (₱100,000.00) to
One million pesos (₱1,000,000.00).

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 (₱500,000.00) to One million pesos (₱1,000,000.00).

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 (₱100,000.00) to One million (₱1,000,000.00).

Section 170. Other Violations of the Code; Separate Liability. - Violation 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 (₱10,000.00) but not more than One million
pesos (₱1,000,000.00). 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 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.
iii. Penalties

iv. Who are liable

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.

Section 172. Liability of Aiders and Abettors and Other Secondarr 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.

c. Authority of the Securities and Exchange Commission

V. SECURITIES

A. State policy
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.

B. Definition of securities

Definition of Terms. - 3.1. "Securities" are shares, participation or interests in a corporation or in a

commercial enterprise or profit-making venture and evidenced by a certificate, contract, instruments,
whether written or electronic in character. It includes:

(a) Shares of stocks, bonds, debentures, notes evidences of indebtedness, asset-backed

securities;

(b) Investment contracts, certificates of interest or participation in a profit sharing agreement,

certifies of deposit for a future subscription;

(c) Fractional undivided interests in oil, gas or other mineral rights;

(d) Derivatives like option and warrants;

(e) Certificates of assignments, certificates of participation, trust certificates, voting trust

certificates or similar instruments

(f) Proprietary or nonproprietary membership certificates in corporations; and

 (g) Other instruments as may in the future be determined by the Commission.

C. Kinds of securities

1. Exempt securities

Section 9. Exempt Securities. – 9.1. The requirement of registration under Subsection 8.1 shall not
as a general rule apply to any of the following classes of securities:

(a) Any security issued or guaranteed by the Government of the Philippines, or by any
political subdivision or agency thereof, or by any person controlled or supervised by, and
acting as an instrumentality of said Government.

(b) Any security issued or guaranteed by the government of any country with which the
Philippines maintains diplomatic relations, or by any state, province or political subdivision
thereof on the basis of reciprocity: Provided, That the Commission may require compliance
with the form and content for disclosures the Commission may prescribe.

(c) Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the

proper adjudicatory body.

(d) Any security or its derivatives the sale or transfer of which, by law, is under the
supervision and regulation of the Office of the Insurance Commission, Housing and Land
Use Rule Regulatory Board, or the Bureau of Internal Revenue.

(e) Any security issued by a bank except its own shares of stock.

9.2. The Commission may, by rule or regulation after public hearing, add to the foregoing any class
of securities if it finds that the enforcement of this Code with respect to such securities is not
necessary in the public interest and for the protection of investors.

2. Exempt transactions

Section 10. Exempt Transactions. – 10.1. The requirement of registration under Subsection 8.1
shall not apply to the sale of any security in any of the following transactions:

(a) At any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee
in insolvency or bankruptcy.

(b) By or for the account of a pledge holder, or mortgagee or any of a pledge lien holder
selling of offering for sale or delivery in the ordinary course of business and not for the
purpose of avoiding the provision of this Code, to liquidate a bonafide debt, a security
pledged in good faith as security for such debt.

(c) An isolated transaction in which any security is sold, offered for sale, subscription or
delivery by the owner therefore, or by his representative for the owner’s account, such sale
or offer for sale or offer for sale, subscription or delivery not being made in the course of
repeated and successive transaction of a like character by such owner, or on his account by
such representative and such owner or representative not being the underwriter of such
security.

(d) The distribution by a corporation actively engaged in the business authorized by its
articles of incorporation, of securities to its stockholders or other security holders as a stock
dividend or other distribution out of surplus.

(e) The sale of capital stock of a corporation to its own stockholders exclusively, where no
commission or other remuneration is paid or given directly or indirectly in connection with the
sale of such capital stock.

(f) The issuance of bonds or notes secured by mortgage upon real estate or tangible
personal property, when the entire mortgage together with all the bonds or notes secured
thereby are sold to a single purchaser at a single sale.

(g) The issue and delivery of any security in exchange for any other security of the same
issuer pursuant to a right of conversion entitling the holder of the security surrendered in
exchange to make such conversion: Provided, That the security so surrendered has been
registered under this Code or was, when sold, exempt from the provision of this Code, and
that the security issued and delivered in exchange, if sold at the conversion price, would at
the time of such conversion fall within the class of securities entitled to registration under this
Code. Upon such conversion the par value of the security surrendered in such exchange
shall be deemed the price at which the securities issued and delivered in such exchange are
sold.

(h) Broker’s transaction, executed upon customer’s orders, on any registered Exchange or
other trading market.

(i) Subscriptions for shares of the capitals stocks of a corporation prior to the incorporation
thereof or in pursuance of an increase in its authorized capital stocks under the Corporation
Code, when no expense is incurred, or no commission, compensation or remuneration is
paid or given in connection with the sale or disposition of such securities, and only when the
purpose for soliciting, giving or taking of such subscription is to comply with the requirements
of such law as to the percentage of the capital stock of a corporation which should be
subscribed before it can be registered and duly incorporated, or its authorized, capital
increase.

(j) The exchange of securities by the issuer with the existing security holders exclusively,
where no commission or other remuneration is paid or given directly or indirectly for soliciting
such exchange.

(k) The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines
during any twelve-month period.

(l) The sale of securities to any number of the following qualified buyers:

(i) Bank;

(ii) Registered investment house;

 (iii) Insurance company;

(iv) Pension fund or retirement plan maintained by the Government of the Philippines
or any political subdivision thereof or manage by a bank or other persons authorized
by the Bangko Sentral to engage in trust functions;

(v) Investment company or;

(vi) Such other person as the Commission may rule by determine as qualified buyers,
on the basis of such factors as financial sophistication, net worth, knowledge, and
experience in financial and business matters, or amount of assets under
management.

10.2. The Commission may exempt other transactions, if it finds that the requirements of registration
under this Code is not necessary in the public interest or for the protection of the investors such as
by the reason of the small amount involved or the limited character of the public offering.

10.3. Any person applying for an exemption under this Section, shall file with the Commission a
notice identifying the exemption relied upon on such form and at such time as the Commission by
the rule may prescribe and with such notice shall pay to the Commission fee equivalent to one-tenth
(1/10) of one percent (1%) of the maximum value aggregate price or issued value of the securities.

3. Non-exempt transactions

D. Powers and functions of the Securities and Exchange Commission

Section 5. Powers and Functions of the Commission.– 5.1. The commission shall act with
transparency and shall have the powers and functions provided by this code, Presidential Decree
No. 902-A, the Corporation Code, the Investment Houses law, the Financing Company Act and other
existing laws. Pursuant thereto the Commission shall have, among others, the following powers and
functions:

(a) Have jurisdiction and supervision over all corporations, partnership or associations who
are the grantees of primary franchises and/or a license or a permit issued by the
Government;

(b) Formulate policies and recommendations on issues concerning the securities market,
advise Congress and other government agencies on all aspect of the securities market and
propose legislation and amendments thereto;

(c) Approve, reject, suspend, revoke or require amendments to registration statements, and
registration and licensing applications;

(d) Regulate, investigate or supervise the activities of persons to ensure compliance;

(e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies
and other SROs;
 (f) Impose sanctions for the violation of laws and rules, regulations and orders, and issued
pursuant thereto;

(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and
provide guidance on and supervise compliance with such rules, regulation and orders;

(h) Enlist the aid and support of and/or deputized any and all enforcement agencies of the
Government, civil or military as well as any private institution, corporation, firm, association
or person in the implementation of its powers and function under its Code;

(i) Issue cease and desist orders to prevent fraud or injury to the investing public;

(j) Punish for the contempt of the Commission, both direct and indirect, in accordance with
the pertinent provisions of and penalties prescribed by the Rules of Court;

(k) Compel the officers of any registered corporation or association to call meetings of
stockholders or members thereof under its supervision;

(l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the
Commission and in appropriate cases, order the examination, search and seizure of all
documents, papers, files and records, tax returns and books of accounts of any entity or
person under investigation as may be necessary for the proper disposition of the cases
before it, subject to the provisions of existing laws;

(m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of
registration of corporations, partnership or associations, upon any of the grounds provided
by law; and

(n) Exercise such other powers as may be provided by law as well as those which may be
implied from, or which are necessary or incidental to the carrying out of, the express powers
granted the Commission to achieve the objectives and purposes of these laws.

5.2. The Commission’s jurisdiction over all cases enumerated under section 5 of Presidential Decree
No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial
Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional
Trial Court branches that shall exercise jurisdiction over the cases. The Commission shall retain
jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which
should be resolved within one (1) year from the enactment of this Code. The Commission shall
retain jurisdiction over pending suspension of payment/rehabilitation cases filed as of 30 June 2000
until finally disposed.

E. Procedure for registration of securities

Section 12. Procedure of Registration Securities. - 12.1. All securities required to be registered
under Subsection 8. I shall be registered through the filing by the issuer in the main office of the
Commission, of a sworn registration statement with the respect to such securities, in such form and
containing such information and document as the Commission prescribe. The registration statement
shall include any prospectus required or permitted to be delivered under Subsections 8.2, 8.3, and
8.4.
12.2. In promulgating rules governing the content of any registration statement (including any
prospectus made a part thereof or annex thereto), the Commission may require the registration
statement to contain such information or documents as it may, by rule, prescribe. It may dispense
with any such requirements, or may require additional information or documents, including written
information from an expert, depending on the necessity thereof or their applicability to the class of
securities sought to be registered.

12.3. The information required for the registration of any kind, and all securities, shall include, among
others, the effect of the securities issue on ownership, on the mix of ownership, especially foreign
and local ownership.

12.4. The registration statement shall be signed by the issuer’s executive officer, its principal
operating officer, its principal financial officer, its comptroller, its principal accounting officer, its
corporate secretary, or persons performing similar functions accompanied by a duly verified
resolution of the board of directors of the issuer corporation. The written consent of the expert
named as having certified any part of the registration statement or any document used in connection
therewith shall also be filed. Where the registration statement shares to be sold by selling
shareholders, a written certification by such selling shareholders as to the accuracy of any part of the
registration statement contributed to by such selling shareholders shall be filed.

12.5. (a) Upon filing of the registration statement, the issuer shall pay to the Commission a fee of not
more than one-tenth (1/10) of one per centum (1%) of the maximum aggregate price at which such
securities are proposed to be offered. The Commission shall prescribe by the rule diminishing fees in
inverse proportion the value of the aggregate price of the offering.

(b) Notice of the filing of the registration statement shall be immediately published by the
issuer, at its own expense, in two (2) newspapers of general circulation in the Philippines,
once a week for two (2) consecutive weeks, or in such other manner as the Commission by
the rule shall prescribe, reciting that a registration statement for the sale of such securities
has been filed, and that aforesaid registration statement, as well as the papers attached
thereto are open to inspection at the Commission during business hours, and copies thereof,
photostatic or otherwise, shall be furnished to interested parties at such reasonable charge
as the Commission may prescribe.

12.6. Within forty-five (45) days after the date of filing of the registration statement, or by such later
date to which the issuer has consented, the Commission shall declare the registration statement
effective or rejected, unless the applicant is allowed to amend the registration statement as provided
in Section 14 hereof. The Commission shall enter an order declaring the registration statement to be
effective if it finds that the registration statement together with all the other papers and documents
attached thereto, is on its face complete and that the requirements have been complied with. The
Commission may impose such terms and conditions as may be necessary or appropriate for the
protection of the investors.

12.7. Upon affectivity of the registration statement, the issuer shall state under oath in every
prospectus that all registration requirements have been met and that all information are true and
correct as represented by the issuer or the one making the statement. Any untrue statement of fact
or omission to state a material fact required to be stated herein or necessary to make the statement
therein not misleading shall constitute fraud.
Section 8. Requirement of Registration of Securities.– 8.1. Securities shall not be sold or offered for
sale or distribution within the Philippines, without a registration statement duly filed with and
approved by the Commission. Prior to such sale, information on the securities, in such form and with
such substance as the Commission may prescribe, shall be made available to each prospective
purchaser.

8.2. The Commission may conditionally approve the registration statement under such terms as it
may deem necessary.

8.3. The Commission may specify the terms and conditions under which any written communication,
including any summary prospectus, shall be deemed not to constitute an offer for sale under this
Section.

8.4. A record of the registration of securities shall be kept in Register Securities in which shall be
recorded orders entered by the Commission with respect such securities. Such register and all
documents or information with the respect to the securities registered therein shall be open to public
inspection at reasonable hours on business days.

8.5. The Commission may audit the financial statements, assets and other information of firm
applying for registration of its securities whenever it deems the same necessary to insure full
disclosure or to protect the interest of the investors and the public in general.

F. Prohibitions on fraud, manipulation, and insider trading

1. Manipulation of security prices

Section 24. Manipulation of Security Prices; Devices and Practices. – 24.1 It shall be unlawful for
any person acting for himself or through a dealer or broker, directly or indirectly:

(a) To create a false or misleading appearance of active trading in any listed security traded
in an Exchange of any other trading market (hereafter referred to purposes of this Chapter
as "Exchange"):

(i) By effecting any transaction in such security which involves no change in the
beneficial ownership thereof;

(ii) By entering an order or orders for the purchase or sale of such security with the
knowledge that a simultaneous order or orders of substantially the same size, time
and price, for the sale or purchase of any such security, has or will be entered by or
for the same or different parties; or

(iii) By performing similar act where there is no change in beneficial ownership.

(b) To affect, alone or with others, a securities or transactions in securities that: (I) Raises
their price to induce the purchase of a security, whether of the same or a different class of
the same issuer or of controlling, controlled, or commonly controlled company by others; or
(iii) Creates active trading to induce such a purchase or sale through manipulative devices
such as marking the close, painting the tape, squeezing the float, hype and dump, boiler
room operations and such other similar devices.
 (c) To circulate or disseminate information that the price of any security listed in an
Exchange will or is likely to rise or fall because of manipulative market operations of any one
or more persons conducted for the purpose of raising or depressing the price of the security
for the purpose of inducing the purpose of sale of such security.

(d) To make false or misleading statement with respect to any material fact, which he knew
or had reasonable ground to believe was so false or misleading, for the purpose of inducing
the purchase or sale of any security listed or traded in an Exchange.

(e) To effect, either alone or others, any series of transactions for the purchase and/or sale of
any security traded in an Exchange for the purpose of pegging, fixing or stabilizing the price
of such security; unless otherwise allowed by this Code or by rules of the Commission.

24.2. No person shall use or employ, in connection with the purchase or sale of any security any
manipulative or deceptive device or contrivance. Neither shall any short sale be effected nor any
stop-loss order be executed in connection with the purchase or sale of any security except in
accordance with such rules and regulations as the Commission may prescribe as necessary or
appropriate in the public interest for the protection of investors.

24.3. The foregoing provisions notwithstanding, the Commission, having due regard to the public
interest and the protection of investors, may, by rules and regulations, allow certain acts or
transactions that may otherwise be prohibited under this Section.

2. Short sales

3. Option trading
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.

4. Fraudulent transactions

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

26.1. Employ any device, scheme, or artifice to defraud;

26.2. Obtain money or property by means of any untrue statement of a material fact of any omission
to state a material fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading; or

26.3. Engage in any act, transaction, practice or course of business which operates or would operate
as a fraud or deceit upon any person.

5. Insider trading
Section 27. Insider’s Duty to Disclose When Trading. – 27.1. It shall be unlawful for an insider to sell
or buy a security of the issuer, while in possession of material information with respect to the issuer
or the security that is not generally available to the public, unless: (a) The insider proves that the
information was not gained from such relationship; or (b) If the other party selling to or buying from
the insider (or his agent) is identified, the insider proves: (I) that he disclosed the information to the
other party, or (ii) that he had reason to believe that the other party otherwise is also in possession
of the information. A purchase or sale of a security of the issuer made by an insider defined in
Subsection 3.8, or such insider’s spouse or relatives by affinity or consanguinity within the second
degree, legitimate or common-law, shall be presumed to have been effected while in possession of
material nonpublic information if transacted after such information came into existence but prior to
dissemination of such information to the public and the lapse of a reasonable time for market to
absorb such information: Provided, however, That this presumption shall be rebutted upon a
showing by the purchaser or seller that he was aware of the material nonpublic information at the
time of the purchase or sale.

27.2. For purposes of this Section, information is "material nonpublic" if: (a) It has not been generally
disclosed to the public and would likely affect the market price of the security after being
disseminated to the public and the lapse of a reasonable time for the market to absorb the
information; or (b) would be considered by a reasonable person important under the circumstances
in determining his course of action whether to buy, sell or hold a security.

27.3. It shall be unlawful for any insider to communicate material nonpublic information about the
issuer or the security to any person who, by virtue of the communication, becomes an insider as
defined in Subsection 3.8, where the insider communicating the information knows or has reason to
believe that such person will likely buy or sell a security of the issuer whole in possession of such
information.

27.4. (a) It shall be unlawful where a tender offer has commenced or is about to commence for:

(i) Any person (other than the tender offeror) who is in possession of material nonpublic
information relating to such tender offer, to buy or sell the securities of the issuer that are
sought or to be sought by such tender offer if such person knows or has reason to believe
that the information is nonpublic and has been acquired directly or indirectly from the tender
offeror, those acting on its behalf, the issuer of the securities sought or to be sought by such
tender offer, or any insider of such issuer; and

(ii) Any tender offeror, those acting on its behalf, the issuer of the securities sought or to be
sought by such tender offer, and any insider of such issuer to communicate material
nonpublic information relating to the tender offer to any other person where such
communication is likely to result in a violation of Subsection 27.4 (a)(I).

(b) For purposes of this subsection the term "securities of the issuer sought or to be sought by such
tender offer" shall include any securities convertible or exchangeable into such securities or any
options or rights in any of the foregoing securities.

G. Protection of shareholder interests

1. Tender offer rule

Section 19. Tender Offers. – Any person or group of persons acting in concert who intends to
acquire at least 15% of any class of any equity security of a listed corporation of any class of any
equity security of a corporation with assets of at least fifty million pesos (50,000,000.00) and having
two hundred(200) or more stockholders at least one hundred shares each or who intends to acquire
at least thirty percent(30%) of such equity over a period of twelve months(12) shall make a tender
offer to stockholders by filling with the Commission a declaration to that effect; and furnish the
issuer, a statement containing such of the information required in Section 17 of this Code as the
Commission may prescribe. Such person or group of persons shall publish all request or invitations
or tender offer or requesting such tender offers subsequent to the initial solicitation or request shall
contain such information as the Commission may prescribe, and shall be filed with the Commission
and sent to the issuer not alter than the time copies of such materials are first published or sent or
given to security holders.

(a) Any solicitation or recommendation to the holders of such a security to accept or reject a
tender offer or request or invitation for tenders shall be made in accordance with such rules
and regulations as may be prescribe.

(b) Securities deposited pursuant to a tender offer or request or invitation for tenders may be
withdrawn by or on behalf of the depositor at any time throughout the period that tender offer
remains open and if the securities deposited have not been previously accepted for
payment, and at any time after sixty (60) days from the date of the original tender offer to
request or invitation, except as the Commission may otherwise prescribe.

(c) Where the securities offered exceed that which person or group of persons is bound or
willing to take up and pay for, the securities that are subject of the tender offers shall be
taken up us nearly as may be pro data, disregarding fractions, according to the number of
securities deposited to each depositor. The provision of this subject shall also apply to
securities deposited within ten (10) days after notice of increase in the consideration offered
to security holders, as described in paragraph (e) of this subsection, is first published or sent
or given to security holders.

(d) Where any person varies the terms of a tender offer or request or invitation for tenders
before the expiration thereof by increasing the consideration offered to holders of such
securities, such person shall pay the increased consideration to each security holder whose
securities are taken up and paid for whether or not such securities have been taken up by
such person before the variation of the tender offer or request or invitation.

19.2. It shall be lawful for any person to make any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made in the light of the circumstances
under which they are made, not mis-leading, or to engaged to any fraudulent, deceptive or
manipulative acts or practices, in connection with any tender offer or request or invitation for tenders,
or any solicitation for any security holders in opposition to or in favor of any such favor of any such
offer, request, or invitation. The Commission shall, for the purposes of this subsection, define and
prescribe means reasonably designed to prevent, such acts and practices as are fraudulent,
deceptive and manipulative.

2. Rules on proxy solicitation

Section 20. Proxy solicitations. - 20.1. Proxies must be issued and proxy solicitation must be made
in accordance with rules and regulations to be issued by the Commission;
20.2. Proxies must be in writing, signed by the stockholder or his duly authorized representative and
file before the scheduled meeting with the corporate secretary.

20.3. Unless otherwise provided in the proxy, it shall be valid only for the meeting for which it is
intended. No proxy shall be valid only for the meting for which it is intended. No proxy shall be valid
and effective for a period longer than five (5) years at one time.

20.4. No broker or dealer shall give any proxy, consent or any authorization, in respect of any
security carried for the account of the customer, to a person other than the customer, without written
authorization of such customer.

20.5. A broker or dealer who holds or acquire the proxy for at least ten percent (10%) or such
percentage as the commission may prescribe of the outstanding share of such issuer, shall submit a
report identifying the beneficial owner of ten days after such acquisition, for its own account or
customer, to the issuer of security, to the exchange where the security is traded and to the
Commission.

Section 21. Fees of Tender Offers and Certain Proxy Solicitations. – At the time of filling with the
Commission of any statement required under Section 19 for any tender offer or Section 72.2 for
issuer purchases, or Section 20 for proxy or consent solicitation, The Commission may require that
the person making such filing pay a fee of not more than one-tenth (1/10)(1%) of;

21.1. The propose aggregate purchase price in the case of a transaction under Section 20 or 72.2;
or

21.2. The proposed payment in cash, and ion value of any securities or property to be transferred in
the acquisition, merger or consolidating, or the cash and value of any securities proposed to be
received upon the sale disposition of such assets in the case of a solicitation under Section 20. The
Commission shall prescribe by rule diminishing fees in inverse proportion to the value of the
aggregate price of the offering.

3. Disclosure rule

VI. BANKING

A. THE NEW CENTRAL BANK ACT

a. State policies

Policy of the state with respect to the creation of the Bangko Sentral ng Pilipinas

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 (NCBA, Sec 2). While it is a government owned corporation it enjoys fiscal and
administrative autonomy.
b. Creation of the Bangko Sentral ng Pilipinas

"Sec. 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 (₱200,000,000,000), 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."

c. Responsibility and primary objective

Section 2. Section 3 of the same Act is hereby amended to read as follows:

"Sec. 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.

"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."

d. Corporate powers

e. Operations of the Bangko Sentral ng Pilipinas

a. Authority to obtain data and information

Section 7. Section 23 of the same Act is hereby amended to read as follows:

"Sec. 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."

b. Supervision and examination

Section 8. Section 25 of the same Act is hereby amended to read as follows:

"Sec. 23. 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 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."

c. Bank deposits and investments

d. Prohibitions

Section 45. Section 128 of the same Act is hereby amended to read as follows:

"Sec. 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."

Section 10. Section 27(d) of the same Act is hereby amended to read as follows:

"Sec. 27. Prohibitions. - In addition to the prohibitions found in Republic Act Nos. 3019 and 6713,
personnel of the Bangko Sentral are hereby prohibited from:

"x x x

"(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."
e. Examination and fees

Section 11. Section 28 of the same Act is hereby amended to read as follows:

"Sec. 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."

f. Monetary Board; powers and functions

monetary board - It is the body through which the powers and functions of the BSP are exercised (NCBA,
Sec 6).

Powers and functions of the Monetary Board (RASBI)

1. Issue Rules and regulations it considers necessary for the effective discharge of the responsibilities
and exercise of its powers. 2. Direct the management, operations, and Administration of the BSP,
reorganize its personnel, and issue such rules and regulations as it may deem necessary or convenient
for this purpose. 3. Establish a human resource management System. 4. Adopt an annual Budget for and
authorize such expenditures by the BSP as are in the interest of the effective administration and
operations of the BSP in accordance with applicable laws and regulations. 5. Indemnify its members and
other officials of the BSP, 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 (NCBA, Sec 15).

NOTE: 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 BSP is advised by external counsel that the
person to be indemnified did not commit any negligence or misconduct. The costs and expenses
incurred in defending the aforementioned action, suit or proceeding may be paid by the BSP 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 (ibid.).

g. How the Bangko Sentral ng Pilipinas handles banks in distress

a. Conservatorship

Conservator (2006 Bar)

One appointed if the bank is in the state of illiquidity or the bank fails or refuses to maintain a state of
liquidity adequate to protect its depositors and creditors. The bank still has more assets than its
liabilities but its assets are not liquid or not in cash thus it cannot pay its obligation when it falls due. The
bank, not the BSP, pays for fees.

Powers of a conservator (CARe BEAr)

1. Collect all monies and debts due to the said bank 2. To take charge of the Assets, liabilities, and the
management thereof 3. REorganize, the management thereof 4. And such other powers as the
monetary Board deems necessary 5. Exercise all powers necessary to restore its viability, with the power
to overrule or revoke the actions of the previous management and board of directors of the bank or
quasi-bank 6. To bring court actions to Assail or Repudiate contracts entered into by the bank. (First
Philippine International Bank v. CA, G.R. No. 115849, Jan. 24, 1996).

Powers of a conservator do not extend to the revocation of valid and perfected contracts

The powers of a conservator cannot extend to post facto repudiation of valid and perfected
transactions. Thus, the law merely gives the conservator power to revoke contracts that are deemed to
be defective- void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place
of the bank’s board. (First Philippine International Bank v. CA, supra.)

Termination of conservatorship

Conservatorship is terminated when the Monetary Board is satisfied that the bank can operate on its
own. NOTE: When 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 losses to
its depositors or creditors, the bank will go under liquidation.

b. Closure

Grounds for closure of a bank or a quasi-bank

1. Cash Flow test - Inability to pay liabilities as they become due in the ordinary course of business
(NCBA, Sec. 30 [a], 1997 Bar). 2. Balance sheet test – Insufficiency of realizable assets to meet its
liabilities (NCBA, Sec 30 [b], 1997 Bar). 3. Inability to continue business without involving probable losses
to its depositors and creditors (NCBA, Sec 30 [c], 1997 Bar). 4. Willful violation of a cease and desist
order under Section 37 that has become final, involving acts or transactions which amount to fraud or a
dissipation of the assets (NCBA, Sec 30 [d], 1997 Bar). 5. Notification to the BSP or public announcement
of a bank holiday (GBL, Sec 53). 6. Suspension of payment of its deposit liabilities continuously for more
than 30 days (GBL, Sec 53). 7. Persisting in conducting its business in an unsafe or unsound manner (GBL,
Sec 56).

c. Receivership

Receiver (2006 Bar)

One appointed if the bank is already insolvent which means that its liabilities are greater than its assets.
The Court has no authority to appoint a receiver for a bank if the latter will function as such under BSP
law. The power to appoint belongs to BSP.

NOTE: For banks, the receiver would be the Philippine Deposit Insurance Corporation; for quasi-banks, it
could be any person of recognized competence in banking or finance (NCBA, Sec. 30).

Duties of a receiver

The receiver shall: 1. Immediately gather and take charge of all the assets and liabilities of the
institution. 2. Administer the same for the benefit of the creditors, and exercise the general powers of a
receiver under the Revised Rules of Court 3. Not, with the exception of administrative expenditures, pay
or commit any act that will involve the transfer or disposition of any asset of the institution: Provided
that the receiver may deposit or place the funds of the institution in non-speculative investments. 4.
Within 90 days from the take-over, the receiver shall determine whether the institution may be
rehabilitated or otherwise placed in such a condition that it may be permitted to resume business with
safety to its depositors and creditors and the general public

5 If the receiver determines that the institution cannot be rehabilitated or permitted to resume
business, then the Monetary Board shall notify in writing the board of directors of the institution of its
findings and direct the receiver to proceed with liquidation of the institution (NCBA, Sec 30).

d. Liquidation

Acts of liquidation are those which constitute the conversion of the assets of the banking institution to
money or the sale, assignment or disposition of the same to creditors and other parties for the purpose
of paying debts of such institution (Banco Filipino v. Central Bank, G.R. No. 70054, December 11, 1991)

h. Administrative sanctions on supervised entities

Section 19. Section 37 of the same Act is hereby amended to read as follows:

"Sec. 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 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 (₱1,000,000) for each transactional violation or One
hundred thousand pesos (₱100,000) 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 (₱100,000)
for each transactional violation or Thirty thousand pesos (₱30,000) 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."

i. Rules on bank deposits and investments by directors, officers, stockholders and their related
interests

J. Supervision and regulation of bank operations

a. Loans and other credit accommodations

b. Selective regulation

i. Margin requirements against letters of credit

1i. Required security against bank loans

iii. Portfolio ceilings

iv. Minimum capital ratios

Section 41. Section 108 of the same Act is hereby amended to read as follows:

"Sec. 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 then risk
profile."

k. Rate of exchange

The Monetary Board shall determine the exchange rate policy of the country.

It shall: 1. Determine the rates at which the Bangko Sentral shall buy and sell spot exchange, and shall
establish deviation limits from the effective exchange rate or rates as it may deem proper. The Bangko
Sentral shall not collect any additional commissions or charges of any sort, other than actual telegraphic
or cable costs incurred by it. 2. 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. (NCBA, Sec. 74)

B. LAW ON SECRECY OF BANK DEPOSITS

1. Purpose
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.

2. Prohibited acts
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.

3. Deposits covered
Section 2. 1 All deposits of whatever nature with banks or banking institutions in the Philippines
including investments in bonds issued by the Government of the Philippines, its political subdivisions
and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not
be examined, inquired or looked into by any person, government official, bureau or office,

4. Exceptions
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.

5. Garnishment of deposits, including foreign deposits

Garnishment of a bank deposit does not violate the law

The prohibition against examination or inquiry does not preclude its being garnished for satisfaction of
judgment. The disclosure is purely incidental to the execution process and it was not the intention of the
legislature to place bank deposits beyond the reach of judgment creditor (PCIB v. CA, G.R. No. 84526,
January 28, 1991).

Garnishment of foreign currency deposits

GR: Foreign currency deposits shall be exempt from attachment, garnishment, or any other order or
process of any court, legislative body, government agency or any administrative body whatsoever (RA
6426, Sec 8).

XPN: The application of Sec. 8 of RA 6426 depends on the extent of its justice. The garnishment of a
foreign currency deposit should be allowed to prevent injustice and for equitable grounds, otherwise, it
would negate Article 10 of the New Civil Code which provides that “in case of doubt in the interpretation
or application of laws, it is presumed that the lawmaking body intended right and justice to prevail
(Salvacion v. Central Bank of the Philippines, G.R. 94723, August 21, 1997).

The foreign currency deposit of a transient foreigner who illegally detained and raped a minor Filipina
can be garnished to satisfy the award for damages to the victim

The exemption from garnishment of foreign currency deposits under R.A. 6426 cannot be invoked to
escape liability for the damages to the victim. The garnishment of the transient foreigner’s foreign
currency deposit should be allowed to prevent injustice and for equitable grounds. The law was enacted
to encourage foreign currency deposit and not to benefit a wrongdoer (Salvacion v. Central Bank of the
Philippines, G.R. 94723, August 21, 1997).

6. Penalties for violation

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.

C. GENERAL BANKING ACT

1. Definition and classification of banks

Section 3. Definition and Classification of Banks. -

3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the form of deposits.
(2a)

3.2. Banks shall be classified into:

(a) Universal banks;

(b) Commercial banks;

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

(d) Rural banks, as defined in Republic Act No. 73S3 (hereafter the "Rural Banks Act");

(e) Cooperative banks, as defined in Republic Act No 6938 (hereafter the "Cooperative
Code");

(f) Islamic banks as defined in Republic Act No. 6848, otherwise known as the "Charter of Al
Amanah Islamic Investment Bank of the Philippines"; and

(g) Other classifications of banks as determined by the Monetary Board of the Bangko
Sentral ng Pilipinas. (6-Aa)

Bank

A bank is an entity engaged in the lending of funds obtained from the public in the form of deposits.

Elements for an entity to be considered doing business as a bank

1. The entity is engaged in the lending of funds 2. Funds obtained from the public with at least 20
depositors 3. Funds are in the form of deposits

NOTE: A transaction involving not a loan but purchase of receivables at a discount within the purview of
investing, reinvesting, or trading in securities which an investment company may perform is not banking.

Extent of ownership of foreign individuals and non-bank corporations in a bank

Foreign individuals may own or control up to forty percent (40%) of the voting stock of a domestic bank
(GBL, Sec 2).
Extent of ownership of a non-banking corporations in a bank

GR: A corporation may only own 40% of the bank

XPNs:

1 A universal bank can own up to 100% of a thrift bank 2. A corporation whose shares are listed in the
stock exchange can own up to 60% of the bank. This privilege can be exercised only once. 3. If the
corporation is in existence for 10 years it can own up to 60% of the bank. This privilege can be exercised
only once. 4. Under Foreign Bank Liberalization Law (RA 7721), the Monetary Board may authorize
foreign banks to operate in the Philippines.

Ownership of foreign individuals in a bank

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 (GBL, Sec 2).

Classifications of banks (2002, 2010 Bar)

1. Universal banks- Primarily governed by the GBL. They can exercise the powers of an investment house
and invest in non-allied enterprises and have the highest capitalization. 2. Commercial banks- Ordinary
banks governed by the GBL which have a lower capitalization requirement than universal banks and can
neither exercise the powers of an investment house nor invest in non-allied enterprises. 3. Thrift banks –
These are a) Savings and mortgage banks; b) Stock savings and loan associations; and c) Private
development banks, which are primarily governed by the Thrift Banks Act (RA 7906). 4. Rural banks –
These are mandated to make needed credit available and readily accessible in the rural areas on
reasonable terms and which are primarily governed by the Rural Banks Act of 1992 (RA 7353). 5.
Cooperative banks – Banks whose majority shares are owned and controlled by cooperatives primarily
to provide financial and credit services to cooperatives. It shall include cooperative rural banks. They are
governed primarily by the Cooperative Code (RA 6938). 6. Islamic banks – Banks whose business
dealings and activities are subject to the basic principles and rulings of Islamic Shari’ a, such as the Al
Amanah Islamic Investment Bank of the Philippines which was created by RA 6848. 7. Other
classification of banks as determined by the Monetary Board of the BSP

2. Distinction of banks from quasi-banks and trust entities

Quasi-bank

These are entities engaged in the borrowing of funds through the issuance, endorsement or assignment
with recourse or acceptance of deposit substitutes for purposes of re-lending or purchasing of
receivables and other obligations (GBL, Sec 4). Unlike banks, quasi-banks do not accept deposits. Neither
are funds obtained insured with the PDIC.

Trust entities

These are entities engaged in trust business that act as a trustee or administer any trust or hold property
in trust or on deposit for the use, benefit, or behalf of others (GBL, Sec. 79). A bank does not act as a
trustee.

Financial intermediaries

Persons or entities whose principal functions include the lending, investing, or placement of funds on
pieces of evidence of indebtedness or equity deposited with them, acquired by them or otherwise
coursed through them, either for their own account or for the account of others.

3. Bank powers and liabilities

a. Corporate powers

1. All powers provided by the corporation code, like issuance of stocks and entering into merger or
consolidation with other corporation or banks. 2. It can only acquire real property when it is needed for
business, in settlement of debt incurred in the course of the business, property as may be mortgaged to
it to secure a debt in good faith and property it may acquire during execution sale to satisfy judgment.
Banks cannot acquire real property in settlement of a civil liability arising from crime. 3. A universal and
commercial bank can both invest in equity but only universal bank is allowed to invest in equity of non-
allied enterprises.

b. Banking and incidental powers

Certificate of Authority to Register

This is a requirement before a bank may register or amend their articles of incorporation with SEC. It is
issued by the Monetary Board (GBL, Sec. 14). The following must be proven by the bank to satisfy the
Monetary Board and in order for the latter to grant such certificate:
1. 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 2. That the public interest and economic
conditions, both general and local, justify the authorization 3. 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. (ibid).

General powers and functions of a bank

1. Accepting drafts and issuing letters of credit 2. Discounting and negotiating promissory notes, drafts,
bills of exchange and other instrument evidencing debt 3. Accepting or creating demand deposits,
receiving other types of deposit and deposit substitutes 4. Buying and selling FOREX and gold or silver
bullion 5. Acquiring marketable bonds and other debt securities 6. Extending credit 7. Determination of
bonds and other debt securities eligible for investment including maturities and aggregate amount of
such investment, subject to such rules as the Monetary Board may promulgate. 8. And all other powers
as may be necessary to carry on the business of a bank (GBL, Sec. 29).

4. Diligence required of banks in view of fiduciary nature of banking

The banking system is an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving
of money or as active instruments of business and commerce, banks have become an ubiquitous
presence among the people, who have come to regard them with respect and even gratitude and, most
of all, confidence. Thus, even the humble wageearner has not hesitated to entrust his life’s savings to
the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for
him. The ordinary person, with equal faith, usually maintains a modest checking account for security and
convenience in the settling of his monthly bills and the payment of ordinary expenses. As for business
entities, the bank is a trusted and active associate that can help in the running of their affairs, not only in
the form of loans when needed but more often in the conduct of their day-to-day transactions like the
issuance or encashment of checks.

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo and as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever he directs.

The point is that as a business affected with public interest and because of the nature of its functions,
the bank is under obligations to treat the accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of their relationship. (Simex International Inc. v. Court of Appeals, G.R. No.
88013 March 19, 1990 as cited in the case of Land Bank of the Philippines vs. Emmanuel Oñate, G.R. No.
192371, January 15, 2014)

Degree of diligence required of banks in handling deposits

Banks are expected to exercise extraordinary diligence in its dealings with depositors. Consequently, the
diligence required of banks is more than that of a Roman pater familias or a good father of a family (PCI
Bank v Balcameda G.R. No. 158143, September 21, 2011).

5. Nature of bank funds and bank deposits

Deposit function of banks

The function of the bank to receive a thing, primarily money, from depositors with the obligation of
safely keeping it and returning the same.

Kinds of deposits between a bank and its depositors

1. As debtor-creditor: 2. Special Kinds of Deposits a. Demand deposits – all those liabilities of banks
which are denominated in the Philippine currency and are subject to payment in legal tender upon
demand by representation of checks. b. Savings deposits – the most common type of deposit and is
usually evidenced by a passbook.

NOTE: The requirement of presentation of passbooks is required by the Manual of Regulations for
Banks. A bank is negligent if it allows the withdrawal without requiring the presentation of passbook
(BPI v. CA, GR No. 112392, February 29, 2000).

c. Negotiable order of withdrawal account (NOWA) – Interest-bearing deposit accounts that combine
the payable on demand feature of checks and investment feature of saving accounts. d. Time deposit –
an account with fixed term; payment of which cannot be legally required within such a specified number
of days.

3. As trustee-trustor:

Trust account – a savings account, established under a trust agreement containing funds administered
by the bank for the benefit of the trustor or another person or persons.
4. As agent-principal: a. Deposit of checks for collection b. Deposit for specific purpose c. Deposit for
safekeeping

Types of deposit accounts

1. Savings 2. Current 3. Time

Deposit accounts may also be classified as: 1. Individual; or 2. Joint: a. “And” account – the signature of
both codepositors are required for withdrawals. b. “And/or” account – either one of the codepositors
may deposit and withdraw from the account without the knowledge consent and signature of the other.

Joint accounts may be subject of a survivorship agreement whereby the co-depositors agree to permit
either of them to withdraw the whole deposit during their lifetime and transferring the balance to the
survivor upon the death of one of them (Vitug v. CA, G.R. No. 82027, March 29, 1990).

Anonymous account

GR: Anonymous accounts or those under fictitious names are prohibited (R.A. 9160 as amended by R.A.
9194; BSP Circular No. 251, July 21, 2000).

XPN: In case where numbered accounts is allowed such as in foreign currency deposits. However,
banks/non-bank financial institutions should

Ensure that the client is identified in an official or other identifying documents (R.A. 6426 as amended,
FCDA, Sec. 8).

Nature of a bank deposit

All kinds of bank deposits are loan. The bank can make use as its own the money deposited. Said amount
is not being held in trust for the depositor nor is it being kept for safekeeping (Tang Tiong Tick v.
American Apothecaries, G.R. No. 43682, March 31, 1938).

Mandamus will not lie in the enforcement of obligations concerning deposit

All kinds of deposit are loans. Thus, the relationship being contractual in nature, mandamus cannot be
availed of because mandamus will not lie to enforce the performance of contractual obligations (Lucman
v. Alimatar Malawi, G.R. No. 159794, Dec. 19, 2006).

Contract between banks and depositors is not a trust agreement

The fiduciary nature of the bank-depositor relationship does not convert the contract between banks
and depositors to a trust agreement. Thus, failure by the bank to pay the depositor is failure to pay
simple loan, and not a breach of trust (Consolidated Bank and Trust Corp. v. CA, G.R. No. 138569,
September 11, 2003).

Nature of safety deposit box

The contract for the use of a safety deposit box should be governed by the law on lease.

In the case of Sia v. CA and Security Bank and Trust Company and under the old banking law, a safety
deposit box is a special deposit. However, the new General Banking Law, while retaining the renting of
safe deposit box as one of the services that the bank may render, deleted reference to depository
function (Divina, Handbook on Philippine Commercial Law).

6. Grant of loans and security requirements

a. Ratio of net worth to total risk assets

Net worth

The total of the unimpaired paid-in surplus, retained earnings and undivided profit, net of valuation
reserves and other adjustments as may be required by the BSP (GBL, Sec. 24.2).

Risked based capital

The minimum ratio prescribed by the Monetary Board which the net worth of a bank must bear to its
total risk assets which may include contingent accounts.
NOTE: The Monetary Board may require or suspend compliance with such ratio whenever necessary for
a maximum period of one year and that such ratio shall be applied uniformly to banks of the same
category (GBL,Sec. 34).

Effect of non-compliance with the ratio

1. Distribution of net profits may be limited or prohibited and MB 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; or

2. GR: Acquisition of major assets and making of new investments may be restricted.

XPN: Purchases of evidence of indebtedness guaranteed by the Government can be exempted from
restrictions (GBL, Sec. 34).

b. Single borrower's limit

1. GR: Single borrower’s limit – The total amount of loans, credit accommodations and guarantees that
the bank could grant should at no time exceed 25% of the bank’s net worth (GBL, Sec 35.1, 2002 Bar,
2015 Bar).

XPN: a. As the Monetary Board may otherwise prescribe for reasons of national interest b. Deposits of
rural banks with GOCC financial institutions like LBP, DBP, and PNB. 2. The total amount of loans, credit
accommodations and guarantees prescribed in (a) may be increased by an additional 10% of the net
worth of such bank provided that additional liabilities are adequately secured by trust receipt, shipping
documents, warehouse receipts and other similar documents which must be fully covered by an
insurance (GBL, Sec. 35.2). 3. Loans and other credit accommodations secured by REM shall not exceed
75% of the appraised value of the real estate security plus 60% of the appraised value of the insured
improvements (GBL, Sec. 37) CM/intangible property such as patents, trademarks, etc. shall not exceed
75% of the appraised value of the security (GBL, Sec. 38). 4. Loans being contractual, the period of
payment may be subject to stipulation by the parties. In the case of amortization, the amortization
schedule has no fixed period as it depends on the project to be financed such that if it was capable of
raising revenues, it should be at least once a year with a grace period of 3 years if the project to be
financed is not that profitable which could be deferred up to 5 years if the project was not capable of
raising revenues (GBL, Sec. 44). 5. Loans granted to DOSRI: a. Director b. Officer c. Stockholder, having
at least 1% ownership over the bank d. Related Interests, such as DOS’s spouses, their relatives within
the first degree whether by consanguinity or affinity, partnership whereby DOS is a partner or a
corporation where DOS owns at least 20%.
Exclusions from the aforesaid loan limitations

Non-risk loans, such as: 1. Loans secured by obligations of the BSP or the Philippine Government 2.
Loans fully guaranteed by the Government 3. Loans covered by assignment of deposits maintained in
the lending bank and held in the Philippines 4. Loans, credit accommodations and acceptances under
letters of credit to the extent covered by margin deposits 5. Other loans or credit accommodations
which the MB may specify as non-risk items.

Joint and solidary signature (JSS) practice

It is a common banking practice requiring as an additional security for a loan granted to a corporation
the joint and solidary signature of a major stockholder or corporate officer of the borrowing corporation
(Security Bank v. Cuenca, G.R. No. 138544, October 3, 2000).

c. Restrictions on bank exposure to directors, officers, stockholders, and their related interests
Section 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their Related
Interests. - No director or officer of any bank shall, directly or indirectly, for himself or as the
representative or agent of others, borrow from such bank nor shall he become a guarantor, endorser
or surety for loans from such bank to others, or in any manner be an obligor or incur any contractual
liability to the bank except with the written approval of the majority of all the directors of the bank,
excluding the director concerned: Provided, That such written approval shall not be required for
loans, other credit accommodations and advances granted to officers under a fringe benefit plan
approved by the Bangko Sentral. The required approval shall be entered upon the records of the
bank and a copy of such entry shall be transmitted forthwith to the appropriate supervising and
examining department of the Bangko Sentral. Dealings of a bank with any of its directors, officers or
stockholders and their related interests shall be upon terms not less favorable to the bank than those
offered to others. After due notice to the board of directors of the bank, the office of any bank
director or officer who violates the provisions of this Section may be declared vacant and the director
or officer shall be subject to the penal provisions of the New Central Bank Act. The Monetary Board
may regulate the amount of loans, credit accommodations and guarantees that may be extended,
directly or indirectly, by a bank to its directors, officers, stockholders and their related interests, as
well as investments of such bank in enterprises owned or controlled by said directors, officers,
stockholders and their related interests. However, the outstanding loans, credit accommodations and
guarantees which a bank may extend to each of its stockholders, directors, or officers and their
related interests, shall be limited to an amount equivalent to their respective unencumbered deposits
and book value of their paid-in capital contribution in the bank: Provided, however, That loans, credit
accommodations and guarantees secured by assets considered as non-risk by the Monetary Board
shall be excluded from such limit: Provided, further, That loans, credit accommodations and
advances to officers in the form of fringe benefits granted in accordance with rules as may be
prescribed by the Monetary Board shall not be subject to the individual limit. The Monetary Board
shall define the term "related interests." The limit on loans, credit accommodations and guarantees
prescribed herein shall not apply to loans, credit accommodations and guarantees extended by a
cooperative bank to its cooperative shareholders. (83a)
d. Prohibited acts of borrowers

Section 54. Prohibition to Act as Insurer. - A bank shall not directly engage in insurance business as
the insurer. (73)

Section 55. Prohibited Transactions.

55.1. No director, officer, employee, or agent of any bank shall -

(a) Make false entries in any bank report or statement or participate in any fraudulent
transaction, thereby affecting the financial interest of, or causing damage to, the bank or any
person;

(b) Without order of a court of competent jurisdiction, disclose to any unauthorized person
any information relative to the funds or properties in the custody of the bank belonging to
private individuals, corporations, or any other entity: Provided, That with respect to bank
deposits, the provisions of existing laws shall prevail;

(c) Accept gifts, fees, or commissions or any other form of remuneration in connection with
the approval of a loan or other credit accommodation from said bank;

(d) Overvalue or aid in overvaluing any security for the purpose of influencing in any way the
actions of the bank or any bank; or

(e) Outsource inherent banking functions.

55.2. No borrower of a bank shall -

(a) Fraudulently overvalue property offered as security for a loan or other credit
accommodation from the bank;

(b) Furnish false or make misrepresentation or suppression of material facts for the purpose
of obtaining, renewing, or increasing a loan or other credit accommodation or extending the
period thereof;

(c) Attempt to defraud the said bank in the event of a court action to recover a loan or other
credit accommodation; or

(d) Offer any director, officer, employee or agent of a bank any gift, fee, commission, or any
other form of compensation in order to influence such persons into approving a loan or other
credit accommodation application.

55.3 No examiner, officer or employee of the Bangko Sentral or of any department, bureau, office,
branch or agency of the Government that is assigned to supervise, examine, assist or render
technical assistance to any bank shall commit any of the acts enumerated in this Section or aid in
the commission of the same. (87-Aa)

The making of false reports or misrepresentation or suppression of material facts by personnel of the
Bangko Sental ng Pilipinas shall be subject to the administrative and criminal sanctions provided
under the New Central Bank Act.
55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as the Banks
Secrecy Law, no bank shall employ casual or non regular personnel or too lengthy probationary
personnel in the conduct of its business involving bank deposits.

e. Floating interest rates and escalation clauses

7. Penalties for violations

a. Fine, imprisonment

b. Suspension or removal of director or officer

c. Dissolution of bank

D. PHILIPPINE DEPOSIT INSURANCE CORPORATION ACT

1. Basic policy

2. Powers and functions of the Philippine Deposit Insurance Corporation; prohibitions

3. Concept of insured deposits

4. Liability to depositors

a. Deposit liabilities required to be insured with Philippine Deposit Insurance Corporation

b. Commencement of liability

c. Deposit accounts not entitled to payment

d. Extent of liability

e. Determination of insured deposits

f. Calculation of liability

i. Per depositor, per capacity rule

Ii. Joint accounts

Iii. Mode of payment

iv. Effect of payment of insured deposits

v. Payment of insured deposits as preferred credit

vi. Failure to settle claim of insured depositor

v11. Failure of depositor to claim insured deposits

(a) Examination of banks and deposit accounts

(b) Prohibition against splitting of deposits

( c) Prohibition against issuances of temporary restraining orders

5. Concept of bank resolution

6. Role of the Philippine Deposit Insurance Corporation in relation to banks in distress

a. Closure and takeover

b. Conservatorship

c. Receivership

d. Liquidation

VII. INTELLECTUAL PROPERTY

A. Intellectual property rights in general

1. Intellectual property rights

Rationale behind the Intellectual Property Code

The Intellectual Property Code (IPC, for brevity) breathes life to Sec. 13, Art. XIV of the Constitution
which mandates that the State shall protect and secure the exclusive rights of scientists, investors,
artists and other gifted citizens to their intellectual property and creations, particularly when beneficial
to the people, for such period as may be provided by law.

The State recognizes that an effective intellectual and industrial property system is vital to the
development of domestic and creative activity, facilitates transfers of technology and attracts foreign
investments and ensures market access for our products. (IPC, Sec. 2)

Coverage of intellectual property rights

1. Copyright and Related Rights; 2. Trademarks and Service Marks; 3. Geographic indications; 4.
Industrial designs; 5. Patents; 6. Layout designs (Topographies) of Integrated Circuits; 7. Protection of
Undisclosed Information (TRIPS).

Basic principles

National Treatment - A Member country shall accord to the nationals of other Member countries
treatment no less favorable than it accords to its own national with regard to the protection of
intellectual property.
Most Favored Nation - Any advantage, favor, privilege or immunity granted by a Member to the
nationals of any other country shall be accorded immediately and unconditionally to the nationals of all
other Members.

2. Differences between copyright, trademarks, and patents

Copyright and Related Rights

exists over original and derivative intellectual creations in the literary and artistic domain protected
from the moment of their creation.

Trademarks and Service Marks

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.

Patents

any technical solution of a problem in any field of human activity which is new, involves an inventive
step and is industrially applicable. It may be, or may relate to, a product, or process, or an improvement
of any of the foregoing.

3. Technology transfer arrangement

Technology transfer arrangement

Contracts or agreements involving the transfer of systematic knowledge for the manufacture of a
product, the application of the 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 (IPC, Sec. 4.2).

B. Patents

1. Patentable invention

Patentable inventions

Any technical solution of a problem in any field of human activity which is: a. new; b. involves an
inventive step; c. and is industrially applicable.
It may be, or may relate to, a product, or process, or an improvement of any of the foregoing (IPC, Sec.
21).

2. Non-patentable invention

Non-patentable inventions

1. 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; 2. Aesthetic creations; 3. Discoveries, scientific theories and mathematical methods; 4.
Schemes, rules and methods of performing mental acts, playing games or doing business, and programs
for computers;

5 Anything which is contrary to public order or morality (IPC as amended by R.A. 9502, Sec. 22); 6.
Methods for treatment of the human or animal body; and 7. In the case of drugs and medicines, mere
discovery of a new form or new property of a known substance which does not result in the
enhancement of the efficacy of that substance

Patentability of computer programs

GR: Computer programs are not patentable but are copyrightable.

XPN: They can be patentable if they are part of a process

(e.g. business process with a step involving the use of a computer program).

3. Ownership of a patent

a. Right to a patent

1. Inventor, his heirs, or assigns (IPC, Sec 28); 2. Joint invention – Jointly by the inventors (IPC, Sec. 28);
3. Two or more persons invented separately and independently of each other – To the person who filed
an application; 4. Two or more applications are filed – the applicant who has the earliest filing date or,
the earliest priority date. First to file rule (IPC, Sec. 29).

b. First-to-file rule

1. 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 2. Where
two or more applications are filed for the same invention, to the applicant which has the earliest filing
date (IPC, Sec. 29).

c. Invention created pursuant to a commission

Pursuant to a commission: The person who commissions the work shall own the patent, unless
otherwise provided in the contract.

Pursuant to employment: 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 inventive activity is the result of
the performance of his regularlyassigned duties, unless there is an agreement, express or implied, to the
contrary (IPC, Sec. 30).

d. Right of priority

Priority date

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(IPC, Sec. 31).

Filing Date is accorded only when all the requirements provided under Section 40 are present. Priority
Date comes into play when there is

An application for patent for the same invention that was filed in another country (Salao, 2012).

Conditions in availing of priority date

1. The local application expressly claims priority; 2. It is filed within 12 months from the date the earliest
foreign application was filed; and 3. A certified copy of the foreign application together with an English
translation is filed within 6 months from the date of filing in the Philippines. (Sec. 31, IPC)

4. Grounds for cancellation of a patent

Any interested party may petition to cancel any patent or any claim or parts of a claim any of the
following grounds:
1. The invention is not new or patentable; 2. 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 3. Contrary to
public order or morality (IPC, Sec. 61.1); 4. Patent is found invalid in an action for infringement (IPC, Sec.
82); and 5. The patent includes matters outside the scope of the disclosure contained in the application.
(IPC, Sec 21, Regulations on Inter Partes Proceeding, Sec.1)

If the ground for cancellation relates to some of the claims or parts of the claim only, cancellation may
be effected to such extent only. (IPC, Sec. 61.2)

5. Remedy of the true and actual inventor

If a person other than the applicant is declared by final court order or decision as having the right to a
patent, he may within 3 months after such decision has become final:

1. Prosecute the application as his own 2. File a new patent application 3. Request the application to be
refused; or 4. Seek cancellation of the patent (IPC, Sec. 67.1).

Remedies of the true and actual inventor (1993, 2005 Bar)

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 damages in his favor
if warranted by the circumstances. (IPC, Sec. 68)

In the two circumstances aforementioned, the court shall furnish the Office a copy of the order or
decision which shall be published in the IPO Gazette within three (3) months from the date such order or
decision became final and executor, and shall be recorded in the register of the Office (IPC, Sec. 69).

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 (IPC, Sec. 70).

6. Rights conferred by a patent

Rights conferred by a patent

1. In case of Product – Right to restrain, prohibit and prevent any unauthorized person or entity from
making, using, offering for sale, selling or importing the product. 2. In case of Process – Right to restrain
prohibit and prevent any unauthorized person or entity from manufacturing, dealing in, using, offering
for sale, selling or importing any product obtained directly or indirectly from such process. (IPC, Sec. 71)
3. Right to assign the patent, to transfer by succession, and to conclude licensing contracts. (IPC, Sec.
71.2)

The rights conferred by a patent application take effect after publication in the Official Gazette. (IPC, Sec
46)

7. Limitations of patent rights

a. Prior user

Person other than the applicant, who in good faith, started using the invention in the Philippines, or
undertaken serious preparations to use the same, before the filing date or priority date of the
application shall have the right to continue the use thereof, but this right shall only be transferred or
assigned further with his enterprise or business (IPC, Sec. 73).

b. Use by the government

A Government agency or third person authorized by the Government may exploit the invention even
without agreement of the patent owner where:

a. The public interest, in particular, national security, nutrition, health or the development of other
sectors, as determined by the appropriate agency of the government, so requires; or b. A judicial or
administrative body has determined that the manner of exploitation, by the owner of the patent or his
licensee, is anti- competitive; or c. In the case of drugs and medicines, there is a national emergency or
other circumstance of extreme urgency requiring the use of the invention; or d. In the case of drugs and
medicines, there is a public non-commercial use of the patent by the patentee, without satisfactory
reason; or e. In the case of drugs and medicines, the demand for the patented article 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 use by the Government, or third person authorized by the Government, shall be subject, where
applicable, to the following provisions:

1. In situations of national emergency or other circumstances of extreme urgency, the right holder shall
be notified as soon as reasonably practicable; 2. In the case of public non-commercial use of the patent
by the patentee, without satisfactory reason, the right holder shall be informed promptly; 3. If the
demand for the patented article in the Philippines is not being met to an adequate extent and on
reasonable terms as determined by the Secretary of Health, the right holder shall be informed promptly;
4. The scope and duration of such use shall be limited to the purpose for which it was authorized; 5.
Such use shall be non-exclusive; 6. The right holder shall be paid adequate remuneration in the
circumstances of each case, taking into account the economic value of the authorization; and 7. The
existence of national emergency or other circumstances of extreme urgency, in the case of drugs and
medicines shall be subject to the determination of the President of the Philippines for the purpose of
determining the need for such use or other exploitation, which shall be immediately executory.

8. Patent infringement

a. Tests in patent infringement

i. Literal infringement

The extent of protection conferred by the patent shall be determined by the claims, which are to be
interpreted in the light of description and drawings. (Sec. 75, IPC)

In using literal infringement, resort must be had, in the first instance, to the words of the claim. If
accused matter clearly falls within the claim, infringement is made out and that is the end of it. To
determine whether the particular item falls within the literal meaning of the patent claims, the Court
must juxtapose the claims of the patent and the accused product within the overall context of the claims
and specifications, to determine whether there is exactly identity of all material elements. (Godines v.
CA, G.R. No. 97343, September 13, 1993)

ii. Doctrine of equivalents

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 expressed therein, but also
equivalents. (Sec. 75, IPC)

According to the doctrine of equivalents, an infringement also occurs when a device appropriates a prior
invention by incorporating its innovative concept and, despite some modification and change, performs
substantially the same function in substantially the same way to achieve substantially the same result.
(Godines v. CA, G.R. No. 97343, September 13, 1993)

The doctrine of equivalents thus requires satisfaction of the function-means- and-result test, the
patentee having the burden to show that all three components of such equivalency test are met.
(Smithkline Beckman Corporation v. CA, G.R. No. 126627, August 14, 2003)

b. Civil and criminal action

Civil Infringement
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.

Exemptions:

a. Parallel importation for patented drugs and medicines;

Parallel importer is one who imports, distributes, and sells genuine products in the market,
independently of an exclusive distributorship or agency agreement with the manufacturer;

b. 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;

c. Use of Invention by Government; d. Compulsory licensing; and e. Procedures on Issuance of a Special

Compulsory License under the TRIPS Agreement for patented drugs and medicines.

Criminal 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. (IPC, Sec. 84)

The criminal liability will arise only if the infringement is repeated, even if after the finality of judgment
of the court in the civil action against the infringer or anyone in connivance with him,

1. Civil action for infringement – The owner may bring a civil action with the appropriate Regional Trial
Court to recover from infringer the damages sustained by the former, plus attorney’s fees and other
litigation expenses, and to secure an injunction for the protection of his rights (IPC, Sec 76.2). If the
damages are inadequate or cannot be reasonably ascertained with reasonable certainty, the court may
award by way of damages a sum equivalent to reasonable royalty (IPC, Sec 76.3).
No damages can be recovered for acts of infringement committed more than four (4) years before the
filing of the action for infringement (IPC, Sec. 79).

2. Criminal action for infringement – If the infringement is repeated, the infringer shall be criminally
liable and upon conviction, shall suffer imprisonment of not less than six (6) months but not more than
three (3) years and/or a fine not less than P100,000.00 but not more than P300,000.00.

The criminal action prescribes in three (3) years from the commission of the crime (IPC, Sec. 84).

3. Administrative remedy – Where the amount of damages claimed is not less than P200,000.00, the
patentee may choose to file an administrative action against the infringer with the Bureau of Legal
Affairs (BLA). The BLA can issue injunctions, order direct infringer to pay patentee damages, but unlike
regular courts, the BLA may not issue search and seizure warrants or warrants of arrest.

4. Destruction of Infringing material- 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 of destroyed, without compensation (IPC, Sec.76.5).

c. Prescriptive period

. Prescription

The burden of proof to substantiate a charge of infringement is with the plaintiff. But where the plaintiff
introduces the patent in evidence, and the same is in due form, there is created a prima facie
presumption of its correctness and validity. The decision of the Director of Patent in granting the patent
is presumed to be correct. The burden of going forward with the evidence (burden of evidence) then
shifts to the defendant to overcome by competent evidence this legal presumption (Maguan v. CA, G.R.
No.L-45101, November 28, 1986).

d. Defenses in action for infringement

Defenses in action for infringement

1. Invalidity of the patent (IPC, Sec. 81); 2. Any of the grounds for cancellation of patents: 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 (IPC, Sec. 61). 3
9. Licensing

a. Voluntary

The grant by the patent owner to a third person of the right to exploit a patented invention.

Rights of a licensor in voluntary licensing

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 (IPC, Sec. 89).

b. Compulsory

Jurisdiction

1. The Director of Legal Affairs may grant a license to exploit a patented invention, even without the
agreement of the patent owner, in favor of any person who has shown his capability to exploit the
invention (IPC, Sec. 93). 2. R.A. No. 9502 (Universally Accessible Cheaper and Quality Medicines Act of
2008) however amended Sec. 93 so that it is the Director General of the IPO who may grant a license to
exploit patented invention under the grounds enumerated therein.

NOTE: Clarification either by legislation or judicial interpretation as to who has jurisdiction should be
made to avoid confusion. (Salao, 2012)

The Director General of the Intellectual Property Office may grant a license to exploit a patented
invention, even without the agreement of the patent owner, in favor of any person who has shown his
capability to exploit the invention, under any of the following circumstances:

1. National emergency or other circumstances of extreme urgency; 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 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 4. In case of public non-commercial use of the patent by
the patentee, without satisfactory reason; 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; and
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 (IPC, Sec. 93, as
amended by RA 9502).

10. Assignment and transmission of rights

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.

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. (IPC, Sec.
103)

Manner of effecting transfer of rights

1. By inheritance or bequest 2. License contract

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 (IPC, Sec. 104).

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. 105, IPC).

Effect of an assignment of a patent

The assignment works as an estoppel by deed, preventing the assignor from denying the novelty and
utility of the patented invention when sued by the assignee for infringement.
Effect if the assignment was not recorded in the IPO

A deed of assignment affecting title 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. However, even
without recording, the instruments are binding upon the parties.

C. Trademarks

1. Definitions of marks, collective marks, and trade names

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.

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.

Trade name means the name or designation identifying or distinguishing an enterprise. (IPC, Sec. 121.1,
121.2, 121.3)

2. Acquisition of ownership of mark

The right to register a trademark should be based on ownership. When the applicant is not the owner of
the trademark being applied for, he has no right to apply for the registration of the same. Under the
Trademark Law, only the owner of the trademark, trade name or service mark used to distinguish his
goods, business or service from the goods, business or service of others is entitled to register the same.
An exclusive distributor does not acquire any proprietary interest in the principal's trademark and
cannot register it in his own name unless it is has been validly assigned to him (Superior Commercial
Enterprises, Inc. v. Kunnan Enterprises, G.R. No. 169974, April 20, 2010).

The rights in a mark shall be acquired through registration made validly in accordance with the
provisions of the IP Code (IPC, Sec. 122).

Registration does not confer upon the registrant an absolute right to the registered mark. The certificate
of registration is merely a prima facie proof that the registrant is the owner of the registered mark or
trade name. Evidence of prior and continuous use of the mark or trade name by another can overcome
the presumptive ownership of the registrant and may very well entitle the former to be declared owner
in an appropriate case.

3. Acquisition of ownership of trade name

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.

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 (Sec. 165, IPC).

Ownership of a mark or trade name may be acquired not necessarily by registration but by adoption and
use in trade or commerce. As between actual use of a mark without registration, and registration of the
mark without actual use thereof, the former prevails over the latter. For a rule widely accepted and
firmly entrenched is that actual use in commerce or business is a pre requisite to the acquisition of the
right of ownership (Shangri-la Hotel Management Ltd. v Developers Group of companies, March 31,
2006 G.R. No. 159938).

The two concepts of corporate name or business name and trademark or service mark, are not mutually
exclusive. It is common, indeed likely, that the name of a corporation or business is also a trade name,
trademark or service mark (Shangri- La International Hotel Management, Ltd. vs. Developers Group of
Companies, Inc., G.R. No. 159938, March 31, 2006).

A trade name of a national of a State that is a party to the Paris Convention, whether or not the trade
name forms part of a trademark, is protected “without the obligation of prior filing or registration.”
(Fredco Manufacturing Corporation vs President and Fellows of Harvard College (Harvard University),
G.R. No. 185917, June 1, 2011).

A trade name need not be registered with the IPO before an infringement suit may be filed by its owner
against the owner of an infringing trademark. All that is required is that the trade name is previously
used in trade or commerce in the Philippines. A corporation has the exclusive right to use its name. The
right proceeds from the theory that it is a fraud on the corporation which has acquired a right to that
name and perhaps carried on its business thereunder, that another should attempt to use the same
name, or the same name with a slight variation in such a way as to induce persons to deal with it in the
belief that they are dealing with the corporation which has given a reputation to the name (Coffee
Partners, Inc. v. San Francisco Coffee & Roastery, Inc., G.R. No. 169504, March 3, 2010).
4. Non-registrable marks

1. Consists of immoral, deceptive or scandalous matter or falsely suggest a connection with persons,
institutions, beliefs, or national symbols; 2. 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; 3. 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 except by written
consent of the widow; 4. Identical with a registered mark belonging to a different proprietor or a mark
with an earlier filing or priority date, in respect of:

a. The same goods or services, or b. Closely related goods or services, or c. If it nearly resembles such a
mark as to be likely to deceive or cause confusion;

The law does not prohibit or enjoin every similarity. The similarity must be such that the ordinary
purchaser will be deceived into the belief that the goods are those of another (The Alhambra Cigar and
Cigarette Manufacturing Co. v. Compania General de Tabacos De Filipinas, G. R. No. 11490, October 14,
1916); 5. Is identical with an internationally well-known mark, whether or not it is registered here, used
for identical or similar goods or services; 6. Is identical with an internationally well-known mark which is
registered in the Philippines with respect to non-similar goods or services. Provided, that the interests of
the owner of the registered mark are likely to be damaged by such use; 7. Is likely to mislead the public
as to the nature, quality, characteristics or geographical origin of the goods or services; 8. Consists
exclusively of signs that are generic for the goods or services that they seek to identify; 9. Consists
exclusively of signs that have become customary or usual to designate the goods or services in everyday
language and established trade practice; 10. Consists exclusively 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; 11. 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; 12. Consists of color alone, unless defined by a given form; or 13. Is contrary to
public order or morality. (IPC, Sec. 123)

5. Prior use of mark as a requirement

Actual prior use in commerce in the Philippines has been abolished as a condition for the registration of
trademark.

6. Tests to determine confusing similarity between marks

a. Dominancy test

It focuses on the similarity of the prevalent features of the competing marks. If the competing
trademark contains the main or essential or dominant features of another, and confusion and deception
are likely to result, infringement takes place. Duplication or imitation is not necessary; nor is it
necessary that the infringing label should suggest an effort to imitate (C. Neilman Brewing Co. v.
Independent Brewing Co., 191 F. 489, 495, citing Eagle White Lead Co. vs. Pflugh [CC] 180 FED. 579). The
question is whether the use of marks involved is likely to cause of confusion or mistake in the mind of
the public or deceive purchasers. (2012 Bar)

b. Holistic test

Confusing similarity is to be determined on the basis of visual, aural, connotative comparisons and
overall impressions engendered by the marks in controversy as they are encountered in the
marketplace.

The trademarks in their entirety as they appear in their respective labels are considered in relation to
the goods to which they are attached. The discerning eye of the observer must focus not only on the
predominant words but also on the other features appearing in both labels in order that he may draw
his conclusion whether one is confusingly similar to the other. (Bristol Myers Co. vs. Director of Patents,
17 SCRA 131; See also Fruit of the Loom Inc. vs. CA, GR No. L-32747, November 29, 1984)

The dominancy test only relies on visual comparisons between two trademarks whereas the totality or
holistic test relies not only on the visual but also on the aural and connotative comparisons and overall
impressions between the two trademarks. (Societe Des Produits Nestl, S.A. v. CA, G.R. No. 112012, Apr.
4, 2001)

c. Idem sonans

Two names are said to be "idem sonantes" if the attentive ear finds difficulty in distinguishing them
when pronounced. (Martin v. State, 541 S.W. 2d 605)

Similarity of sound is sufficient to rule that the two marks are confusingly similar when applied to
merchandise of the same descriptive properties. (Marvex Commercial v. Director of Patent, G.R. No.
L19297, December 22, 1966)

7. Well-known marks

The scope of protection initially afforded by Article 6bis of the Paris Convention has been expanded via a
nonbinding recommendation that a well-known mark should be protected in a country even if the mark
is neither registered nor used in that country (Sehwani, Incorporated vs. In-N-Out Burger, Inc., G. R. No.
171053, October 15, 2007).

A junior user of a well-known mark on goods or services which are not similar to the goods or services,
and are therefore unrelated, to those specified in the certificate of registration of the wellknown mark is
precluded from using the same on the entirely unrelated goods or services, subject to the following
requisites, to wit:

1. The mark is well-known internationally and in the Philippines; 2. The use of the well-known mark on
the entirely unrelated goods or services would result to the likelihood of confusion of origin or business
or some business connection or relationship between the registrant and the user of the mark; 3. The
interests of the owner of the well-known mark are likely to be damaged (246 Corporation, doing
business under the name and style of Rolex Music Lounge v. Hon. Reynaldo B. Daway, in his capacity as
Presiding Judge of RTC Branch 90, Quezon City, G.R. No. 157216, November 20, 2003).

8. Rights conferred by registration

Certificate of registration prima facie evidence of validity

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 (IPC, Sec. 138).

Issuance and publication of certificate

The certificate of registration shall be issued when the period for filing the opposition has expired, or
when the Director of Legal Affairs shall have denied the opposition, and upon payment of the required
fee (IPC, Sec. 136).

The registered mark shall be published, in the form and within the period fixed by the Regulations.
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 (IPC, Sec. 138).

Except in cases of importation of drugs and medicines allowed under Section 72.1 of the IP Code 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 trade names of imported or sold patented drugs and
medicines allowed under Section 72.1 of the IP Code, 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 the IP Code. (Sec. 147, IPC)

9. Use by third parties of names, etc. similar to registered mark

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

10. Infringement and remedies

a. Trademark infringement

Use without consent of the trademark owner of any reproduction, counterfeit, copy or colorable
limitation of any registered mark or trade name. Such use is likely to cause confusion or mistake or to
deceive purchasers or others as to the source or origin of such goods or services, or Identity of such
business. (Esso Standard Eastern v. CA, supra)

A crucial issue in any trademark infringement case is the likelihood of confusion, mistake or deceit as to
the identity, source or origin of the goods or identity of the business as a consequence of using a certain
mark. Likelihood of confusion is admittedly a relative term, to be determined rigidly according to the
particular (and some- times peculiar) circumstances of each case. Thus, in trademark cases, more than in
other kinds of litigation, precedents must be studied in the light of each particular case. (Mighty
Corporation vs. E. J. Gallo Winery, G.R. No. 154342, 14 July 2004)

Failure to present proof of actual confusion does not negate their claim of trademark infringement.
Trademark infringement requires the less stringent standard of “likelihood of confusion” only. While
proof of actual confusion is the best evidence of infringement, its absence is inconsequential.
(McDonalds Corporation v. L. C. Big Mak Burger, Inc., G.R. No. 143993, August 18, 2004)

b. Damages

1. Civil —filed with the Regional Trial Courts. The owner of the registered mark may ask the court to
issue a preliminary injunction to quickly prevent infringer from causing damage to his business.
Furthermore, the court will require infringer to pay damages to the owner of the mark provided
defendant is shown to have had notice of the registration of the mark (which is presumed if a letter R
within a circle is appended) and stop him permanently from using the mark.

2. Criminal— the owner of the trademark may ask the court to issue a search warrant and in appropriate
cases, remedies available shall also include the seizure, forfeiture and destruction of the infringing goods
and of any materials and implements the predominant use of which has been in the commission of the
offense.
3. Administrative—same as in patent infringement cases. If the amount of damages claimed is not less
than P200,000.00, the registrant may choose to seek redress against the infringer by filing an
administrative action against the infringer with the Bureau of Legal Affairs.

Ascertainment of the amount of damages in a civil action for infringement

The owner of a trademark which has been infringed is entitled to actual damages:

1. The reasonable profit which the complaining party would have made, had the defendant not infringed
his said rights; or 2. The profit which the defendant actually made out of infringement; or 3. 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 issued.

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 (IPC, Sec. 156.3).

c. Requirement of notice

d. Penalties

11. Unfair competition

Employing deception or any other means contrary to good faith by which a person passes off his goods
or business or services for those of one who has already established goodwill thereto. (IPC, Sec. 168.2)

It is the passing off (or palming off) or attempting to pass off upon the public of the goods or business of
one person as the goods or business of another with the end and probable effect of deceiving the public.
Passing off (or palming off) takes place where the

Defendant by imitative devices on the general appearance of the goods, misleads prospective
purchasers into buying his merchandise under the impression that they are buying that of his
competitors. Thus, the defendant gives his goods the general appearance of the goods of his competitor
with the intention of deceiving the public that the goods are those of his competitor. (Republic Gas
Corporation v. Petron Corporation, G. R. No. 194062, June 17, 2013)

12. Registration of marks under the Madrid Protocol

a. Coverage
b. Rights conferred c

. Requirements for registration

d. Term of protection

D. Copyright

Copyright

A right over literary and artistic works which are original intellectual creations in the literary and artistic
domain protected from the moment of creation (IPC, Sec. 171.1).

1. Basic principles

Elements of copyrightability

1. Originality – Must have been created by the author’s own skill, labor, and judgment without directly
copying or evasively imitating the work of another (Ching Kian Chuan v. CA, G.R. No. 130360, Aug. 15,
2001). 2. Expression – Must be embodied in a medium sufficiently permanent or stable to permit it to be
perceived, reproduced or communicated for a period more than a transitory duration.

Principle of automatic protection: Works are protected by the sole fact of their creation irrespective of
their content, quality or purpose. Such rights are conferred from the moment of creation

Copyright, in the strict sense of the term, is purely a statutory right. Being a mere statutory grant, the
rights are limited to what the statute confers. It may be obtained and enjoyed only with respect to the
subjects and by the persons, and on terms and conditions specified in the statute. Accordingly, it can
only cover the works falling within the statutory enumeration or description. Only the expression of an
idea is protected by copyright, not the idea itself. (Pearl & Dean (Phil.), Incorporated vs. Shoemart,
Incorporated, G.R. No. 148222, August 15, 2003; Joaquin, Jr. vs. Drilon, G.R. No. 108946, January 28,
1999; Ching vs. Salinas, G.R. No. 161295, June 29, 2005).

A person, to be entitled to a copyright, must be the original creator of the work. He must have created it
by his own skill, labor and judgment without directly copying or evasively imitating the work of another
(Kian Chuan v. Hon. Court of Appeals, G.R. No. 130360, August 15, 2001; Sambar v. Levi Strauss & Co.,
G.R. No. 132604, March 6, 2002).
Functional components of useful articles, no matter how artistically designed, have generally been
denied copyright protection unless they are separable from the useful article (Ching v. Salinas, G.R. No.
161295, June 29, 2005).

While works of applied art, original intellectual, literary and artistic works are copyrightable, useful
articles and works of industrial design are not. A useful article may be copyrightable only if and only to
the extent that such design incorporates pictorial, graphic, and sculptural features that can be identified
separately from and are capable of existing independently of the utilitarian aspects of the article (Ching
v. Salinas, G.R. No. 161295, June 29, 2005).

2. Copyrightable works

a. Original works

1. Literary and Artistic Works

a. Books, pamphlets, articles and other writings b. Lectures, sermons, addresses, dissertations prepared
for Oral delivery, whether or not reduced in writing or other material form c. Letters d. Dramatic,
choreographic works e. Musical compositions f. Works of Art g. Periodicals and Newspapers h. Works
relative to Geography, topography, architecture or science i. Works of Applied art j. Works of a Scientific
or technical character k. Photographic works l. Audiovisual works and cinematographic works m.
Pictorial illustrations and advertisements n. Computer programs; and o. Other literary, scholarly,
scientific and artistic works (IPC, Sec. 172.1).

b. Derivative works

. Dramatizations, translations, adaptations, abridgements, arrangements, and other alterations of

literary or artistic works; 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 (IPC, Sec. 173).

Derivative works shall be protected as new works, provided 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 (IPC, Sec. 173.2).

3. Non-copyrightable works

Non-copyrightable works
1. Idea, procedure, system, method or operation, concept, principle, discovery or mere data as such 2.
News of the day and other items of press information 3. Any official text of a legislative, administrative
or legal nature, as well as any official translation thereof 4. Pleadings 5. Decisions of courts and tribunals
– this refers to original decisions and not to annotated decisions such as the SCRA or SCAD as these
already fall under the classification of derivative works, hence copyrightable 6. Any work of the
government of the Philippines

GR: Conditions imposed prior the 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 condition the payment of royalties.

XPN: No prior approval or conditions shall be required for the use of any purpose of statutes, rules and
regulations, and speeches, lectures, sermons, addresses, and dissertations, pronounced, read, or
rendered in courts of justice, before administration agencies, in deliberative assemblies and in meetings
of public character (IPC, Sec. 176). 7. TV programs, format of TV programs (Joaquin v. Drilon, G.R. No.
108946, Jan. 28, 1999) 8. Systems of bookkeeping; and 9. Statutes.

4. Rights of copyright owner

Presumption of authorship

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, presumed to be the author of the work. This is applicable even if the
name is a pseudonym, where the pseudonym leaves no doubt as to identity of the author (IPC, Sec.
219.1).

The person or body corporate, whose name appears on the 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 (IPC, Sec. 219.2).

Rights of copyright owners (1995 Bar)

1. Economic rights – The right to carry out, authorize or prevent the following acts:

a. Reproduction of the work or substantial portion thereof b. Carry-out derivative work (dramatization,
translation, adaptation, abridgement, arrangement or other transformation of the work) c. First
distribution of the original and each copy of the work by sale or other forms of transfer of ownership d.
Rental right e. Public display f. Public performance g. Other communications to the public.

2. Moral rights – For reasons of professionalism and propriety, the author has the right:

a. To require that the authorship of the works be attributed to him (attribution right) b. To make any
alterations of his work prior to, or to withhold it from publication c. To preserve integrity of work, object
to any distortion, mutilation or other modification which would be prejudicial to his honor or reputation;
and d. 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 (IPC, Sec.193). 3. Droit de suite or “art proceeds right” is the artist’s resale right,
which requires that a percentage of the resale price of an artistic work is paid to the author. The right is
exercisable even after the author’s death, provided the work is still in copyright (David Bainbridge,
Intellectual Property, 3rd Ed., p. 220 1996, also cited in Copyright Law of the Philippines by D. Funa).

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%) (Sec. 200, IPC).

Rights which are not covered under a Droit de suite

a. Prints b. Etchings c. Engravings d. Works of applied art e. Similar works wherein the author primarily
derives gain from the proceeds of reproductions (IPC, Sec. 201).

5. Rules on ownership of copyright

Original literary and artistic works

Author of the work. (IIPC, Sec. 178.1).

Joint authorship Co-authors – in case of works of joint authorship; in the absence of agreement, their
rights shall be governed by the rules on co-ownership.

NOTE: If work of joint authorship consists of parts that can be used separately, then the author of each
part shall be the original owner of the copyright in the part that he has created (IPC, Sec. 178.2)
Audiovisual work GR: Producer, the author of the scenario, the composer of the music, the film director,
and the author of the work so adapted

XPN: Unless otherwise provided in an agreement, the producers 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 (IPC, Sec. 178.5)

Anonymous and pseudonymous works

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 (IPC, Sec. 179). Commissioned work The person who
commissioned the work shall own the work but the copyright thereto shall remain with the creator,
unless there is a written stipulation to the contrary (IPC, Sec. 178.4).

Collective works 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. (IPC, Sec. 196)

In the course of employment

The employee, if not a part of his regular duties even if the employee uses the time, facilities and
materials of the employer.

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. (IPC, Sec. 178.3)

Letters In respect of letters, the copyright shall belong to the writer subject to the provisions of Article
723 of the Civil Code. (IPC, Sec. 178.6).

Civil Code of the Philippines Article 723. Letters and other private communications in writing are owned
by the person to whom they are addressed and delivered, but they cannot be published or disseminated
without the consent of the writer or his heirs. However, the court may authorize their publication or
dissemination if the public good or the interest of justice so requires.

6. Limitations on copyright

General limitations on copyright

The following acts shall not constitute infringement of copyright:

1. 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; 2.
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; 3. 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; 4. Reproduction and communication to the public of
literary, scientific or artistic works as Part of reports of current events (e.g. music played or tunes on the
occasion of a sporting event and such tunes were picked up during a new coverage of the event) by
means of photography, cinematography or broadcasting to the extent necessary for the purpose; 5.
Inclusion of a work in a publication, broadcast, or other communication to the public, sound recording
or film, if such inclusion is made by way of illustration for Teaching purposes and is compatible with fair
use: Provided, That the source and of the name of the author, if appearing in the work, are mentioned;
6. Recording made in Educational institutions of a work included in a broadcast for the use of such
educational institutions, provided that such recording must be deleted within a reasonable period after
they were first broadcast. 7. Making of Ephemeral recordings by a broadcasting organization by means
of its own facilities and for use in its own broadcast. 8. 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; 9. 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; 10. 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 (e.g.
Public display using posters mounted on walls and display boards), Provided, That either the work has
been published, or, that original or the copy displayed has been sold, given away or otherwise
transferred to another person by the author or his successor in title; 11. Any use made of a work for the
purpose of any Judicial proceedings or for the giving of professional advice by a legal practitioner.

12 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 (IPC, Sec. 184, as amended by R.A. No. 10372).

Other limitations on copyright

1. 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 (IPC, Sec. 186).

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 but 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 (IPC, Sec. 187).

3. The reproduction in one 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, 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 is11lost, destroyed or rendered unusable (IPC, Sec. 187).

a. Fair use

“Fair use” permits a secondary use that “serves the copyright objective of stimulating productive
thought and public instruction without excessively diminishing the incentives for creativity”.

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 may be considered fair use

Decompilation, which is the reproduction of the code and translation of the forms of the computer
program to achieve the inter-operability of an independently created computer program with other
programs, may also constitute fair use under the criteria established Sec. 185, to the extent that such
decompilation is done for the purpose of obtaining the information necessary to achieve such
interoperability (IPC, Sec. 185).

7. Copyright infringement

It is the doing by any person, without the consent of the owner of the copyright, of anything the sole
right to do which is conferred by statute on the owner of the copyright. The act of lifting from another’s
book substantial portions of discussions and examples and the failure to acknowledge the same is an
infringement of copyright.

Copying alone is not what is prohibited. The copying must produce an “injurious effect”. A copy of a
piracy is an infringement of the original, and it is no defense that the pirate, in such cases, did not know
whether or not he was infringing any copyright; he at least knew that what he was copying was not his,
and he copied at his peril. (Habana v. Robles, G.R. No. 131522, July 19, 1999)

The gravamen of copyright infringement is not merely the unauthorized "manufacturing" of intellectual
works but rather the unauthorized performance of any of the rights exclusively granted to the copyright
owner. Hence, any person who performs any of such acts under without obtaining the copyright
owner’s prior consent renders himself civilly and criminally liable for copyright infringement (NBI-
Microsoft Corp. v. Hwang, G.R. No. 147043, June 21, 2005).

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 (IPC, Sec. 216, as amended
by R.A. No. 10372).

a. Remedies

b. Criminal penalties

DIFFERENCES BETWEEN COPYRIGHT, TRADEMARK, AND PATENTS (2015 Bar)

BASIS PATENT TRADEMARK COPYRIGHT

Definition

The right granted to an inventor by a State, or by a regional office acting for several States, which allows
the inventor to exclude anyone else from commercially exploiting his invention for a limited period.
(Understanding Industrial Property, WIPO, p.5)

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. (RA 8293, Sec. 121.1)
Literary and artistic works which are original intellectual creations in the literary and artistic domain
protected from the moment of their creation. (Pearl and Dean (Phil) Inc. v. Shoemart Inc., G.R. No.
148222, August 15, 2003)

Registered intellectual rights

Technical solution of a problem in any field of human activity which is new (novel invention) and
industrially applicable.

Any visible sign capable of distinguishing the goods (trademark) or services (service mark) of an
enterprise must be registered).

Literary and artistic works

Need not be registered

a. scientific theories b. contrary to public order or morality c. aesthetic creations d. methods for
treatment of human body e. plant varieties

a. generic terms for goods or services b. characteristics of goods like quality or quantity c. customary
sign in everyday language d. color itself

a. method b. idea c. procedure d. principle e. operation f. system  format of television game show is
not subject to a copyright. (Joaquin v. Drilon, 302 SCRA 225, January 28, 1999)

INTELLECTUAL PROPERTY CODE

441

Term of protection

20 years from filing date of application (RA 8293, Sec. 54)

10 years and renewable upon expiration. (RA 8293, Secs. 145-146)

It depends on the type of work. (Term of Protection , Golden Notes Mercantile Law)

Limitations on the use of right

1. In general

a. GR: If put on the market in the Philippines by the owner of the product, or with his express consent.

XPN: Drugs and medicines - introduced in the Philippines or anywhere else in the world by the patent
owner, or by any party authorized to use the invention (Sec. 72.1, as amended by R.A. 9502)
b. Where the act is done privately and on a non-commercial scale or for a noncommercial purpose. (IPC,
Sec. 72.2)

c. Exclusively for experimental use of the invention for scientific purposes or educational purposes
(experimental use provision). (IPC, Sec. 72.3)

d. Bolar Provision - 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

A person may NOT: 1. Use a name if the word is generic (Lyceum of the Philippines v. CA, G.R. No.
101897, March 5, 1993). 2. Use any name indicating a geographical location (Ang Si Heng vs. Wellington
Department Store G.R. No. L-4531, January 10, 1953). 3. Use any name or designation contrary to public
order or morals 4. Use a name if it is liable to deceive trade circles or the public as to the nature of the
enterprise identified by that name (IPC, Sec. 165.1). 5. Subsequently use a trade name likely to mislead
the public as a third party (IPC, Sec. 165.2 [b]). 6. Copy or simulate the name of any domestic product
(for imported products). 7. Copy or simulate a mark registered in accordance with the provisions of IPC
(for imported products). 8. Use 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.

NOTE: Items 4, 5 and 6 only applies to imported products and those imported articles shall not be
admitted to entry

1. Performance of a work, once it has been lawfully made accessible to the public, if done privately and
free of charge or for a charitable or religious institution or society. 2. The Making of quotations from a
published work if they are compatible with fair use and only to the extent justified for the purpose. 3.
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 4. As Part of reports of current
events (e.g. music played or tunes on the occasion of a sporting event and such tunes were picked up
during a new coverage of the event). 5. For Teaching purposes, provided that the source and of the
name of the author, if appearing in the work, are mentioned. 6. Recording made in Educational
institutions of a work included in a broadcast for the use of such educational institutions, provided that
such recording must be deleted within a reasonable period after they were first broadcast. 7. The
making of Ephemeral recordings

MERCANTILE LAW

442

regulatory agencies required under any law of

e. the Philippines or of another country that regulates the manufacture, construction, use or sale of any
product. (IPC, Sec. 72.4) f. Where the act consists of the preparation for individual cases, in a pharmacy
or by a medical professional, of a medicine in accordance with a medical prescription. (IPC, Sec. 72.5) g.
Where the invention is used in any ship, vessel, aircraft, or land vehicle of any other country entering the
territory of the Philippines temporarily or accidentally. (IPC, Sec. 72.5)

2. Prior user– Person other than the applicant, who in good faith, started using the invention in the
Philippines, or undertaken serious preparations to use the same, before the filing date or priority date of
the application shall have the right to continue the use thereof, but this right shall only be transferred or
assigned further with his enterprise or business. (IPC, Sec. 73)

3. Use by Government– A government agency or third person authorized by the government may
exploit invention even

at any customhouse of the Philippines (IPC, Sec. 166).

by a broadcasting organization by means of its own facilities and for use in its own broadcast. 8. 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. 9. The Public performance of a work, in a place where no admission fee is
charged. 10. 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 (e.g. Public display
using posters mounted on walls and display boards. 11. Any use made of a work for the purpose of any
Judicial proceedings or for the giving of professional advice by a legal practitioner.

without agreement of a patent owner where:

a. Public interest, as determined by the appropriate agency of the government, so requires; or b. A

judicial or administrative body has determined that the manner of exploitation by owner of patent is
anti-competitive. (IPC, Sec. 74)

4. Reverse reciprocity of foreign law– 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. (IPC, Sec. 231)

Prescriptive period for filing of an action for damages due to infringement

4 years from time of commission of infringement (IPC, Sec.79)

4 years from the time the cause of action arose.

4 years from the time the cause of action arose. (IPC, Sec. 226)

Tests or elements which will establish the presence of infringement

1. Literal infringement Test – Resort must be had, in the first instance, to words of the claim. If the
accused matter clearly falls within the claim, infringement is committed.

Minor modifications are sufficient to put the item beyond literal infringement (Godines v. CA, G.R. No. L-
97343, Sept. 13, 1993). 2. Doctrine of Equivalents – There is infringement where a

1. That it is duly registered in the Intellectual Property Office 2. The validity of the mark 3. The plaintiff’s
ownership of the mark 4. The use of the mark or its colorable imitation by the alleged infringer results in
“likelihood of confusion” (McDonald’s Corp v. L.C. Big Mak Burger, Inc., G.R. No. 143993, Aug 18, 2004)

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,

MERCANTILE LAW

444

device appropriates a prior invention by incorporating its innovative concept and, although with some
modification and change, performs substantially the same function in substantially the same way to
achieve substantially the same result (Ibid.). 3. Economic interest test – when the processdiscoverer’s
economic interest are compromised, i.e., when others can import the products that result from the
process, such an act is said to be prohibited.

5. Used without the consent of the owner (Prosource International Inc.v. Horphag Research
Management SA G.R. No. 180073, November 25, 2009)

induces, causes or materially contributes to the infringing conduct of another (IPC, as amended by R.A.
No. 10372, Sec. 216).

Remedies against infringers

1. Civil action for infringement – (IPC, Sec 76.3). 2. Criminal action for infringement 3. Administrative
remedy 4. Destruction of infringing material (IPC, Sec.76.5).
1. Civil – i.e. preliminary injunction with damages 2. Criminal — remedies available shall also include the
seizure, forfeiture and destruction of the infringing goods and of any materials and implements the
predominant use of which has been in the commission of the offense. 3. Administrative

1. Injunction 2. 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 3. Impounding
during the pendency of the action sales invoices and other documents evidencing sales 4. Destruction
without any compensation all infringing copies 5. Moral and Exemplary damages (IPC, Sec. 216.1); or 6.
Seizure and impounding of any article, which may serve as evidence in the court proceedings. (IPC, Sec.
216.2)

VIII. SPECIAL LAWS

SECURED TRANSACTIONS

1. Personal Property Securities Act

a. 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 in 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;

(3) A transferor in an outright transfer of an accounts receivable; or

(4) A lessee of goods;

(d) Non-inter mediated 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".
b. Asset-specific rules

i. Future property

1i. Rights to proceeds and commingled funds

Iii. Tangible assets commingled in a mass

iv. Accounts receivables

c. Perfection of security interests

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.

d. Registration

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.—

(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 Misleccding 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 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 wrho 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.

e. Priority of security interests

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 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 Plight 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.

f. Tangible assets; intangible assets

g. Enforcement of security interests

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 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 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) I n 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 secerned 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.

(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 hen 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.

h. Prior interests and the transitional period

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

(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 laws.

(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 Ac

2. Real Estate Mortgage Law

a. Definition and characteristics

i. Obligations secured by real estate mortgage

ii. Object of real estate mortgage

iii. Right to alienate mortgage credit

iv. Right to alienate collateral

b. Essential requisites

3. Guaranty
a. Nature and extent of guaranty

i. Obligation secured by guaranty

ii. Parties to a guaranty

iii. Excussion

iv. Right to protection

v. Right to indemnification

vi. Right to subrogation

vii. Rights of co-guarantors

b. Effects of guaranty

c. Extinguishment of guaranty

d. Legal and judicial bonds

4. Surety

a. Concept

b. Form of surety

c. Obligations secured

d. Surety distinguished from standby letter of credit

e. Surety distinguished from guaranty

f. Surety distinguished from joint and solidary obligations

5. Letters of credit

a. Definition and purpose

Letter of Credit (L/C)

It is any arrangement, however named or described, whereby the issuing bank acting at the request and
on the instructions of a customer (applicant) or on its own behalf, binds itself to: (PAN)

1. Pay to the order of, or accept and pay drafts drawn by a third party (Beneficiary), or 2. Authorize
another bank to pay or to accept and pay such drafts, or 3. Authorizes another bank to Negotiate,
against stipulated documents.
Provided, the terms and conditions of the credit are complied with (Uniform Customs & Practice for
Documentary Credits, Art. 2).

PURPOSE OF LETTER OF CREDIT

The use of credits in commercial transactions serve to reduce the risk of non-payment of the purchase
price under the contract for the sale of goods. However, letters of credit are also used in non-sale
settings where they serve to reduce the risk of nonperformance. Generally, credits in the non-sale
settings have come to be known as “standard credits” (Transfield Philippines, Inc. vs. Luzon Hydro Corp.,
GR. No. 146717, November 22,2004).

Nature of Letters of Credit as a Financial Device

A letter of credit is a financial device developed by merchants as a convenient a relatively safe mode of
dealing with sales of goods to satisy the seemingly irreconcilable interests of a seller, who refuses to part
with his goods before he is paid, and a buyer, who wants to have in control of the goods before paying.
The use of credits in commercial transactions serves to reduce the risk of nonpayment of the purchase
price under the contract of sale of the goods and to reduce the risk of non-performance of an obligation
in a non-sale setting (Transfield Philippines, Inc. vs. Luzon Hydro Corp., GR. No. 146717, November
22,2004).

b. Kinds of letters of credit

COMMERCIAL L/C STANDBY L/C Involves the payment of money under a contract of sale. Involves non-
sale transactions.

Payable upon the presentation by the seller-beneficiary of documents that show he has taken
affirmative steps to comply with the sales agreement

Payable upon certification by the beneficiary of the applicant’s nonperformance of the agreement. The
documents that accompany the beneficiary's draft must show that the applicant has not performed the
undertaking (Transfield Philippines, Inc. v. Luzon Hydro Corp., supra).

c. Rule of strict compliance

The documents tendered by the seller/beneficiary must strictly conform to the terms of the L/C. The
tender of documents must include all documents required by the letter. It is not a question of whether
or not it is fair or equitable to require submission of documents but whether or not the documents were
agreed upon. Thus, a correspondent bank which departs from what has been stipulated under the L/C
acts on its own risk and may not thereafter be able to recover from the buyer or the issuing bank, as the
case may be, the money thus paid to the beneficiary (Feati Bank and Trust Company v. CA, supra).
d. Independence principle

DOCTRINE OF INDEPENDENCE/ INDEPENDENCE PRINCIPLE

The relationship of the buyer and the bank is separate and distinct from the relationship of the buyer
and seller in the main contract; the bank is not required to investigate if the contract underlying the L/C
has been fulfilled or not because in transactions involving L/C, banks deal only with documents and not
goods (BPI v. De Reny Fabric Industries, Inc., L-2481, October 16, 1970). In effect, the buyer has no
course of action against the issuing bank.

Two-Fold nature of the Independence Principle

1. Independence in toto where the credit is independent from the justification aspect and is a separate
obligation from the underlying agreement. This principle is illustrated by standby L/C; or 2.
Independence only as to the justification aspect which is identical with the same obligations under the
underlying agreement. This principle is illustrated by a commercial L/C or repayment standby (Transfield
v. Luzon Hydro Corp., supra).

Effect of the buyer’s failure to procure a Letter of Credit to the main contract

The L/C is independent from the contract of sale. The failure of Reliance to open, the appropriate L/C did
not prevent the birth of that contract, and neither did such failure extinguish that contract. The opening
of the L/C in favor of Daewoo was an obligation of the buyer and the performance of that obligation by
buyer was a condition of enforcement of the reciprocal obligation of seller to ship the subject matter of
the contract to buyer. But the contract itself between the buyer and the seller had already sprung into
legal existence and was enforceable.

The failure of a buyer seasonably to furnish an agreed L/C is a breach of the contract between buyer and
seller. Where the buyer fails to open a letter of credit as stipulated, the seller or exporter is entitled to
claim damages for such breach. Damages for failure to open a commercial credit may, in appropriate
cases, include the loss of profit which the seller would reasonably have made had the transaction been
carried out (Reliance Commodities, Inc. v. Daewoo Industrial Co. Ltd., G.R. No. 100831, December 17,
1993).

B. TRUTH IN LENDING ACT

1. Purpose
2. Obligation of creditors to person to whom credit is extended

3. Covered and excluded transactions

4. Consequences of non-compliance with obligation

C. ANTI-MONEY LAUNDERING ACT

1. Policy of the law

1. 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. 2. To
pursue the State’s foreign policy to extend cooperation in transnational investigation and prosecutions
of persons involved in money laundering activities wherever committed. (RA 9160, Sec. 1)

2. Covered institutions and their obligations

NOTE: Covered “Institutions” was changed to Covered “Persons”

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: 7. acting as a formation agent of juridical persons; 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; providing a registered office,
business address or accommodation, correspondence or administrative address for a company, a
partnership or any other legal person or arrangement; and acting as (or arranging for another person to
act as) a nominee shareholder for another person; and

8. 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; 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.

Exclusions: The term ‘covered persons’ shall exclude lawyers and accountants

Requisites for exclusion 1. Acting as independent legal professionals 2. In relation to information

concerning their clients or 3. Where disclosure of information would compromise client confidences or
the attorney-client relationship. (RA 10365, Sec. 1, amending RA 9160, Sec. 3[a]).

Obligations of covered institutions

1. 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.
2. 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.
3.
4. 2. Record Keeping - All records of all transactions of covered institutions shall be maintained and
safely stored for five (5) years from the date of transactions. With respect to closed accounts,
the records on customer identification, account files and business correspondence, shall be
preserved and safety stored for at least five (5) years from the dates when they were closed.

3. 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 peri 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.

“x x x “x x x
 “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.”(Sec. 7, RA 10365 amending Sec. 9, RA 9160).

3. Covered and suspicious transactions

'Covered transaction' is a transaction in cash or other equivalent monetary instrument involving a total
amount in excess of Five hundred thousand pesos (PhP 500,000.00) within one (1) banking day. (RA
9160, Sec. 3 [b]).

'Suspicious transaction' are transactions with covered institutions, regardless of the amounts involved,
where any of the following circumstances exist: 1. There is no underlying legal or trade obligation,
purpose or economic justification; 2. The client is not properly identified; 3. The amount involved is not
commensurate with the business or financial capacity of the client; 4. Taking into account all known
circumstances, it may be perceived that the client's transaction is structured in order to avoid being the
subject of reporting requirements under the Act; 5. Any circumstances relating to the transaction which
is observed to deviate from the profile of the client and/or the client's past transactions with the
covered institution; 6. The transactions is in a way related to an unlawful activity or offense under this
Act that is about to be, is being or has been committed; or 7. Any transactions that is similar or
analogous to any of the foregoing." (RA 9160, Sec. 3[b-1])

4. Money laundering; how committed; unlawful activities or predicate crimes

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.” (Sec. 4, RA 10365, amending Sec. 4, RA 9160). ‘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: 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 AntiCarnapping 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
AntiFencing 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 AntiPhoto and Video Voyeurism
Act of 2009; 31. Violation of Section 4 of Republic Act No. 9775, otherwise known as the AntiChild
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.

5. Anti-Money Laundering Council; functions

The Anti-Money Laundering Council is hereby created and shall be composed of:

1. The Governor of the Bangko Sentral ng Pilipinas (BSP) as Chairman, 2. The Commissioner of the
Insurance Commission and 3. The Chairman of the Securities and Exchange Commission (SEC) as
members. (RA 9160, as amended by RA 9194, Sec. 7)

Function:

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; 2. to
issue orders addressed to the appropriate Supervising Authority or the covered institutions to
determine the true identity of the owner of any monetary instrument or 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 for 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 the money laundering, the viable means of
preventing money laundering and the effective ways of prosecuting and punishing offenders; 10. to
enlist the assistance of any branch, department, bureau, office, agency, or instrumentality of the
government, including government-owned and controlled corporations, in undertaking any and all
anti-money laundering operations, which may include the use of its personnel, facilities and
resources for the more resolute prevention, detection, and investigation of money laundering
offenses and prosecution of offenders; and 11. to impose administrative sanctions for the violation
of laws, rules, regulations, and orders and resolutions issued pursuant thereto. (Sec. 7, RA 9160 as
amended by RA 9194.) 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 (Sec. 6, RA 10365 amending Sec. 7, RA 9160).

6. Safe harbor provision

No administrative, criminal or civil proceedings, shall lie against any person for having made a COVERED
transaction report or a SUSPICIOUS transaction report in the regular performance of his duties and in
good faith, whether or not such reporting results in any criminal prosecution under this Act or any other
Philippine law.

The report to AMLC will not violate the law on Secrecy of Bank Deposits, Foreign Currency Deposit Act
and General Banking Law

The report to AMLC will not violate the law on Secrecy of Bank Deposits, Foreign Currency Deposit Act
and General Banking Law but it cannot otherwise communicate to any person or media, fact of report of
covered transaction or contents of the said report nor can the fact of reporting be published or aired in
mass media, electronic mail or similar devices (RA 9160 as amended by RA 10167, Sec. 11).

Jurisdiction for violations of AMLA

1. RTC – all cases on money laundering

2 Sandiganbayan – Those committed by public officers and private persons in conspiracy with them.
(R.A. 9160, as amended by RA 10167, Sec. 5)

7. Application for freeze orders

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. (Sec. 8, RA 10365, amending RA 9160.)

a. Who may apply

Party entitled to file freeze order

The AMLC, through the OSG, may file an ex-parte verified petition for freeze order on any monetary
instrument, property or proceeds relating to or involving an unlawful activity.

b. Effectivity

Period of effectivity of freeze orders

Freeze orders shall be effective for period not exceeding 6 months depending upon the circumstances
(RA 9160 as amended by RA 10365, Sec. 10).

c. Duties of covered institutions

8. 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, including related accounts, with any banking institution or non-bank financial
institution upon order of any competent court based on an ex parte application in cases of violations of
this Act, when it has been established that there is probable cause that the deposits or investments,
including related accounts involved, 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 activities defined in Section 3(i)(1), (2), and (12) hereof, and felonies or offenses of a
nature similar to those mentioned in Section 3(i)(1), (2), and (12), which are Punishable under the penal
laws of other countries, and terrorism and conspiracy to commit terrorism as defined and penalized
under Republic Act No. 9372.

The Court of Appeals shall act on the application to inquire into or examine any deposit or investment
with any banking institution or non-bank financial institution within twenty-four (24) hours from filing of
the application.

To ensure compliance with this Act, the Bangko Sentral ng Pilipinas may, in the course of a periodic or
special examination, check the compliance of a Covered institution with the requirements of the AMLA
and its implementing rules and regulations.
For purposes of this section, ‘related accounts’ shall refer to accounts, the funds and sources of which
originated from and/or are materially linked to the monetary instrument(s) or property(ies) subject of
the freeze order(s).

A court order ex parte must first be obtained before the AMLC can inquire into these related Accounts:
Provided, That the procedure for the ex parte application of the ex parte court order for the principal
account shall be the same with that of the related accounts.

"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 (RA 9160, as amended by RA 10167, Sec. 11). 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. (Sec. 20, RA 10365, amending RA 9160.)

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. (RA 10365 amending RA 9160, Sec. 21.)

a. Forfeiture provisions

b. Mutual assistance among states

D. FOREIGN INVESTMENTS ACT

1. Policy of the law

State policy of the law (NOSE Part)

1. It is the policy of the State to attract, promote and welcome productive investments in activities
which significantly contribute to National industrialization and socio-economic development to the
extent that foreign investment is allowed in such activity by the Constitution and relevant laws from: a.
Foreign individuals; b. Partnerships; c. Corporations; d. Governments, including their political
subdivisions.

2. Foreign investments shall be encouraged in the enterprises that significantly expand livelihood and
employment Opportunities for Filipinos by: a. Enhancing economic value of farm products; b. Promoting
the welfare of Filipino consumers; c. Expanding the scope, quality and volume of exports and their
access to foreign markets; d. And/or transferring relevant technologies in agriculture, industry and
support services.

3. Foreign investments shall be welcome as a Supplement to Filipino capital and technology in those
enterprises serving mainly the domestic market.
4. GR: There are no restrictions on extent of foreign ownership of Export enterprises. In domestic
market enterprises, foreigners can invest as much as 100% equity

XPN: In areas included in the negative list.

5. 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 a. Taking in Filipino
partners; b. Electing Filipinos to the board of director; c. Implementing transfer of technology to
Filipinos; d. Generating more employment for the economy; and e. Enhancing skills of Filipino workers
(RA 7042, Sec. 2).

2. Definition of terms

a. Foreign investment

It is an equity investment made by 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.

b. "Doing business" in the Philippines

“Doing Business” in the Philippines

Foreign corporations are considered “doing or transacting business” in the Philippines if they are:

1. Soliciting orders, service contracts, and opening offices whether called liason offices of branches; 2.
Appointing representatives, distributors domiciled in the Philippines or who stay for a period or periods
totaling 180 days or more; 3. Participating in the management, supervision or control of any domestic
business, firm, entity, or corporation in the Philippines; 4. Doing any act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to some extent the performance of acts or
works or the exercise of some functions normally incident to and in progressive prosecution of, the
purpose and object of its organization.( R.A. 7042, Sec 3 [d])

Instances that are considered as “not doing or transacting business” in the Philippines for foreign
corporations

1. Mere investment as shareholder and exercise of rights as investor; 2. Having a nominee director or
officer to represent its interest in the corporation; 3. Appointing a representative or distributor which
transacts business in its own name and for its own account; 4. Publication of a general advertisement
through any print or broadcast media; 5. Maintaining a stock of goods in the Philippines solely for the
purpose of having the same processed by another entity in the Philippines; 6. Consignment by the
foreign corporation of equipment with a local company to be used in the processing of products for
export; 7. Collecting information in the Philippines; 8. Performing services auxiliary to an existing
isolated contract of sale which are not on a continuing basis (RA 7042, Sec. 3 [d]).

c. Export enterprise

It is an enterprise wherein a manufacturer, processor or service [including tourism] enterprise exports

sixty percent (60%) or more of its output, or wherein a trader purchases products domestically and
exports sixty per cent (60%) or more of such purchases (Sec 3 [e], RA 7042).

d. Domestic market enterprise

It is 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 consistency export at least 60% thereof (R.A. 7042, Sec 3 [f]).

3. Registration of investments of non-Philippine nationals

Philippine nationals

1. A citizen of the Philippines; 2. A domestic partnership or association wholly owned by citizens of the
Philippines; 3. Corporations organized under Philippine laws of which 60% of the capital stock
outstanding and entitled to vote is owned and held by Filipino citizens; 4. Corporations organized abroad
and registered as doing business in the Philippines under the Corporation Code of which 100% of the
capital stock entitled to vote belong to Filipinos; and 5. Trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine national and at least sixty (60%) of
the fund will accrue to the benefit of the Philippine nationals. Non-Philippine nationals

Those who do not belong to the definition of a Philippine national.

A non-Philippine national may own fully a domestic market enterprise

A non-Philippine national may own up to 100% of a domestic market enterprise (RA 7042, Sec. 7).

Requirements for a non-Philippine national to own up to 100% of a domestic market enterprise

1. A non-Philippine national must register with the SEC or with the Bureau of Trade Regulation and
Consumer Protection (BTRCP) of DTI in the case of single proprietorship for it to do business or invest in
a domestic enterprise up to 100% of its capital. 2. The participation of non-Philippine national in the
enterprise is must not be prohibited or limited to a smaller percentage by existing law and/ or under
Foreign Investment Negative list (RA 7042, Sec. 5).

Imposition of additional limitation on the extent of foreign ownership in an enterprise other than those
provided for under RA 7042 by the SEC or BTRCP

GR: 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 R.A. 7042.

XPNs: 1. 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; 2. 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 the SEC.

4. Foreign investments in export enterprises

Rules regarding foreign registration in export enterprises

1. Foreign investment in export enterprises whose products and services do not fall within Lists A and B
of the Foreign Investment Negative List is allowed up to 100% ownership. 2. 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. 3. BOI shall advise
SEC or BTRCP, as the case may be, of any export enterprise that fails to meet the export ratio
requirement. 4. The SEC or BTRCP shall thereupon order the non-complying export enterprise to reduce
its sales to the domestic market to not more than 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 this law (RA 7042, Sec 6).

5. Foreign investments in domestic market enterprises

A domestic market enterprise may change its status to export enterprise if the Domestic market
enterprise consistently exports in each year thereof sixty per cent (60%) or more of its output over a
three (3) year period (RA 7042, Sec. 7).

6. Foreign Investment Negative List

Foreign Investment Negative List

It is a list of areas of economic activity whose foreign ownership is limited to a maximum of 40% of the
equity capital of the enterprises engaged therein (RA 7042, Sec. 3 [g]).

List A of the Foreign Investment Negative List

Filipino Ownership must be: (CODES are as follows) 1. 100% - CoFi AMMaN Co.- ProMiSe -US$2.5M 2.
80% - Prc 3. 75% - LoRD 4. 70% - Ad 5. 60% - Go LEARN CUPID 6. 40% - FI (SEC)

100% Filipino Owned (Zero percent (0%) foreign equity) Code: CoFi AMMaN Co. – MiSe- US$2.5M

1. COoperatives(Art. 26, Ch. III, R.A. 6938); 2. Manufacture of FIrecrackers and other pyrotechnic devices
(Sec. 5, R.A. 7183). 3. 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). 4. Mass media except recording 5. Utilization of MArine
resources (Sec. 2, Art. XII, Constitution); 6. Manufacture, repair, stockpiling and/or distribution of
Nuclear weapons (Sec. 8, Art. II, Constitution); 7. COckpits (Sec. 5, P.D. 449); 8. Small-scale MIning (Sec.
3, R.A. 7076); 9. Private SEcurity agencies (Sec. 4, R.A. 5487); 10. Retail trade enterprises with paid-up
capital of less than US$2.5 M(Sec. 5, R.A. 8762);

80 % Filipino Owned (Up to twenty percent (20%) foreign equity) Code: Prc

1. Private Radio Communications network (R.A. 3846).

75 % Filipino Owned (Up to twenty percent (25%) foreign equity) Code: LoRD F

1. Contracts for the construction and repair of LOcally-funded public works (Sec. 1, CA 541, LOI 630)
except: a. infrastructure/development projects covered in R.A. 7718; and b. projects which are foreign
funded or assisted and required to undergo international competitive bidding (Sec. 2[a], R.A. 7718); 2.
Private Recruitment, whether for local or overseas employment (Art. 27, P.D. 442); 3. Contracts for the
construction of Defenserelated structures (Sec. 1, CA 541). 4. Under the Flag Law, in the purchase of
articles for the Government, preference shall be given to materials and supplies produced, made, or
manufactured in the Philippines, and to domestic entites. Domestic entites means any citizen of the
Philippines or commercial company at least 75% of the capital of which is owned by citizens of the
Philippines (Sec. 1, CA 138)
70 % Filipino Owned (Up to twenty percent (30%) foreign equity) Code: AdPawn

1. Advertising (Art. XVI, Constitution) 2. Corporations engaged in pawnshop business (Sec. 8, P.D. 114)

60 % Filipino Owned (Up to twenty percent (40%) foreign equity) Code: Go LEARN CUPIDCo

1. Contracts for the supply of materials, goods and commodities to GOCC, agency or municipal
corporation (Sec. 1, R.A. 5183); 2. Ownership of private Lands (Sec. 7, Art. XII, Constitution; Sec. 22, Ch.
5, CA 141; Sec. 4, R.A. 9182); 3. Ownership/establishment and administration of Educational institutions
(Sec. 4, Art. XIV, Constitution); 4. Adjustment Companies (Sec. 323, P.D. 613); 5. Culture, production,
milling, processing, trading excepting retailing, of rice and corn and acquiring, by barter, purchase or
otherwise, Rice and corn and the by-products thereof (Sec. 5, P.D. 194); 6. Exploration, development
and utilization of Natural resources (Sec. 2, Art. XII, Constitution); 7. Ownership of Condominium units
where the common areas in the condominium project are co-owned by the owners of the separate units
or owned by a corporation (Sec. 5, R.A. 4726). 8. Operation and management of public Utilities (Sec. 11,
Art. XII, Constitution; Sec. 16, CA 146); 9. Project Proponent and Facility Operator of a BOT project
requiring a public utilities franchise (Sec. 11, Art. XII, Constitution; Sec. 2a, R.A. 7718); 10. Manufacture,
repair, storage and/ or distribution of products/ Ingredients requiring PNP clearance (R.A. 7042 as
amended by R.A. 8179); 11. Operation of Deep sea commercial fishing vessel (Sec. 27, R.A. 8550); 12.
Corporations engaged in Coastwise shipping (Sec. 806, P.D. 1464)

40 % Filipino Owned (Up to twenty percent (60%) foreign equity) Code: FI [SEC]

1. Financing companies regulated by the SEC(Sec. 6, R.A. 5980 as amended by R.A. 8556); 2. Investment
houses regulated by the SEC(Sec. 5, P.D. 129 as amended by R.A. 8366). List B of the Foreign Investment
Negative List

1. GR: Defense-related activities, requiring prior clearance and authorization from the Department of
National Defense to engage in such activity, such as the : a. Manufacture b. Repair

c c. Storage d. Distribution of, firearms, ammunition, lethal weapons, military ordnance, explosives,
pyrotechnics, similar materials

XPN: Such manufacturing or repair activity is specifically authorized, with a substantial export
component, to a non-Philippine national by the Secretary of National Defense; or
2. Those that have implications on public health and morals, such as the manufacture and distribution
of: a. Dangerous drugs b. All forms of gambling c. Nightclubs d. Bars e. Beer houses f. Dance halls g.
Sauna and steam bathhouses h. Massage clinics. (RA 7042, Sec. 8)

There is no significant difference between List A and List B.

Rule regarding small and medium-sized domestic market enterprises

GR: Small and medium-sized domestic market enterprises with paid-in equity capital less than the
equivalent of US$200,000.00, are reserved to Philippine nationals.

XPNs: 1. They involve advanced technology as determined by the DOST; 2. They employ at 50 direct
employees, then a minimum paid-in capital of US$100,000.00 (RA 7042, Sec. 8)

List C of the Foreign Investment Negative List

List C shall contain the areas of investment in which existing enterprises already serve adequately the
needs of the economy and the consumer and do not require further foreign investments, as determined
by NEDA and approved by the President and promulgated in a Presidential Proclamation.

E. INSOLVENCY LAWS

1. Concurrence and preference of credits

a. Meaning of concurrence and preference

b. Exempt properties

c. Classification of credits

d. Order of preference of credits

2. Financial Rehabilitation and Insolvency Act of 2010

a. Definition of insolvency

Insolvent – refers 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.
[FRIA, Sec. 4(p)]

b. Suspension of payments
c. Rehabilitation

i. Types

ii. Commencement order

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. (FRIA, Sec. 15)

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; 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 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. (FRIA, Sec. 16)

Effects of the Commencement Order

1. It vests the rehabilitation receiver with all the powers and functions provided for in the 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; 2. It prohibits, or otherwise serves 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.

XPN: 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. (FRIA, Sec. 50)

NOTE: Sale or disposal of property section 50 shall not give rise to any criminal liability under applicable
laws. (FRIA, Sec. 50)

3. It serves 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; 4. It serves as the legal basis for rendering null
and void the perfection of any lien against the debtor's property after the commencement date;
NOTE: 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 the 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. (FRIA, Sec. 52) 5. It consolidates 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. (FRIA,
Sec. 17)

NOTE: 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.

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. (FRIA, Sec. 20)

Waiver of taxes and fees due to the National Government and to Local Government Units

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.

Effectivity or duration of the 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. (FRIA, Sec. 21)

Minimum requirements to determine whether there is substantial likelihood for the debtor to be
successfully rehabilitated

a. The proposed Rehabilitation Plan submitted complies with the minimum contents prescribed by the
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: i. there are sufficient assets with which to rehabilitate the debtor; ii. there is sufficient
cash flow to maintain the operations of the debtor; iii. the debtor's owner/s, partners, stockholders,
directors and officers have been acting in good faith and with due diligence; iv. 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 v. 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. (FRIA, Sec. 21)

Effect of creditor’s 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. (FRIA, Sec. 23)

No diminution of secured creditor’s right The issuance of the Commencement Order and the Suspension
or Stay Order, and any other provision of the 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. (FRIA, Sec. 60)

iii. Stay or suspension order

iv. Rehabilitation receiver

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.
[FRIA, Sec. 4(hh)]

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. (FRIA, Sec. 28)

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. (FRIA, Sec. 29)

Powers, duties and responsibilities of Rehabilitation Receiver

The rehabilitation receiver shall be deemed an officer of the court with the principal duty:

1. Of preserving and maximizing the value of the assets of the debtor during the rehabilitation
proceedings; 2. Of determining the viability of the rehabilitation of the debtor; 3. Of preparing and
recommending a Rehabilitation Plan to the court; and 4. Of implementing the approved Rehabilitation
Plan. (FRIA, Sec. 31) 5. To 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. (FRIA, Sec.
34) 6. To make an appropriate disclosure of conflict of interest either to the court or to the creditors in
case of out-of-court rehabilitation proceedings. (FRIA, Sec. 40)

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; 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. (FRIA, Sec. 31)

NOTE: Unless appointed by the court under section 36 (management committee), 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.

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. (FRIA,
Sec. 32)

v. Management committee

Role of Management Committee When appointed, the management committee shall take the place of
the management and the governing body of the debtor and assume their rights and responsibilities.
(FRIA, Sec. 37)

NOTE: Members of the management committee are considered also as officers of the court How the
management committee is appointed

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. (FRIA, Sec. 36)

vi. Rehabilitation plan

It refers 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, debtequity 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. [FRIA, Sec. 4(ii)]

Contents of rehabilitation plan

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, debtequity 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; 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 precommencement 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; 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. (FRIA, Sec. 64)

Confirmation of 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 wellbeing and viability of the insolvent debtor. (FRIA, Sec.
68)

Effects of confirmation of rehabilitation plan

a. The Rehabilitation Plan and its provisions shall be binding upon the debtor and all persons who may
be affected by it, including the creditors, whether or not such persons have participated in the
proceedings or opposed the Rehabilitation Plan or whether or not their claims have been scheduled; b.
The debtor shall comply with the provisions of the Rehabilitation Plan and shall take all actions
necessary to carry out the Plan; c. Payments shall be made to the creditors in accordance with the
provisions of the Rehabilitation Plan; 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. (FRIA, Sec. 69

vii. Cram down effect

A restructuring/workout agreement or Rehabilitation Plan that is approved pursuant to an informal

workout framework (out of court or informal restructuring agreements) shall have the same legal effect
as confirmation of a Plan under Section 69 of FRIA. 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. (FRIA, Sec. 86)

d. Liquidation

i. Types

ii. Conversion of rehabilitation to liquidation proceedings

voluntary - When: At any time during the pendency of court-supervised or pre-negotiated rehabilitation
proceedings Who may initiate: The debtor may also initiate liquidation proceedings by filing a motion in
the same court where the rehabilitation proceedings are pending How: By filing a motion 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.

Involuntary- When: At any time during the pendency of or after a rehabilitation court-supervised or pre-
negotiated rehabilitation proceedings Who may initiate: 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 How:
By filing a motion 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.

iii. 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. (FRIA, Sec. 112)

Effects of 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. (FRIA, Sec. 113)

iv. 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:

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.
(FRIA, Sec. 114)

v. Liquidator

The liquidator shall be deemed an officer of the court with the principal duty:

a. 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; (FRIA, Sec. 119)
b. to 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. (FRIA, Sec. 117)

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. (FRIA, Sec. 119)

vi. Determination of claims

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. (FRIA, Sec. 123)

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. (FRIA,
Sec. 124)
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. (FRIA, Sec. 125)

Finality of the claims

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. (FRIA, Sec. 125)

vii. Liquidation of 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. (FRIA,
Sec. 129)

Sales 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. (FRIA, Sec. 131)

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. (FRIA, Sec. 133)

F. DATA PRIVACY ACT OF 2012

1. Definitions and scope

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 act 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 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 Rides 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 cm-rent 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.

2. Extraterritorial application

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.

3. Processing of personal information

a. General principles

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 lie 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.

b. Sensitive and privileged information

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.

c. Subcontracting
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.

d. Privileged communication
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.

4. Rights of the data subject; exceptions/non-applicability

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;

(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 he 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.

5. Duties and responsibilities of personal information controller

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.

(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 (bat
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.

G. PHILIPPINE COMPETITION ACT

1. Definitions and scope of application

Section 3. Scope and Application. — This Act shall be enforceable against any person or entity
engaged in any trade, industry and commerce in the Republic of the Philippines. It shall likewise be
applicable to international trade having direct, substantial, and reasonably foreseeable effects in
trade, industry, or commerce in the Republic of the Philippines, including those that result from acts
done outside the Republic of the Philippines.

This Act shall not apply to the combinations or activities of workers or employees nor to agreements
or arrangements with their employers when such combinations, activities, agreements, or
arrangements are designed solely to facilitate collective bargaining in respect of conditions of
employment.

Section 4. Definition of Terms. – As used in this Act:

(a) Acquisition refers to the purchase of securities or assets, through contract or other
means, for the purpose of obtaining control by:

(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.

2. Powers and functions of the 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 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. 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.
3. Prohibited acts

a. Anti-competitive agreements

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, Kmiting, or controlling production, markets, technical development, or

investment;

(2) Dividing or sharing the market, whether by volume of sales or purchases,

territory, type of goods or services, buyers or sellers or any other means;

(c) Agreements other than those specified in (a) and (b) of this section which have the object
or effect of substantially preventing, restricting or lessening competition shall also be
prohibited: Provided, Those which contribute to improving the production or distribution of
goods and services or to promoting technical or economic progress, while allowing
consumers a fair share of the resulting benefits, may not necessarily be deemed a violation
of this Act.

An entity that controls, is controlled by, or is under common control with another entity or entities,
have common economic interests, and are not otherwise able to decide or act independently of each
other, shall not be considered competitors for purposes of this section.

i. Per se violations

ii. Not per se violations

b. Abuse of dominant position

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;

(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.

c. Prohibited mergers and acquisitions

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.

d. Exceptions

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.

4. Covered transactions

a. Thresholds for compulsory notification

b. Notifying entity

c. Exceptions

5. Determining the relevant market

6. Determining control or dominance of market

7. Determining existence of anti-competitive conduct

8. Forbearance by the Philippine Competition Commission