COMMERCIAL LAW LAWS (WEEK 7)

ACT No. 1459

AN ACT PROVIDING FOR THE FORMATION AND

ORGANIZATION OF CORPORATIONS, DEFINING
THEIR POWERS, FIXING THE DUTIES OF
DIRECTORS AND OTHER OFFICERS THEREOF,
DECLARING THE RIGHTS AND LIABILITIES OF
SHAREHOLDERS AND MEMBERS, PRESCRIBING
THE CONDITIONS UNDER WHICH SUCH
CORPORATIONS MAY TRANSACT BUSINESS, AND
REPEALING CERTAIN ARTICLES OF THE CODE OF
COMMERCE AND ALL LAWS OR PARTS OF LAWS
IN CONFLICT OR INCONSISTENT WITH THIS ACT

CHAPTER I

some private purpose, benefit, aim, or end, as

distinguished from public corporations, which
have for their purpose the general good and
welfare. Private corporations are divided into
stock corporations and nonstock corporations.
Corporations which have a capital stock divided
into shares and are authorized to distribute to the
holders of such shares dividends or allotments of
the surplus profits on the basis of the shares held
are stock corporations. All other private
corporations are nonstock corporations.

Section 4.
Corporators of a corporation are
those who compose the corporation, whether
stockholders or members or both. Incorporations
are those members or stockholders or both
mentioned in the articles of incorporation as
originally
forming
and
composing
the
corporation.

GENERAL PROVISIONS AS TO CORPORATIONS

SHORT TITLE OF ACT, CORPORATIONS DEFINED

AND HOW ORGANIZED

Section 5.
The owners of shares in a
corporation which has capital stock are called
stockholders or shareholders. Corporators of a
corporation which has no capital stock and
corporators of a corporation who do not own
capital stock are members.

Section 1.
The short title of this Act shall be
"The Corporation Law."

Section 2.
A corporation is an artificial being
created by operation of law, having the right of
succession and the powers, attributes, and
properties expressly authorized by law or incident
to its existence.

Section 6.
Five or more persons, not
exceeding fifteen, a majority of whom are
residents of the Philippine Islands, may form a
private corporation for any lawful purpose by
filing with the Division of Archives, Patents,
Copyrights, and Trade-Marks of the Executive
Bureau articles of incorporation duly executed
and acknowledged before a notary public, setting
forth:

Section 3.
Corporations may be public or
private. - Public corporations are those formed or
organized for the government of a portion of the
state. Private corporations are those formed for

(1)

The name of the corporation;

1

(2)
The purpose for which the corporation is
formed;

(3)
The place where the principal office of the
corporation is to be established or located, which
place must be within the Philippine Islands;

(4)
The term for which it is to exist, not
exceeding fifty years, except as hereinafter
provided;

(5)
The names
incorporators;

and

residences

of

the

(6)
Unless otherwise provided by this Act, the
number of directors of the corporation, not less
than five nor more than eleven. The directors
named in the articles of incorporation shall be the
directors until their successors are elected and
qualified as provided by the by-laws: PROVIDED,
HOWEVER, That at any time during the existence
of the corporation the number of directors may
be increased to any number not exceeding fifteen
or diminished to any number not less than five in
the case of a nonstock corporation by the formal
assent of a majority of the members at a regular
or special meeting of the membership, and in the
case of a stock corporation the number of
directors may be increased to any number not
exceeding eleven or diminished to any number
not less than five by the formal assent of the
stockholders of the corporation at a regular or
special meeting of stockholders representing or
holding a majority of the stock: AND PROVIDED
FURTHER, That a certificate setting out such
increase or diminution in the number of directors
of any corporation shall be duly signed and sworn

to by the president, managing agent, secretary or

clerk, or treasurer of such corporation and
forthwith filed in the Division of Archives,
Patents, Copyrights, and Trade-Marks of the
Executive Bureau;

(7)
If it be a stock corporation, the amount of
its capital stock, in Philippine currency, and the
number of shares into which it is divided;

(8)
If it be a stock corporation, the amount of
capital stock actually subscribed, the names and
residences of the persons subscribing, the
amount subscribed by each, and the sum paid by
each on his subscription.

In addition to the foregoing facts, articles of

incorporation of railroad, tramway, wagon road,
and telegraph and telephone companies must
state:

(1)
The starting point and terminus of the
railroad, tramway, wagon road, or telegraph or
telephone line, its estimated length, the
provinces through which it will pass, and all of its
intermediate branches and connections;

(2)
In the case of railroads or tramways, the
gauge of the road, the motive power to be used
and the means of applying it, and the materials to
be used in the construction;

(3)
In the case of wagon roads, the width of
the road, the method of construction, and the
construction material to be used;

(4)
In the case of telegraph or telephone
lines, the construction material, appliances,
method of construction, and system to be used.

SECOND. That the purposes for which such

corporation
is
formed
are
________________________________________

Section 7.
Articles of incorporation of stock
corporations, unless otherwise provided, shall be
sufficient if they comply substantially with the
following form:

(Here insert in full the purposes of the

corporation.)

________________________________________
ARTICLES OF INCORPORATION OF THE
________________________________________
_________________________________

(Here insert full name of corporation.)

THIRD. That the place where the principal office

of the corporation is to be established or located
is
________________________________________
_________

KNOW ALL MEN BY THESE PRESENTS:

_______________________________________
That we, a majority of whom are residents of the
Philippine Islands, have this day voluntarily
associated ourselves together for the purpose of
forming a corporation under the laws of the
Philippine Islands.

AND WE HEREBY CERTIFY -

(Here insert place where principal office is to be

established or located.)

FOURTH. That the term for which said

corporation is to exist is fifty (50) years from and
after the date of incorporation.

FIRST. That the name of said corporation shall be

the
________________________________________

FIFTH. That the names and residences of the

incorporators of said corporation are as follows:

(Here insert full name of corporation.)

NAME. WHOSE RESIDENCE IS AT -

________________________
________________________

and that the names and residences of the

directors of the corporation who are to serve
until their successors are elected and qualified as
provided by the by-laws are as follow, to wit:

________________________
________________________
NAME. WHOSE RESIDENCE IS AT ________________________
________________________

________________________
________________________

________________________
________________________

________________________
________________________

________________________
________________________

________________________
________________________

________________________
________________________

________________________
________________________

________________________
________________________

________________________
________________________

________________________
________________________

________________________
________________________

SIXTH. That the number of directors of said

corporation
shall
be
_______________________________

________________________
________________________

(Here insert number of directors, not less than

five nor more than fifteen.)

________________________
________________________

SEVENTH. That the capital stock of said

corporation
is
___________________________________ pesos,

(Here insert amount of capital stock.)

and said capital stock is divided

________________________________

into

(Here insert the number of shares.)

shares
of
the
par
value
each
of
________________________________ pesos.

_________
______________
____________________

_________

_________
______________
____________________

_________

_________
______________
____________________

_________

_________
______________
____________________

_________

_________
______________
____________________

_________

_________
______________
____________________

_________

_________
______________
____________________

_________

_________
______________
____________________

_________

_________
______________
____________________

_________

_________
______________
____________________

_________

_________
______________
____________________

_________

(Here insert par value of each share.)

EIGHT. That the amount of said capital stock

which has been actually subscribed is
___________________________________ pesos,

(Here insert full amount of capital subscribed.)

and the following persons have subscribed for the

number of shares and amount of capital stock set
out after their respective names:

Number of Amount of capital

Name. Residence.

shares. stock subscribed.

Total ___
______________
____________________

_________

NINTH. That the following persons have paid on

the shares of capital stock for which they have
subscribed the amounts set out after their
respective names:

Amount of capital

Name. Residence.

_______________
_____________________
____________________

_______________
_____________________
____________________

_______________
_____________________
____________________

_______________
_____________________
____________________
stock subscribed.

_______________
_____________________
____________________

_______________
_____________________
____________________

_______________
_____________________
____________________

_______________
_____________________
____________________

_______________
_____________________
____________________

_______________
_____________________
____________________

_______________
_____________________
____________________

Total _________
_____________________
____________________

TENTH.
That
________________________________________
___

(Here insert name of treasurer elected by

subscribers.)

has been elected by the subscribers as treasurer

of the corporation to act as such until his
successor is duly elected and qualified in
accordance with the by-laws, and that as such
treasurer he has been authorized to receive for
the corporation and to receipt in its name for all
subscriptions paid in by said subscribers.

ELEVENTH. (If the corporation be a railroad,

tramway, wagon road, telegraph, or telephone
corporation, here insert estimated length of
railroad, tramway, wagon road, telegraph or
telephone line, provinces through which such line
will pass, and all of its intermediate branches and
connections.)
________________________________________
________________________________________
______________

IN WITNESS WHEREOF, We have hereunto set our

hands and seals this _______ day of
_______________, A.D. 19____

___________________ (SEAL.)

___________________ (SEAL.)
TWELFTH. (If the corporation be a railroad or
tramway corporation, here insert gauge of road,
motive power to be used, means of applying such
power, and materials to be used in the
construction.)
________________________________________
________________________________________
______________

THIRTEENTH. (If the corporation be a wagon-road

corporation, here insert width of the road,
method of construction, and the construction
material to be used.) _______________________

___________________ (SEAL.)

___________________ (SEAL.)

___________________ (SEAL.)

___________________ (SEAL.)

SIGNED
AND
SEALED
IN
___________________ (SEAL.)

THE

_________________________________
PRESENCE OF ___________________ (SEAL.)
_________________________________
___________________ (SEAL.)
_________________________________
___________________ (SEAL.)
FOURTEENTH. (If the corporation be a telegraph
or
telephone
corporation,
here
insert
construction material, appliances, method of
construction, and system to be used.)
________________________________________
______________________

___________________ (SEAL.)

___________________ (SEAL.)
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me that he freely and voluntarily executed the

same.

___________________ (SEAL.)

IN WITNESS WHEREOF, I have hereunto set my

hand and affixed my official seal the day and year
last above written.

___________________ (SEAL.)

___________________ (SEAL.)
___________________________
CITY
OR
MUNICIPALITY
___________________)

OF

PROVINCE OF __________________________)
S.S.

Philippine Islands.

On this _________ day of __________________,

in the year A.D. one thousand nine hundred and
______________________,
before
me,
______________ a notary public in and for the
_________________________,
personally
appeared
___________________________________
___________________________

Notary Public.

CITY
OR
MUNICIPALITY
_______________________)

OF

PROVINCE
_______________________________) S.S.

OF

Philippine Islands.

________________________________________

(Here insert name of treasurer elected by

subscribers.)
(Here insert names of incorporations.)

________________________________________
___________

known to me to be the persons whose names are

subscribed and who executed the within
instrument, and each of them acknowledged to

being duly sworn, deposes and says that on the

_________ day of ________________, A.D.
190_____, he was duly elected by the subscribers
named in the foregoing articles of incorporation
as treasurer of the corporation to act as such
until his successor has been duly elected and
qualified in accordance with the by-laws of the
corporation, and that as such treasurer he has
been authorized by the subscribers to receive for
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the corporation all subscriptions paid in by

subscribers for the capital stock; that
_____________________ pesos has been actually
subscribed and that _____________________
pesos has been actually paid to him for the
benefit and to the credit of the corporation, and
that at least twenty per centum of the entire
capital stock has been subscribed and at least
twenty-five per centum of the subscription has
been actually paid to him for the benefit and to
the credit of the corporation.

Subscribed and sworn to before me this

___________ day of _______________, A.D.
190____

_________________________

Section 8.
The Chief of the Division of
Archives, Patents, Copyrights, and Trade-Marks of
the Executive Bureau shall be entitled to collect
and receive for the filing of articles of
incorporation filed in accordance with the
provisions of this Act a fee of twenty-five pesos.

Section 9.
The Chief of the said Division of
Archives, Patents, Copyrights, and Trade-Marks
shall not file the articles of incorporation of any
stock corporation unless accompanied by a sworn
statement of a treasurer elected by the
subscribers showing that at least twenty per
centum of the entire capital stock has been
subscribed, and that at least twenty-five per
centum of the subscription has been paid for the
benefit and to the credit of the corporation.

Section 10.
A copy of any articles of
incorporation filed with the said Division of

Archives, Patents, Copyrights, and Trade-Marks in

pursuance of this Act and duly certified by the
chief of the said division shall be received in the
courts and all other places as prima facie
evidence of the facts therein stated.

Section 11.
The Chief of the Division of
Archives, Patents, Copyrights, and Trade-Marks of
the Executive Bureau, on the filing of the articles
of incorporation provided by this Act to be filed,
shall issue to the incorporators a certificate,
under the seal of his office, setting forth that such
articles of incorporation have been duly filed in
his office in accordance with law; and thereupon
the persons signing the articles of incorporation
and their associates and successors shall
constitute a body politic and corporate, under the
name stated in the certificate, for the term
specified in the articles of incorporation, not
exceeding fifty years, unless sooner legally
dissolved or unless otherwise provided in this Act.

Section 12.
No corporation shall occupy or use
any private property without the consent of the
owners or prior condemnation proceedings and
paying or tendering just compensation therefor,
and no corporation shall occupy or use any public
lands, places, roads, highways, streets, avenues,
lanes, alleys, sidewalks, bridges, or any other
public property whatever without first securing a
franchise for such use or occupancy from the
Government of the Philippine Islands: PROVIDED,
HOWEVER, That street railways, tramways,
electric light, power, or telephone corporations
may, in the manner prescribed in Act Numbered
Six hundred and sixty-seven, secure a franchise to
occupy or use any public lands, places, roads,
highways, streets, avenues, lanes, alleys,
sidewalks, bridges, or any other public property
necessary for the transaction of its business: AND
PROVIDED FURTHER, That street railway,
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tramway, telephone, telegraph, electric power or

light corporations for the purpose of doing
business in the city of Manila, and railroad
corporations for the purpose of doing business in
the Philippine Islands, may form and organize as
corporations under this Act.

GENERAL POWERS OF CORPORATIONS

Section 13.

Every corporation has the power:

(1)
Of succession by its corporate name for
the period of time limited in the articles of
incorporation and not exceeding the time
prescribed by law;

(2)

To sue and be sued in any court;

(3)
To transact the business for which it was
lawfully organized, and to exercise such powers
and to perform such acts as may be reasonably
necessary to accomplish the purpose for which
the corporation was formed;

(4)
To make and use a common seal and to
alter the same at pleasure;

(5)
To purchase, hold, convey, sell, lease, let,
mortgage, encumber, and otherwise deal with
such real and personal property as the purpose
for which the corporation was formed may
permit, and the transaction of the lawful business
of the corporation may reasonably and
necessarily require, unless otherwise prescribed
in this Act: PROVIDED, That no corporation shall

be authorized to conduct the business of buying

and selling real estate or be permitted to hold or
own real estate except such as may be reasonably
necessary to enable it to carry out the purposes
for which it is created, and every corporation
authorized to engage in agriculture shall be
restricted to the ownership and control of not to
exceed one thousand and twenty-four hectares
of land; and it shall be unlawful for any member
of a corporation engaged in agriculture or mining
and for any corporation organized for any
purpose except irrigation to be in anywise
interested in any other corporation engaged in
agriculture or in mining. Corporations, however,
may loan funds upon real-estate security and
purchase real estate when necessary for the
collection of loans, but they shall dispose of real
estate so obtained within five years after
receiving the title;

(6)
To appoint and dismiss such subordinate
officers or agents as the business or welfare of
the corporation may demand, and to allow such
subordinate officers and agents suitable
compensation;

(7)
To make by-laws, not inconsistent with
any existing laws, for the fixing or changing of the
number of its officers and directors within the
limits prescribed by law, and for the transferring
of its stock, the administration of its corporate
affairs, the management of its business, and the
care, control, and disposition of its property;

(8)
To admit members to the corporation; if it
be a stock corporation, to issue stock to
stockholders and to sell stock or shares of
stockholders for the payment of any
indebtedness of the stockholders to the
corporation;
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(9)
To enter into any obligation or contract
essential to the proper administration of its
corporate affairs or necessary for the proper
transaction of the business or accomplishment of
the purpose for which the corporation was
organized.

Section 14.
No corporation created under this
Act shall possess or exercise any corporate
powers except those conferred by this Act and
except such as are necessary to the exercise of
the powers so conferred.

Section 15.
No corporation doing business in
the Philippine Islands or receiving any grant,
franchise, or concession from the Government of
the Philippine Islands shall use, employ or
contract for the labor of persons claimed or
alleged to be held in involuntarily servitude, and
any corporation violating the provisions of this
section shall forfeit all charters, grants,
franchises, and concessions for doing business in
said Islands, and in addition shall be deemed
guilty of an offense and shall be punished by a
fine of twenty thousand pesos.

Section 16.
No corporation organized under
this Act shall create or issue bills, notes, or other
evidence of debt for circulation as money, and no
corporation shall issue stock or bonds except in
exchange for actual cash paid to the corporation
or for property actually received by it at a fair
valuation equal to the par value of the stock or
bonds so issued. No corporation shall make or
declare any stock or bond dividend or any
dividend whatever except from the surplus
profits arising from its business, or divide or
distribute its capital stock or property than actual
profits among its members or stockholders until

after the payment of its debts and the

termination of its existence by limitation or lawful
dissolution: PROVIDED, HOWEVER, That banking,
savings and loan, and trust corporations may
receive deposits and issue certificates of deposits,
checks, drafts, and bills of exchange and the like
in the transaction of the ordinary business of
banking, savings and loan, and trust corporations.

Section 17.
No corporation shall increase or
diminish its capital stock, or incur, create, or
increase any bonded indebtedness unless, at a
stockholders' meeting regularly called for the
purpose, two-thirds of the entire corporate
capital stock subscribed shall favor the increase
or diminution of the capital stock, or a majority of
the subscribed capital stock shall favor the
incurring, creating, or increasing of any bonded
indebtedness. Written or printed notice of the
proposed increase or diminution of the capital
stock or of the incurring, creating, or increasing of
any bonded indebtedness and of the time and
place of the stockholders' meeting at which the
proposed increase or diminution of the capital
stock or the incurring, creating, or increasing of
any bonded indebtedness is to be considered
must be addressed to each stockholder at his
place of residence as shown by the books of the
corporation and registered and deposited so
addressed in the post-office with postage
prepaid.

A certificate in duplicate must be signed by a

majority of the directors of the corporation and
countersigned by the chairman and secretary of
the stockholders' meeting showing compliance
with the requirements of this section, the amount
of the increase or diminution of the capital stock,
or the bonded indebtedness to be incurred,
created, or increased, the actual indebtedness of
the corporation on the day of the meeting, the
11

amount of stock represented at the meeting, and

the vote authorizing the increase or diminution of
the capital stock or the incurring, creating, or
increasing of any bonded indebtedness. One of
the duplicate certificates shall be kept on file in
the office of the corporation and the other shall
be filed in the office of the Chief of the Division of
Archives, Patents, Copyrights, and Trade-Marks of
the Executive Bureau and attached by him to the
original articles of incorporation. From and after
the filing of the duplicate certificate with the
chief of the said division the capital stock shall
stand increased or diminished and the incurring,
creating, or increasing of any bonded
indebtedness authorized as the certificate may
declare.

The Chief of the said Division of Archives, Patents,

Copyrights, and Trade-Marks shall be entitled to
collect the sum of twenty pesos for filing said
duplicate certificate.

Section 18.
Any corporation may amend its
articles of incorporation by a majority vote of its
board of directors or trustees and the vote or
written assent of two-thirds of is members, if it
be a nonstock corporation, or, if it be a stock
corporation, by the vote or written assent of the
stockholders representing at least two-thirds of
the subscribed capital stock of the corporation. A
copy of the articles of incorporation as amended,
duly certified to be correct by the president and
the secretary of the corporation and a majority of
the board of directors or trustees, shall be filed in
the office of the Chief of the Division of Archives,
Patents, Copyrights, and Trade-Marks of the
Executive Bureau and attached to the original
articles of incorporation, and, from the time of
filing such copy of the amended articles of
incorporation, the corporation shall have the
same powers and it and the members or

stockholders thereof shall thereafter be subject

to the same liabilities as if such amendment had
been embraced in the original articles of
incorporation: PROVIDED, HOWEVER, That the
life of said corporation shall not be extended by
said amendment beyond the time fixed in the
original articles: AND PROVIDED, That the original
articles and amended articles together shall
contain all provisions required by law to be set
out in the articles of incorporation: AND
PROVIDED FURTHER, That nothing in this section
shall be construed to authorize any corporation
to increase or diminish its capital stock or so as to
affect any rights or actions which accrued to
others between the time of filing the original
articles of incorporation and the filing of the
amended articles.

Section 19.
If a corporation does not formally
organize and commence the transaction of its
business or the construction of its works within
two years from date of its incorporation, its
corporate powers cease. The due incorporation
of any corporation claiming in good faith to be a
corporation under this Act and its right to
exercise corporate powers shall not be inquired
into collaterally in any private suit to which the
corporation may be a party, but such inquiry may
be had at the suit of the Insular Government on
information of the Attorney-General.

BY-LAWS

Section 20.
Every corporation formed under
this Act must, within one month after the filing of
articles of incorporation with the Division of
Archives, Patents, Copyrights, and Trade-Marks of
the Executive Bureau, adopt a code of by-laws for
its government not inconsistent with this Act or
any Act of Congress having force and effect in the
12

Philippine Islands. For the adoption of any by-law

or by-laws by the corporation the affirmative vote
of the stockholders representing a majority of all
of the subscribed capital stock, whether paid or
unpaid, or of a majority of the members if there
be no capital stock is necessary. The by-laws shall
be signed by the stockholders or members voting
for them and shall be kept in the principal office
of the corporation, subject to the inspection of
the stockholders or members during office hours,
and a copy thereof, duly certified to by a majority
of the directors and countersigned by the
secretary of the corporation, shall be filed with
the Chief of the said Division of Archives, Patents,
Copyrights, and Trade-Marks, who shall attach
the same to the original articles of incorporation
and collect and receive a fee of two pesos for the
filing thereof.

Section 21.
A corporation may, unless
otherwise prescribed by this Act, provide in its
by-laws for the time, place, and manner of calling
and conducting regular or special meetings of its
directors, and the time and manner of calling and
conducting regular or special meetings of
stockholders or members; the number of
stockholders or members necessary to constitute
a quorum for the transaction of business at
meetings of stockholders or members; the
conditions upon which members of nonstock
corporations shall be entitled to vote; the mode
of securing proxies of stockholders or members
and voting them; the qualifications, duties, and
compensation of directors, officers and the mode
and manner of giving notice thereof; the manner
of election and the term of office of all officers
other than directors and those elected by the
directors or trustees; the penalties for violation of
by-laws, not exceeding in any case the sum of
two hundred pesos; in the case of stock
corporations, the manner of issuing stock
certificates or shares of stock; and such other
matters not otherwise provided for by this Act as

may be necessary for the proper or convenient

transaction of the business of the corporation.

Section 22.
The owners of a majority of the
subscribed capital stock, or a majority of the
members if there be no capital stock, may, at a
regular or special meeting duly called for the
purpose, amend or repeal any by-law of adopt
new by-laws. The owners of two-thirds of the
subscribed capital stock, or two-thirds of the
members if there be no capital stock, may
delegate to the board of directors the power to
amend or repeal any by-law or to adopt new bylaws: PROVIDED, HOWEVER, That any power
delegated to the board of directors to amend or
repeal any by-law or to adopt new by-laws shall
be considered as revoked whenever a majority of
the stockholders or of the members of the
corporation shall so vote at a regular or special
meeting.

Section 23.
Whenever any amendment or new
by-law is adopted such amendment or by-law
shall be attached to the original by-laws in the
office of the corporation and a copy thereof, duly
certified to by a majority of the directors and
countersigned by the secretary or clerk of the
corporation, shall be filed with the Chief of the
Division of Archives, Patents, Copyrights, and
Trade-Marks of the Executive Bureau, who shall
attach the same to the original articles of
incorporation and original by-laws on file in his
office and collect and receive the sum of two
pesos for the service.

MEETINGS

Section 24.
The meetings of the members or
stockholders of a corporation shall be held at the
13

place where the principal office of the

corporation is established or located and where
practicable in the principal office of the
corporation. Director's meetings may be held at
the place fixed in the by-laws.

Section 25.
The proceedings had and the
business transacted at any meeting of the
stockholders or members of a corporation, if
within the powers of the corporation, shall be
valid even if the meeting be improperly held or
called: PROVIDED, That the stockholders or
members of the corporation are present at the
meeting. At any such meeting the stockholders or
members of the corporation may elect officers
and fill vacancies then existing, and may transact
such other business of the corporation as might
lawfully be transacted at a regular meeting
thereof.

Section 26.
Whenever, from any cause, there
is no person authorized to call a meeting, or
when the officer authorized to do so refuses,
fails, or neglects to call a meeting, any judge of a
Court of First Instance, on the showing of good
cause therefor, may issue an order to any
stockholder or member of a corporation,
directing him to call a meeting of the corporation
by giving the proper notice required by this Act or
the by-laws; and if there be no person legally
authorized to preside at such meeting, the judge
of the Court of First Instance may direct the
person calling the meeting to preside at the same
until a majority of the members or stockholders
representing a majority of the stock present and
permitted by law to be voted have chosen one of
their number to act as presiding officer for the
purposes of the meeting.

Section 27.
Executors,
administrators,
guardians, or other persons in a position of trust
and legally authorized may vote as stockholders
upon stock held in their representative capacity.

DIRECTORS OF CORPORATIONS - THEIR POWERS,

DUTIES, ELECTION, AND ORGANIZATION

Section 28.
Unless otherwise provided in this
Act, the corporate powers of all corporations
formed under this Act shall be exercised, all
business of such corporations conducted, and all
property of such corporations controlled and held
by a board of not less than five nor more than
eleven directors to be elected from among the
holders of stock, or, where there is no stock, from
the members of the corporation.

Section 29.
At the meeting for the adoption of
the original by-laws, or at such subsequent
meeting as may be then determined, directors
shall be elected to hold their offices for one year
and until their successors are elected and
qualified. Thereafter the directors of the
corporation shall be elected annually by the
stockholders if it be a stock corporation or by the
members if it be a nonstock corporation, and if
no provision is made in the by-laws for the time
of election the same shall be held on the first
Tuesday after the first Monday in January. Unless
otherwise provided in the by-laws, two weeks'
notice of the election of directors must be given
by publication in some newspaper of general
circulation devoted to the publication of general
news at the place where the principal office of
the corporation is established or located, and by
written notice deposited in the post-office,
postage prepaid, addressed to each stockholder,
or, if there be no stockholders, then to each
member, at his last known place of residence. If
14

there be no newspaper published at the place

where the principal office of the corporation is
established or located, a notice of the election of
directors shall be posted for a period of three
weeks immediately preceding the election in at
least three public places, in the place where the
principal office of the corporation is established
or located.

Section 30.
Every director must own in his own
right at least one share of the capital stock of the
stock corporation of which he is a director, which
stock shall stand in his name on the books of the
corporation. Any director who ceases to be the
owner of at least one share of the capital stock of
a stock corporation of which he is a director shall
thereby cease to be a director. Directors of all
other corporations must be members thereof and
at least two of the directors of all corporations
organized under this Act must be residents of the
Philippine Islands.

Section 31.
At all elections of directors there
must be present, either in person or by
representative authorized to act by written proxy,
the owners of the majority of the subscribed
capital entitled to vote, or, if there be no capital
stock, then a majority of the members entitled to
vote. The elections must be by ballot, and every
stockholder entitled to vote shall have the right
to vote in person or by proxy the number of
shares of stock standing at the time fixed in the
by-laws in his own name on the stock books of
the corporation, and said stockholders may vote
such number of shares for as many persons as
there are directors or he may cumulate said
shares and give one candidate as many votes as
the number of directors to be elected multiplied
by the number of his shares shall equal, or he
may distribute them on the same principle among
as many candidates as he shall see fit: PROVIDED,

That the whole number of votes cast by him shall

not exceed the number of shares owned by him
as shown by the books of the corporation
multiplied by the whole number of directors to
be elected: AND PROVIDED, That no stock
declared delinquent by the board of directors for
unpaid subscriptions shall be voted. Members of
corporations which have no capital stock may
cast as many votes for one director as there are
directors to be elected, or may distribute the
same among any or all of the candidates.
Directors receiving the highest number of votes
shall be declared elected. Any meeting of the
stockholders or members called for an election
may adjourn from day to day or from time to
time if for any reason no election is had or if
there are not present or represented by proxy at
the meeting the owners of a majority of the
subscribed capital stock entitled to vote or if
there be no capital stock a majority of the
members entitled to vote.

Section 32.
If for any cause no meeting is held
on the day fixed and appointed by law or by the
by-laws of the corporation for holding the
election of directors, a meeting may be called for
that purpose either by the directors or as
provided in section twenty-six; and the meeting
held in pursuance of such call the election may be
had with the same effect as if it had taken place
on the day fixed by law or by the by-laws of the
corporation.

Section 33.
Immediately after election the
directors of a corporation must organize by the
election of a president, who must be one of their
number, a secretary or clerk who shall be a
resident of the Philippine Islands and a citizen of
the Philippine Islands or of the United States, and
such other officers as may be provided for in the
by-laws. The directors and officers so elected
15

shall perform the duties enjoined on them by law

and by the by-laws of the corporation. A majority
of the directors shall constitute a quorum for the
transaction of corporate business, and every
decision of majority of the quorum duly
assembled as a board shall be valid as a corporate
act.

Section 34.
Directors of a corporation may be
removed from office by a vote of two-thirds of
the members entitled to vote, or, if the
corporation be a stock corporation, by a vote of
the stockholders holding or representing twothirds of the subscribed capital stock entitled to
vote: PROVIDED HOWEVER, 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 intention to
propose such removal at the meeting. A special
meeting of the stockholders or members of a
corporation for the purpose of removal of
directors, or any of them, must be called by the
secretary or clerk on order of the president or on
the written demand of a majority of the members
entitled to vote, or, if it be a stock corporation, on
the written demand of the stockholders
representing or holding at least one-half of the
shares entitled to be voted. Should the secretary
or clerk fail or refuse to give the notice, or if there
is no secretary or clerk, the call for the meeting
may be addressed directly to the members or
stockholders by any member or stockholder of
the corporation signing the demand. Notice of
the time and place of any such meeting, as well
as of the intention to propose such removal, must
be given by publication or by written notice as
prescribed by section twenty-nine. In case of
removal on the vote of the stockholders or the
members, as the case may be, the vacancy so
created may be filled by election at the same
meeting without further notice, or at any general
meeting or at any special meeting called for the

purpose, after giving notice as prescribed by

section twenty-nine.

STOCK AND STOCKHOLDERS

Section 35.
The capital of stock corporations
shall be divided into shares for which certificates
signed by the president or the vice-president,
countersigned by the secretary or clerk and
sealed with the seal of the corporation, shall be
issued in accordance with the by-laws. Shares of
stock so issued are personal property and may be
transferred by delivery of the certificate indorsed
by the owner or his attorney in fact or other
person legally authorized to make the transfer.
No transfer, however, shall be valid, except as
between the parties, until the transfer is entered
and noted upon the books of the corporation as
to show the names of the parties to the
transaction, the date of the transfer, the number
of the certificate, and the number of shares
transferred.

No share of stock against which the corporation

holds any unpaid claim shall be transferable on
the books of the corporation.

Section 36.
Subscribers for stock shall pay to
the corporation quarterly on all unpaid
subscriptions interest, from the date of
subscription, at the rate of six per centum per
annum unless otherwise provided in the by-laws.
No certificate of stock shall be issued to a
subscriber as fully paid until the full par value
thereof has been paid by him to the corporation.
Subscribed shares not fully paid up may be voted
provided no subscription call or interest due on
subscription is unpaid and delinquent.
16

CALLS FOR UNPAID

ASSESSMENT OF STOCK

SUBSCRIPTIONS

AND

Section 37.
The board of directors or trustees
of any stock corporation formed, organized, or
existing under this Act may at any time declare
due and payable to the corporation unpaid
subscriptions to the capital stock and may collect
the same with interest accrued thereon or such
percentage of said unpaid subscriptions as it may
deem necessary.

Section 38.
The order of the board of directors
payable any unpaid subscriptions to the capital
stock shall state what percentage of the unpaid
subscription is due and payable, when, where,
and to whom payable, the date of delinquency,
which must be subsequent to the full term of
publication of the notice of call for unpaid
subscriptions and not less than thirty days nor
more than sixty days from the date of the order
of the board calling for the payment of unpaid
subscriptions, and the date on which the
delinquent stock will be sold which must not be
less than fifteen days nor more than sixty days
from the date the stock becomes delinquent.

Notice of the order declaring unpaid

subscriptions to the capital stock due and payable
shall be given by the secretary or clerk of the
corporation substantially in the following form:

_________________________________

(Here insert name of corporation in full and

location of principal office.)

Notice is hereby given that a meeting of the

board
of
directors
held
on
the
_____________________ unpaid subscriptions to
the capital stock of the corporation (or

(Here insert date)

the percentage thereof declared due) were

declared
due
and
payable
___________________________________(Here
insert when, to whom, and where.)

_______________________ All stock upon which

the subscription, with interest accrued, has not
been paid on _______________________

(Here insert date fixed for delinquency.)

will be delinquent and advertised for sale at

public auction, and unless payment of the
subscriptions, with interest and costs accrued, is
made before sale of the stock, same will be sold
on the _______________________________ to
pay the amount of the subscription (Here insert
date fixed for sale.)

and accrued interest, together with the costs of

advertising and expenses of sale.

___________________________________

(Here insert signature of secretary or clerk,

17

____________________________________

with location of office.)

Section 39.
If the whole or any part of the
subscription on unpaid capital stock with interest
accrued is unpaid on the date of delinquency,
such unpaid stock becomes subject to sale, and
the secretary or clerk, unless otherwise ordered
by the board of directors, must give notice of
delinquency and sale substantially in the
following form:

(Here insert names, number of each certificates

unpaid, number of shares, amount due on unpaid
subscription, date from which interest is
accrued.)

________________________________________

Now, therefore, in accordance with law, so may

shares of said stock belonging to the several
owners as may be necessary will be sold at
________________________________________

(Here insert principal office of the corporation.)

_________________________________

(Here insert name of corporation in full and

location of principal office.)

on
the
__________________
at
__________________ of said day, to pay the
amount of

NOTICE.

(Here insert date.)

The following-described stock is delinquent for

nonpayment of the unpaid subscription thereon,
with interest accrued, due and payable on the
_________________________,

the unpaid subscription thereon, together with

interest, costs of advertising, and expenses of
sale.

(Here insert hour.)

____________________________________
(Here insert date.)
(Here insert signature of secretary or clerk,
in the amounts set opposite the names of the
respective shareholders, as follows:
____________________________________
________________________________________
18

and location of office.)

Section 40.
Notice of call for unpaid
subscriptions must be either personally served
upon each stockholder or deposited in the postoffice, postage prepaid, addressed to him at his
place of residence, if known, and, if not known,
addressed to the place where the principal office
of the corporation is situated. The notice must
also be published once a week for four successive
weeks in some newspaper of general news
published at the place where the principal office
of the corporation is established or located, and
posted in some prominent place at the works of
the corporation if any such there be. If there be
no newspaper published at the place where the
principal office of the corporation is established
or located, then such notice may be published in
any newspaper of general circulation devoted to
the publication of general news in the Islands.

Section 41.
Notices of delinquency and sale of
stock for unpaid subscription must be published
in the newspapers specified in the section
immediately preceding, and, when published in a
daily newspaper, must be published in ten
successive issues of said newspaper previous to
the day of sale, and, when published in a weekly
newspaper, must be published two weeks
previous to the sale and the first publication must
be fifteen days prior to the day of sale.

Section 42.
From and after the publication of
the notices of delinquency and sale of stock for
unpaid subscriptions the corporation acquires
jurisdiction to sell and convey all of the stock
described in the notices of sale, but the
corporation must sell no more of the stock
mentioned in the notices than is necessary to pay
the amount of the subscription due, with interest

accrued, and the expenses of advertising and the

costs of sale.

Section 43.
On the day and at the place and
hour of sale specified in the notices of
delinquency and sale of stock for unpaid
subscriptions the secretary or clerk shall, unless
otherwise ordered by the board of directors, sell
or cause to be sold at public auction, to the
highest bidder, for cash, so many shares of the
stock described in the notice as may be necessary
to pay the amount due on the subscription, with
interest accrued, expenses of advertising, and
costs of sale.

Section 44.
The person offering such sale to
pay the unpaid subscription, with interest
accrued, together with expenses of advertising
and costs of sale, for the smallest number of
shares or fraction of a share, shall be the highest
bidder, and the stock purchased must be
transferred to him on the stock books of the
corporation on payment of the amount due on
the unpaid subscription, together with the
expenses of advertising and costs of sale.

If, at the sale of the stock for unpaid subscription,

no bidder offers to pay the amount due with
expenses of advertising and costs of sale, the
same may be bid by the corporation, through the
secretary or clerk or president or any shareholder
thereof, and the amount of subscription due,
together with the expenses of advertising and
costs of sale, shall be credited as paid in full on
the books of the corporation and entry of the
transfer of the stock to the corporation made.

Section 45.
The legal title to all stock
purchased by the corporation at sales of stock for
19

unpaid subscriptions is vested in the corporation,

and the stock so purchased may be disposed of
by the stockholders in accordance with law and
the by-laws of the corporation by a majority vote
of all the remaining shares.

Section 46.
The dates fixed in any call for
unpaid subscription or in any notice of
delinquency and sale of stock for unpaid
subscription, published according to the
provisions of this article, may be extended from
time to time, for a period of not more than thirty
days, by order of the board of directors entered
upon the records of the corporation, but no order
extending the time for the performance of any
act specified in such notice is effectual unless the
notice of such extension or postponement is
appended to the notice to which the order
relates, and is thereafter published with the
notice.

Section 47.
No action can be sustained to
recover stock sold for delinquent unpaid
subscription upon the ground of irregularity or
defect in the calls for such unpaid subscription, or
irregularity or defect on the notice of delinquency
and sale, or in the sale itself of stock for unpaid
subscription, unless the party seeking to maintain
such action first pays or tenders to the party
holding the stock the sum for which the same
was sold, together with all subsequent calls which
may have been paid upon the stock so sold, with
interest from the date of payment at the rate of
seven per centum per annum, and no such action
shall be maintained unless it is commenced
within six months from date of sale.

Section 48.
The posting of the notices of call
for unpaid subscriptions and notices of
delinquency and sale of stock for unpaid

subscriptions may be proved prima facie by

affidavit of the secretary or clerk or other officer
of the corporation, and the publication of such
notices may be proved to the same extent by the
affidavit of the printer, foreman, or principal clerk
of the newspaper in which the notices were
published, the time and place of sale of the stock,
the quantity of the stock sold, its particular
description, the person to whom the stock was
sold, the price for which it was sold and the
amount of the purchase money paid may be
proved prima facie by the affidavit of the
auctioneer or of the secretary or clerk or of the
treasurer of the corporation.

The affidavits mentioned in this section must be

filed in the office of the corporation, and copies
thereof, certified to be true and correct by the
secretary of the corporation, may be received by
the courts, and others, as prima facie evidence of
the facts therein stated.

Section 49.
Nothing in this Act shall prevent
the directors from collecting by action in any
court of proper jurisdiction, the amount due on
any unpaid subscription, together with accrued
interest and costs and expenses incurred.

Section 50.
No stock delinquent for unpaid
subscription shall be voted or entitled to a vote or
representation at any stockholders' or directors'
meeting, or for any corporate purpose whatever.

CORPORATE BOOKS AND RECORDS, REPORTS OF

CORPORATIONS,
AND
GOVERNMENT
EXAMINATION
AND
INSPECTION
OF
CORPORATIONS

20

Section 51.
All business corporations shall
keep and carefully preserve a record of all
business transactions, and a minute of all
meetings of directors, members, or stockholders,
in which shall be set forth in detail the time and
place of holding the meeting, how authorized, the
notice given, whether the meeting was regular or
special, if special its object, those present and
absent, and every act done or ordered done at
the meeting. On the demand of any director,
member, or stockholder, the time when any
director, member, or stockholder entered or left
the meeting must be noted on the minutes, and
on a similar demand, the yeas and nays must be
taken on any motion or proposition and a record
thereof carefully made. The protest of any
director, member, or stockholder on any action
or proposed action must be recorded in full on his
demand.

The record of all business transactions of the

corporation and the minutes of any meeting shall
be open to the inspection of any director,
member, or stockholder of the corporation at
reasonable hours.

Section 52.
Business corporations must also
keep a book to be known as the "Stock and
transfer book," in which must be kept a record of
all stock, the names of the stockholders or
members
alphabetically
arranged;
the
installments paid and unpaid on all stock for
which subscription has been made, and the date
of payment of any installment; a statement of
every alienation, sale, or transfer of stock made,
the date thereof, and by and to whom made; and
such other entities as the by-laws may prescribe.
The stock and transfer book shall be open to the
inspection of any director, stockholder, or
member of the corporation at reasonable hours.

Section 53.
Every public-utility or publicservice corporation, whether domestic or foreign,
doing business for profit in the Philippine Islands
must file with the Insular Auditor, on or before
the thirty-first day of March of each year, a report
of its operations for the preceding year ending
December thirty-first which report shall be
verified by the oath of the president or manager
and the secretary or clerk, or treasurer of the
corporation, and shall show clearly:

(1)
The full amount of the capital stock and
the amount thereof actually paid into the
treasury on the thirty-first day of December
immediately preceding;

(2)
Its available assets on the thirty-first day
of December immediately preceding, including
cash and real and personal property and credits
due the corporation, and the encumbrances, if
any thereon;

(3)
The nature and amount of its entire
indebtedness on the thirty-first day of December
immediately preceding;

(4)
The total receipts and expenditures for
the calendar year immediately preceding;

(5)
The profit or loss of the corporation for
the calendar year immediately preceding;

(6)
The number and amount of dividends paid
during the calendar year immediately preceding:

21

PROVIDED, HOWEVER, That none of the contents

of such report shall be made public without the
express authorization of the Governor-General:
AND PROVIDED FURTHER, That in case the fiscal
year of a corporation does not terminate with the
thirty-first day of December it shall be deemed a
sufficient compliance with this section if the
report states the details required down to the
close of the regular fiscal year of the corporation.
In such case the report of the corporation shall be
filed with the Insular Auditor within three months
after the close of its fiscal year.

Section 54.
The Governor-General may, at any
time, order the Attorney-General, the Insular
Auditor, the Insular Treasurer, or any other
officer of the Government to make an
examination
into
the
business affairs,
administration, and condition of any corporation
transacting business in the Philippine Islands, and
thereupon it shall be the duty of the AttorneyGeneral, the Insular Auditor, the Insular
Treasurer, or any other officer designated, to
make such examination; and for the purposes
thereof the Attorney-General, the Insular Auditor,
the Insular Treasurer, or other official designated
shall have the authority to administer oaths to
the directors, officers, stockholders, or members
of any corporation or to other persons, and to
examine under oath or otherwise such directors,
officers, stockholders, members, or other persons
in relation to the business transacted by said
corporation, the administration of its affairs and
the condition thereof. For the purposes of such
examination the books, papers, letters, and
documents belonging to such corporation or
pertaining to its business administration or
condition shall be open to the inspection of the
Attorney-General, the Insular Auditor, the Insular
Treasurer, or other officer designated, and upon
the application of either of them to any Court of
First Instance, or to any judge of the Supreme
Court, a subpoena may be issued directing any

person in the Philippine Islands to appear as a

witness and to produce for the inspection of the
Attorney-General, the Insular Auditor, the Insular
Treasurer, or other officer designated, any books,
papers, documents, letters, or other records in
his possession. Any witness failing to obey such
subpoena shall be liable to punishment by the
Supreme Court or the Court of First Instance, as
the case may be, in the same manner and to the
same extent as if he had disobeyed a subpoena
issued out of the Supreme Court or the Court of
First Instance in a matter pending before either of
said courts.

The Attorney-General, the Insular Auditor, the

Insular Treasurer, or other officer designated, as
the case may be, shall make a full and complete
report to the Governor-General of the
examination made by him, together with his
recommendations, and the Governor-General, if
he deems proper, shall direct the AttorneyGeneral to take such proceedings as the report
may seem to justify and the state of the case
require.

Section 55.
The Attorney-General, the Insular
Auditor, the Insular Treasurer, or other officer
designated by the Governor-General to make the
examination shall not disclose to any one other
than the Governor-General the details or results
of the examination or investigation, and if the
officer designated to make the examination
discloses to any person other than the GovernorGeneral the details or results of the examination
or investigation, he shall be punished by
imprisonment for not less than one year nor
more than five years or by a fine of not less than
five hundred pesos nor more than two thousand
pesos, or both such fine and imprisonment, in the
discretion of the court.

22

FORCED SALE OF FRANCHISES

Section 56.
Any franchise granted to a
corporation to collect tolls, or to occupy, enjoy, or
use public property or any portion of the public
domain or any right of way over public property
or the public domain, and any rights and
privileges acquired under such franchise, may be
levied upon and sold under execution, together
with the property necessary for the enjoyment,
the exercise of the powers, and the receipt of the
proceeds of such franchise or right of way, in the
same manner and with like effect as any other
property to satisfy any judgment against the
corporation: PROVIDED, That the sale of the
franchise or right of way and the property
necessary for the enjoyment, the exercise of the
powers, and the receipt of the proceeds of said
franchise or right of way is specially decreed and
ordered in the judgment: AND PROVIDED
FURTHER, That the sale shall not become
effective until confirmed by the court after due
notice.

Section 57.
The officer selling any franchise
under execution shall, after confirmation by the
court, issue a certificate of purchase to the
purchaser of the franchise and shall place such
purchaser in peaceful possession of all property
described in the judgment as necessary for the
enjoyment of the franchise or right of way, the
exercise of its powers, or the receipt of its
proceeds.

Section 58.
From and after issuance of the
certificate of purchase of the franchise or right of
way, the purchaser shall exercise all the powers
and privileges and enjoy all the rights and be
subjected to all the liabilities of the franchise or
grant of right of way to the same extent as would

have been the corporation had the sale not taken

place.

Section 59.
The purchaser of the franchise or
his assignee shall be entitled to recover any
penalties or damages recoverable by the
corporation and imposed or allowed by law for an
injury to the franchise, or any property necessary
for the enjoyment of the franchise or right of
way, or of the privileges of either, occurring
during the time he holds the franchise or right of
way. Said purchaser or his assignee may use the
name of the corporation in any action necessary
to recover the penalties and damages named in
this section, and the recovery of such penalties
and damages shall be a bar to any subsequent
action to recover the same by or on behalf of the
corporation.

Section 60.
The corporation whose franchise
or right of way is sold as provided in section fiftysix hereof, except as to the rights and powers
acquired by the purchaser and the duties,
obligations, penalties, and forfeitures imposed on
the purchaser of the franchise or right of way,
retains the same powers, is bound to discharge
the same duties, and is liable to the same
obligations, penalties, and forfeitures as before
such sale. The rights acquired by the purchaser of
the franchise shall be subject to the prior rights of
mortgagees and lien holders.

Section 61.
The sale of any franchise and right
of way under execution shall be made in the
place in which the corporation has its principal
office.

VOLUNTARY DISSOLUTION OF CORPORATIONS

23

Section 62.
A corporation may be dissolved at
any time by the Court of First Instance for the
province where the principal office of the
corporation is situated upon the voluntary
application of a majority of the members or of
the stockholders holding at least two-thirds of all
shares of stock issued or subscribed.

Section 63.
The application for dissolution
must be in writing and shall set forth all claims
and demands against the corporation, and that,
at a meeting of the members or stockholders of
the corporation called for that purpose, the
dissolution of the corporation was resolved upon
by a majority of the members or, if a stock
corporation, by the affirmative vote of the
stockholders holding or representing two-thirds
of all shares of stock issued or subscribed.

Section 64.
The application for dissolution
must be signed by a majority of the board of
directors or other officers having the
management of the affairs of the corporation and
must be verified by the president or secretary or
clerk or some director of the corporation.

Section 65.
Notice of the application for
dissolution must be given by the clerk of the
court upon order of the court by publication for
not less than thirty days nor more than sixty days
in some newspaper of general circulation
devoted to the publication of general news
published at the place where the principal office
of the corporation is established or located, or, if
there be no such newspaper, then in some
newspaper of general circulation in the Islands
devoted to the publication of general news. The
notice must also be posted in at least three public
places at the place where the principal office of

the corporation is established or located. The

date on which the right of objection to the
application expires must be set out in the notice
and must be subsequent to the period prescribed
for the publication of such notice.

Section 66.
On or before the date on which
the right of objection expires as declared in
notice, any person may file objections to the
dissolution of the corporation. The issue made by
the application and the objection thereto shall be
tried by the court upon five days' notice to the
applicants and to the persons who have filed
objections, and shall be determined by the court
as justice and right may require. Should no
objections to the application be filed on or before
the date prescribed for filing the same, the court
shall proceed to hear the application, and if the
application is sufficient and all the material
statements made therein are shown to be true,
the court may appoint receivers to collect and
take charge of the assets of the corporation and
shall declare the corporation dissolved and
decree such disposition of its assets and property
remaining as the law may permit and justice may
require.

Section 67.
The application, notices thereof
and proof of publication and posting of notices,
the objections filed to the dissolution, if any there
be, the declaration of dissolution, and the
evidence and proofs taken of dissolution shall
constitute the record in the case, and an appeal
from the judgment may be taken to the Supreme
Court as from other judgments of Courts of First
Instance.

FOREIGN CORPORATIONS

24

Section 68.
No
foreign
corporation
or
corporation formed, organized, or existing under
any laws other than those of the Philippine
Islands shall be permitted to transact business in
the Philippine Islands until after it shall have
obtained a license for that purpose from the
Chief of the Division of Archives, Patents,
Copyrights, and Trade-Marks of the Executive
Bureau upon order of the Secretary of Finance
and Justice in case of banks, savings and loan
banks, trust corporations, and banking
institutions of all kinds, and upon order of the
Secretary of Commerce and Police in case of all
other foreign corporations. No order for a license
shall be issued by either of said secretaries except
upon a statement under oath of the managing
agent of the corporation, showing to the
satisfaction of the proper Secretary that the
corporation is solvent and in sound financial
condition, and setting forth the resources and
liabilities of the corporation within sixty days of
the date of presenting the statement, as follows:

(1)

The name of the corporation;

(2)

The purpose for which it was organized;

(3)
The location of its principal or home
office;

(4)
The capital stock of the corporation and
the amount thereof actually subscribed and paid
into
the
treasury
on
the
__________________________

(Here insert date, month, year.)

(5)
The net assets of the corporation over and
above all debts, liabilities, obligations, and claims
outstanding
against
it
on
the
______________________________

(Here insert date, month, year.)

(6)
The name of an agent residing in the
Philippine Islands authorized by the corporation
to accept service of summons and process in all
legal proceedings against the corporation and of
all notices affecting the corporation:

PROVIDED, HOWEVER, That the Secretary of

Finance and Justice or the Secretary of Commerce
and Police, as the case may be, before ordering
that a license be issued in the case of any
particular corporation, may require further
evidence of the solvency and fair dealing of the
corporation if in his judgment such further
information is essential.

Upon filing in the Division of Archives, Patents,

Copyrights, and Trade-Marks of the Executive
Bureau the said statement, a certified copy of its
charter and the order of the Secretary of Finance
and Justice or of the Secretary of Commerce and
Police, as the case may be, for the issuance of a
license, the Chief of the said Division shall issue to
the foreign corporation as directed in the order a
license to do business in the Philippine Islands,
and for the issuance of said license the Chief of
the said Division shall collect a fee of fifty pesos:
PROVIDED, HOWEVER, That the Secretary of
Finance and Justice or the Secretary of Commerce
and Police, as the case may be, may issue to any
foreign commercial corporation transacting
business in the Philippine Islands at the time of
the passage of this Act and continuously in the
25

Philippine Islands for more than three years prior

thereto a license to do business in the Philippine
Islands without requiring the statement
prescribed by this section, but the license to so
transact business shall be secured and the fee
paid therefor by such corporation.

Section 69.
No
foreign
corporation
or
corporation formed, organized, or existing under
any laws other than those of the Philippine
Islands shall be permitted to transact business in
the Philippine Islands or maintain by itself or
assignee any suit for the recovery of any debt,
claim, or demand whatever, unless it shall have
the license prescribed in the section immediately
preceding. Any officer, director, or agent of the
corporation or any person transacting business
for any foreign corporation not having the license
prescribed shall be punished by imprisonment for
not less than six months nor more than two years
or by a fine of not less than two hundred pesos
nor more than one thousand pesos, or by both
such imprisonment and fine, in the discretion of
the court.

Section 70.
Every foreign corporation and
every corporation not formed, organized, or
existing under the laws of the Philippine Islands
but transacting business in the Islands at the time
of the passage of this Act shall be allowed six
months from its passage in which to secure the
license, present the statement, and make the
deposits required.

Section 71.
The Secretary of Finance and
Justice or the Secretary of Commerce and Police,
as the case may be, by and with the approval of
the Governor-General, may revoke the license to
transact business in the Philippine Islands of any
corporation not formed, organized, or existing

under the laws of the Philippine Islands, should

such Secretary and the Governor-General find the
condition of the corporation to be one of
insolvency or that its continuance in business will
involve probable loss to those transacting
business with it, and after such revocation it shall
be unlawful for any such corporation to transact
business in the Philippine Islands unless its license
is renewed or reissued. In case of revocation of
license the Attorney-General shall take such
proceedings as may be proper to protect
creditors and the public.

Section 72.
Summons and legal process served
upon the agent designated to accept service
thereof in the statement required to be filed by
section sixty-eight of this Act shall give
jurisdiction to the courts over the corporation
filing said statement, and service of notices on
such agent shall be as binding upon the
corporation which he represents as if made upon
the corporation itself.

Should the authority of such agent to accept

service of summons and legal process on the
corporation or notice to it be revoked, or should
such agent become mentally incompetent or
otherwise unable to accept service while
exercising such authority, it shall be the duty of
the corporation to promptly name and designate
another agent upon whom service of summons
and process in legal proceedings against the
corporation and of notices affecting the
corporation may be made and to file with the
Chief of the Division of Archives, Patents,
Copyrights, and Trade-Marks of the Executive
Bureau a duly authenticated nomination of such
agent.

26

Should there be no person authorized by the

corporation upon whom service of summons,
process, and all legal notices may be made,
service of summons, process, and legal notices
may be made upon the Secretary of Finance and
Justice in the case of banks, savings and loan
banks, trust corporations, and other banking
institutions, and upon the Secretary of Commerce
and Police in the case of all other corporations,
and such service shall be as effective as if made
upon the corporation or upon its duly authorized
agent. In case of service for the corporation upon
the Secretary of Finance and Justice or Secretary
of Commerce and Police, as the case may be, the
proper Secretary shall register and transmit by
mail to the president or the secretary or clerk of
the corporation at its home office or principal
office a copy, duly certified by him, of the
summons, process, or notice. The sending of such
copy of the summons, process, or notice shall be
a necessary part of the service and shall complete
the service. The registry receipt of mailing shall
be conclusive evidence of the sending. All costs
necessarily incurred by the proper Secretary for
the making and the mailing and sending of a copy
of the summons, process, or notice to the
president or the secretary or clerk of the
corporation at its home office or principal office
shall be paid in advance by the party at whose
instance the service is made.

Section 73.
Any foreign corporation or
corporation not formed, organized, or existing
under the laws of the Philippine Islands and
lawfully doing business in the Islands shall be
bound by all laws, rules, and regulations
applicable to domestic corporations of the same
class, save and except such only as provide for
the creation, formation, organization, or
dissolution of corporations or such as fix the
relations, liabilities, responsibilities, or duties of
members,
stockholders,
or
officers
of
corporations to each other or to the corporation:

PROVIDED HOWEVER, That nothing in this section

contained shall be construed or deemed to impair
any rights that are secured or protected by the
Treaty of Peace between the United States and
Spain, signed at the city of Paris on December
tenth, eighteen hundred and ninety-eight.

MISCELLANEOUS PROVISIONS

Section 74.
The misnomer of a corporation in
any written instrument does not invalidate the
instrument if it can be ascertained from it with
reasonable certainty what corporation was
intended.

Section 75.
Any corporation or Sociedad
Anonima formed, organized, and existing under
the laws of the Philippine Islands and lawfully
transacting business in the Philippine Islands on
the date of the passage of this Act, shall be
subject to the provisions hereof so far as such
provisions may be applicable and shall be entitled
at its option either to continue business as such
corporation or to reform and organize under and
by virtue of the provisions of this Act, transferring
all corporate interests to the new corporation
which, if a stock corporation, is authorized to
issue its shares of stock at par to the stockholders
or members of the old corporation according to
their interests.

Section 76.
This Act or any part thereof may
be amended or repealed at any time by the
legislative authority, and any or all corporations
created by virtue of this Act may be dissolved by
legislative enactment. No right or remedy in favor
of or accrued against any corporation, its
stockholders or officers, nor any liability incurred
by any such corporation, its stockholders or
27

officers, shall be removed or impaired either by

the subsequent dissolution of said corporation or
by any subsequent amendment or repeal of this
Act or of any part or portion thereof.

Section 77.
Every corporation whose charter
expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate
existence for other purposes is terminated in any
other manner, shall nevertheless be continued as
a body corporate for three years after the time
when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or
against it and of enabling it gradually to settle
and close its affairs, to dispose of and convey its
property and to divide its capital stock, but not
for the purpose of continuing the business for
which it was established.

Section 78.
At any time during said three years
said corporation is authorized and empowered to
convey all of its property to trustees for the
benefit of members, stockholders, creditors, and
others interested. From and after any such
conveyance by the corporation of its property in
trust for the benefit of its member, stockholders,
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 members, stockholders,
creditors, or other persons in interest.

for which the franchise is granted; and no

franchise, privilege, or concession shall be
granted to any corporations except under the
conditions that it shall be subject to amendment,
alteration, or repeal by the Congress of the
United States, and in case of public-service
corporations that the charges made by reason of
the exercise of the franchise shall be subject to
regulation from time to time by the Government
of the Philippine Islands; and such corporation
shall pay annually to the Insular Treasurer such
percentage of its gross earnings as may be
required by general or special laws, and that
lands or rights of use and occupation of lands
thus granted shall revert to the governments by
which they were respectively granted upon the
termination of the franchises and concession
under which they were granted or upon their
revocation or repeal.

Section 80.
The provisions of this chapter are
applicable to every corporation formed or
organized under this Act unless such corporation
is excepted from its operation or unless some
special provision is made in Chapter II in relation
thereto inconsistent with the provisions of this
chapter, in which case the special provision shall
prevail.

CHAPTER II

SPECIAL PROVISIONS RAILROAD CORPORATIONS

Section 79.
No private property shall be taken
by any corporation under any franchise for any
purpose
without
proper
condemnation
proceedings and without just compensation paid
or tendered therefor, and any authority to take
and occupy land shall not authorize the taking,
use, or occupation of any land except such as is
required for the actual and necessary purposes

Section 81.
A railroad corporation by consent
of the stockholders holding a majority of the
issued capital stock may mortgage the corporate
property and franchises or execute deeds of trust
thereof to trustees selected by such stockholders
to secure payment of bonds notes issued by the
28

railroad corporation for the purpose of securing

money for its legitimate corporate purposes,
including the construction and equipment of its
road.

Section 82.
Before commencing work on any
one section or district of the line, the railroad
corporation shall file with the Director of Public
Works a map or plan and profile thereof showing
the course, direction, length, and grades of the
line in such section or district, accompanied by an
explanatory statement as to the route and
general conditions in said section or district of the
proposed railroad, which map, plan, and profile,
with the report of said Director of Public Works
thereto attached, shall be submitted by him to
the Philippine Commission.

Section 83.
At points where the railroad may
cross public highways the railroad corporation
shall construct and maintain the necessary
bridges and crossings so that public
communications shall not be interrupted.
Moreover, to avoid accidents, the railroad
corporation shall put up at such crossings the
necessary notices apprising the public danger
from passing trains; and at crossings of peculiar
danger a gate shall be placed or a guard shall be
stationed by the railroad corporation whenever
the provincial board of the province in which the
crossing is situated, or the Municipal Board of the
city of Manila, as the case may be, with the
approval of the Director of Public Works, shall so
direct.

Section 84.
The railroad corporation shall
establish along the whole length of the road a
telegraph line for the use of the railroad. The
posts of this line may be used for Government
wires and shall be of sufficient length and

strength and equipped with sufficient cross-piece

to carry the number of wires which the
Government may consider necessary for the
public service. The establishment, protection, and
maintenance of the wires and stations necessary
for the public service shall be at the cost of the
Government.

Section 85.
The railroad corporation, before
opening the road or any part thereof for the
conveyance of passengers and freight, shall give
notice in writing to the Director of Public Works
aforesaid that the road or the part thereof
proposed to be opened is ready for the safe
conveyance of passengers and freight. Upon
receipt of such notification the said Director of
Public Works shall himself, or by his assistant,
forthwith examine the roadway, bridges, tunnels,
and other works of the railroad and locomotives
and rolling stock intended to be used thereon,
and if he finds the same to be satisfactory, in
accordance with law, and safe for public travel,
he shall authorize the opening of the line of such
part thereof as may be duly completed and safe
for public travel.

Section 86.
In addition to other powers
conferred by Chapter I, the railroad corporation
shall enjoy the following powers, privileges, and
exemptions:

(1)
To occupy, with the prior approval of the
Government of the Philippine Islands, any part of
the public domain necessary for the purposes of
the enjoyment of its franchises. Private lands may
be acquired by the corporation in accordance
with the exercise of the power of eminent
domain in the manner provided in Act Numbered
One hundred and ninety, and amendments
thereto.
29

(2)
To construct, alter, substitute, maintain,
and operate the railway, make or construct all
buildings, stations, shops, plants, tunnels,
embankments, aqueducts, bridges, or other
structures, wharves, roads, ways, passages,
conduits, drains, piers, arches, cuttings, and
fences on lands acquired or on which the
necessary right has been obtained, and to cross
any railway, tramway, river, stream, water
course, lake, canal, shore, and highway where the
necessary right has been obtained from those
public or private corporations or individuals
whose rights will be affected, also to direct or
alter, temporarily as well as permanently, the
course of any river, stream, water course, or
highway or raise or sink the level thereof, in order
the more conveniently to carry the same across,
over, under, or by the side of the railroad, when
the consent of the owners or rights or interest
which may be prejudiced or injured shall have
been obtained through contract or when
compensation shall have been duly made for the
injury after proper condemnation proceedings.

(3)
For the purposes of the railroad and on
lands lawfully acquired, to open quarries, to
collect stone, to cut timber, to mine for materials,
and to build and operate kilns for lime, gypsum,
and brick.

(4)
To conduct water to the railroad for the
use of the same and to acquire, by condemnation
proceedings or contract, the necessary land for
such roads as may be required to give access to
the railroad stations from public roads or streets
in the vicinity.

(5)
In case of refusal, neglect, or failure to pay
proper charges for the transportation of freight,

goods, or luggage to destination, the railroad

corporation shall have the right to detain the
freight transported until such time as the amount
due shall be paid. If the payment of the rates of
transportation on goods carried or transported by
the railroad to their destination should not be
effected within fifteen days after demand for
payment, the corporation may apply to the
justice of the peace of the municipality in which
such goods are situate for their sale at public
auction, and said justice of the peace, after giving
notice of the application to the owner or
consignee of the goods, shall order the sale at
public auction of said goods or so much thereof
as may be necessary to cover the expenses and
costs of transportation and costs and expenses of
sale. Notice of the sale shall be posted for at least
five days prior to the sale in three of the most
public places in the municipality in which the
goods are situate.

(6)
Freight, goods, or luggage transported to
destination by the corporation and not called for
by the owner or consignee for a period of two
months after arrival may be sold at public auction
after the making of the application, the securing
of the order, and the giving of the notice of sale
prescribed by paragraph five of this section.

(7)
In case of the refusal or failure to pay
proper charges for the transportation of goods or
freight of a perishable nature or in case the
owner or consignee should refuse to receive such
goods or can not be found or is unknown,
application for their sale may be made to the
justice of the peace for the municipality in which
they are situate, and after satisfying himself that
said goods are perishable and likely to
deteriorate if held by the railroad corporation he
may order their sale with such time and after
giving such notice as to him may seem proper.
30

(8)
The proceeds of sales made in accordance
with paragraphs, five, six, and seven of this
section shall be applied first to the payment of
the cost and expenses of said sales, and second,
to the payment of freight and charges of the
railroad corporation on said goods. After
payment of costs and expenses of sale and the
freight and charges of the railroad, the balance, if
any there be, shall be deposited to the credit of
the owner or consignee of the goods with the
provincial treasurer of the province in which the
sale took place, or if the sale took place in the city
of Manila, then with the he Insular Treasurer.

Section 87.
The railroad corporation shall
provide on its trains proper and adequate
accommodations for the transportation of the
mails and shall safely transport and carry the
mails at such rates and under such terms and
conditions as may be agreed upon by the Director
of Posts and the railroad corporation. In case the
Director of Posts and the corporation shall not
agree to the rate and terms of transportation of
the mails, the Chief Executive of the Islands, after
giving the corporation opportunity to be heard,
shall fix the price, terms and conditions of such
transportation. The price for carrying such mails
in the regular passenger trains shall not be more
than the reasonable freight charge on a similar
quantity of merchandise and a fair compensation
for the post-office car. If the Government of the
Islands should require in addition to the ordinary
mail service the transport of mail or urgent
orders at other hours or at higher speed than the
usual speed of passenger trains, the transport of
troops, ammunition, bullion, or freight, the
corporation shall provide, day or night, special
conveyance for same and be allowed reasonable
extra compensation therefor.

Section 88. The roadway and right way of any

railroad corporation may be crossed by other
lines of railroad authorized by the Government of
the Islands in such manner as may be determined
by the Director of Public Works with the approval
of the Governor-General and upon the payment
of full compensation for any damage which may
be caused to the track crossed.

Section 89.
From the time when the whole or
any part of the railroad shall be opened to public
service the railroad corporation shall establish
and publish a time schedule for the arrival and
departure of trains shall run its regular trains for
the transportation of passengers and freight as
close to said schedule as practicable and shall
furnish sufficient accommodations for the
transportation of all passengers who may apply
for the same and for all property which may be
offered within a reasonable time prior to the time
of departure.

Section 90.
The corporation shall concede to
all passengers holding first-class tickets the free
carriage of fifty kilograms of personal baggage
and to those holding lower class tickets thirty
kilograms of personal baggage. Personal baggage
is defined to be ordinary wearing apparel,
bicycles, and such articles as may be required by
persons practicing any profession or trade.
Personal baggage shall be accepted by the
corporation only when contained in such
receptacles as will safely retain and hold the
same during transportation, and the railroad
corporation shall not be liable beyond the extent
of three hundred pesos for each fifty kilograms of
weight of such baggage unless the owner thereof
shall, upon offering the same for transportation,
declare the contents thereof and pay therefor a
reasonable insurance rate for the additional
responsibility assumed by the corporation.
31

Section 91. Each locomotive used in the

working of the line shall be furnished with a bell
and with a steam whistle. The bell shall be rung
and the whistle sounded at a distance of at least
three hundred meters from every place at which
the railroad passes any highway and the bell shall
be kept ringing until the engine has crossed such
highway. Each passenger train shall have proper
and efficient appliances for making immediate
communications with the engineer so that the
engineer may be immediately signaled to stop
the train.

Section 92.
It shall be the duty of the railroad
corporation to use the most approved appliances
to prevent the escape of sparks or live coals from
its locomotives and to take such precautions that
the operation of said road may not unnecessarily
expose properties in the vicinity of the line to
danger from fire.

Section 93.
Where the line is not fenced in or
where there are no gates or flagmen at street
crossings the speed of trains running through the
streets of cities and of centers of population of
municipalities shall not exceed fifteen kilometers
per hour: PROVIDED, HOWEVER, That the
municipal councils of municipalities in which such
streets are situated may prescribe in such cases a
maximum speed of less than fifteen kilometers
per hour. In case any municipality should fix the
maximum speed at less than fifteen kilometers
per hour, the company may appeal to the
Director of Public Works, who shall either confirm
the rate of speed fixed by the municipality or fix
such rate as to him may seem proper, not
exceeding fifteen kilometers per hour.

Section 94.
The corporation shall oblige every
employee working on a passenger train or at a
station for passengers to wear upon his hat or
cap a badge which shall indicate his office, and
without such badge he shall not be entitled to
exercise any of the powers of his office.

Section 95.
The proper agents and employees
of the corporation shall affix a check or tag or
every parcel of baggage delivered by any
passenger to such agents or employees for
transportation, and a duplicate of such clerk or
tag shall be delivered to the passenger delivering
the parcel. If the agents or employees of the
railroad corporation do not comply with the
obligation imposed by this section no fare or toll
shall be collected from the passenger, and if the
passenger has already paid same it shall be
returned upon demand.

Section 96.
The corporation may refuse to
transport any package or parcel the
transportation of which is prohibited by the
Government.

Section 97.
The tariffs and schedules of rates
and charges for the transportation of passengers,
baggage, parcels, packages, and freight of all
kinds shall be kept posted by the corporation in a
prominent place in all of its stations, and before
any new tariff or schedule of rates or charges
shall go into effect it shall be published for a
period of at least ten days in two newspapers of
the city of Manila, one of which newspapers shall
be printed in English and one in Spanish.

Section 98.
Every railroad corporation shall,
within two years after filing its original articles of
incorporation construct, complete, and operate
32

at least five miles of its road, and at least five

miles additional every year thereafter until the
whole road is fully constructed and completed.
Should any railroad corporation fail, after
commencement of construction, to extend,
complete, and operate its road for the distance
required within the time prescribed, its right to
extend its road beyond the point then complete
shall ipso facto stand forfeited.

Section 99.
On or before the first day of March
of each year every railroad corporation shall file
with the Insular Auditor a report of its operations
for the calendar year immediately preceding,
which report shall be verified by the president or
general manager of the railroad corporation and
the secretary or clerk and treasurer of the
corporation, and shall set forth in addition to the
matters required by the report specified in
section fifty-three hereof the following:

(1)
An itemized statement of the amount
expended during said calendar year in the
purchase of land, the construction of road, the
purchase and construction of buildings, the
purchase of engines, cars, and all kinds of rolling
stock and other property;

(2)
A statement showing separately the sums
actually expended for repairs to engines, cars,
and other rolling stock, buildings, roadway, and
other property, for salaries and expenses of
personnel, and other expenses, so as to show the
entire expense and cost of operating the road
and keeping its roadbed, rolling stock, buildings,
and other real and personal property in
reasonable repair;

(3)
The receipts form transportation of
passengers, property of freight, mails, express
matter, and other sources, separately stated;

(4)
The quantity of freight carried, specified in
kilos.

Section 100. Every railroad corporation must

furnish to every passenger to whom it sells a
ticket a seat and sufficient room and
accommodation for any one trip.

Section 101. If any passenger refuses to pay his

fare or exhibit or surrender his ticket after
reasonable opportunity to comply with the
demand for fare or the request for his ticket, the
conductor and other employees of the
corporation may eject from the cars of the
corporation the passenger so refusing or failing to
pay his fare or to exhibit or surrender his ticket:
PROVIDED, HOWEVER, That no unnecessary force
shall be used by the conductor or other
employees of the corporation, and that the
passenger shall be put off the cars at some usual
stopping place or near some dwelling house and
after bringing the train to a complete stop.

Section 102. Every railroad corporation shall

have the right to make reasonable and proper
regulations for passenger and freight traffic.

SAVINGS AND MORTGAGE BANKS

Section 103. Any banking corporations, the

principal business of which is the receiving of
funds on time deposits, and their investment,
together with that of its capital, in bonds, or in
33

loans secured by bonds, bullion, or real estate

mortgages, as hereinafter provided, or in any
combination of the aforementioned forms of
investment, shall be known as a savings and
mortgage bank for the purposes of this Act.

Such a corporation shall not be permitted to file

its articles of incorporation with the Chief of the
Division of Archives, Patents, Copyrights, and
Trade-Marks of the Executive Bureau and shall
not receive his certificate of incorporation unless
such articles show, under oath of the
incorporators, that such corporation has a capital
stock of not less than two hundred thousand
pesos, and the same has been fully subscribed,
and actually paid into the treasury of the
corporation.

Section 104. A savings and mortgage bank may

loan or invest its funds and deposits and collect
such loans with interest accrued and repay its
depositors with or without interests on their
deposits, as may be provided in the by-laws of
the corporation, and not in violation of this Act.
No loan of a savings and mortgage bank shall be
for a longer period than five years.

Section 105. No savings and mortgage bank

shall loan any of its money or deposits unless
secured -

(1)
By mortgage or deed of trust to the
corporation of unencumbered improved real
estate in cities and centers of population of
municipalities in the Philippine Islands or by
mortgage or deed of trust to the corporation of
actually cultivated and improved agricultural
lands in the Philippine Islands: PROVIDED,
HOWEVER, That the amount loaned shall not

exceed forty per centum of the actual cash

market value of the real estate which is security
for the loan, or of the assessed valuation thereof,
whichever may be smaller;

(2)
By the pledge to the corporation of gold
or silver bullion: PROVIDED, That the loan shall
not exceed ninety per centum of the value of the
pledge by which loan is secured;

(3)
By bonds or evidences of debt of the
Government of the United States or of the
Philippine Islands or of the city of Manila or of
any municipality in the Philippine Islands
authorized by law to issue bonds: PROVIDED,
HOWEVER, That such loan shall not exceed the
face value of such bonds or evidences of debt, or
the market value thereof, whichever may be the
smaller;

(4)
By first mortgages transferred to the
corporation as collateral security on improved
and otherwise unencumbered real estate in cities
and centers of population of municipalities in the
Philippine Island: PROVIDED, HOWEVER, That the
mortgage transferred to the corporation as
collateral security with interest accrued and due
shall not exceed forty per centum of the actual
cash market value of the real estate which
secures such mortgage, or of the assessed value
thereof, whichever may be smaller.

Section 106. No loan on the security of real

estate shall be made unless the title to such real
estate, free from all incumbrances, shall be in the
mortgagor and unless the mortgage shall be a
preferred claim on the property therein described
as against the whole world.
34

Section 107. The capital stock and assets of

every savings and mortgage bank constitute the
security of depositors and depositors have the
priority of right over all other to such assets. The
directors of a savings and mortgage bank shall
not create any debt or liability against the
corporation for any purpose whatever other than
for deposits made with it and the reasonable and
necessary current and running expenses of the
corporation.

Section 108. Savings and mortgage banks may

purchase, hold, and convey real and personal
property as follows:

(1)
The lot with the building thereon in which
the bank conducts and carries on its business,
which shall not exceed in value seventy-five
thousand pesos, or such additional sum as may
be fixed by the affirmative vote of the
stockholders representing two-thirds of the
subscribed capital stock;

(2)
Such property, real and personal, as may
have been mortgaged, pledged, or conveyed to it
in good faith in trust for its benefit by reason of
money loaned by it in pursuance of the regular
business of the bank, and such real or personal
property as may have been purchased by it sales
to satisfy pledges, mortgages, or deeds of trust
executed to it on account of money loaned by it,
and such real and personal property as may have
been conveyed to it by borrowers in satisfaction
and discharge of loans made by the bank to
them;

(3)
Bonds and other evidences of debt of the
Government of the United States or of the
Philippine Islands or of the city of Manila, or of
any municipality in the Philippine Islands
authorized by law to issue bonds, at the
reasonable market value thereof, first mortgages
secured by improved real estate in cities and
centers of population of municipalities in the
Philippine Islands, but any mortgage purchased
with interest accrued shall not exceed forty per
centum of the actual cash market value of the
real estate which secures such mortgage, and
gold bullion at a valuation not exceeding its
market value: PROVIDED, HOWEVER, That any
real estate purchased by said bank in payment or
by reason of any loan made by such bank must be
sold by the bank within five years after the title
thereto has been vested in it: AND PROVIDED
FURTHER, That no savings and mortgage bank
shall purchase, own, or sell personal property
except as may be required and permitted in the
transaction of its ordinary business or for its
immediate accommodation or the convenient
and proper transaction of its lawful business.

Section 109. Married women and minors may,

in their own right and in their own names, make
deposits and receive and receipt for deposits,
dividends, and interest: PROVIDED, HOWEVER,
That if any guardian shall give notice in writing to
any savings and mortgage bank not to make
payment of deposits, dividends, or interest to the
minor of whom he is guardian, then such
payment shall be made only to the guardian.

Section 110. Before declaring any dividend, five

per centum of the net profits must be deducted
and set aside as a part of the serve fund, and the
reserve fund thereby created be invested as are
other funds of the bank. The earnings of the
reserve fund, whether created out of capital
35

stock or out of profits, shall constitute, a part of

the reserve. The reserve fund shall be used
exclusively for the purpose of paying losses
sustained by the bank in the pursuit of its lawful
business: PROVIDED, That the bank may provide
by its by-laws for the disposal of any excess in the
reserve fund over twenty per centum of its
liabilities inclusive of stock, and also for the final
disposal of the reserve fund upon the dissolution
of the corporation after the payment of all
liabilities.

Section 111. Savings and mortgage banks may

require by their by-laws that depositors shall give
notice, not exceeding ninety days, of the
intended withdrawal of their deposits, and any
savings and mortgage bank requiring such notice
may decline to make payment of any deposit
until such notice is given and time prescribed in
its by-laws for such notice has expired.

Section 112. Whenever there is a call by

depositors for repayment of their deposits and
the call so made equals or exceeds the moneys
actually available in the bank and disposable for
the purpose of paying deposits of paying
deposits, the savings and mortgage bank shall not
make any new loans or investment of the funds
of depositors or of the earnings of such funds
until the call of the depositors has been satisfied.

Any officer or director of a savings and mortgage

bank making or authorizing the making of any
loan or investment of funds of depositors or of
the earnings of such funds in violation of this
section shall be punished by imprisonment for
not less than one year nor more than five years
and by a fine of not less than one thousand nor
more than five thousand pesos.

Section 113. No director or officer of any

savings and mortgage bank shall, either directly
or indirectly, for himself or as the representative
or agent of others, borrow any of the deposits or
funds or 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 for moneys borrowed of the bank or
loaned by it. The office of any director of officer
of a savings and mortgage bank who violates the
provision of this section shall immediately
become vacant and the director or officer shall be
punished by imprisonment not exceeding ten
years and by a fine of not less than one thousand
nor more than five thousand pesos.

Section 114. No loan made by any savings and

mortgage bank on the security of real estate shall
be made unless the title to such real estate shall
have been first registered in accordance with the
Land Registration Act.

Section 115. Any director or officer of any

savings and mortgage bank who receives or
permits or causes to be received in said bank any
deposit or who pays out or permits or causes to
be paid out of any funds of said bank or who
transfer or permits or causes to be transferred
any securities or property of said bank after said
bank becomes insolvent shall be punished by a
fine of not less than one thousand or more than
ten thousand pesos and by imprisonment for not
less than two or more than ten years.

BANKING CORPORATIONS

Section 116. A banking corporation is a

corporation which receives the money of others
on general deposit and uses it, together with its
36

own capital, to form a joint fund which it makes a

business of employing either directly or indirectly
in one or more of the following uses:

The making of loans;

incorporation unless such articles show, under

oath of the incorporators, that the capital stock
of such corporation is not less than two hundred
thousand pesos, that fifty per centum of the
whole stock has been actually subscribed, and
that fifty per centum of the subscription has been
actually paid into the treasury of the corporation.

The maintenance of a notice circulation; or

The purchase, sale, or collection of bills of

exchange or other kinds of negotiable paper.

Section 117. A banking corporation, in addition

to the general powers incident to corporations as
set forth in this Act, shall have all such incidental
powers as shall be necessary to carry on the
banking, by discounting and negotiating
promissory notes, drafts, bills of exchange, and
other evidences of debt, by receiving deposits; by
buying and selling exchange, coin, and bullion;
and by loaning money on personal security; but it
shall make no loans upon real-estate security;
PROVIDED, HOWEVER, That savings and
mortgage banks may make loans on the security
of real estate as hereinbefore prescribed; AND
PROVIDED FURTHER, That the banking
corporations engaged in the business of making
loans secured by real estate, in accordance with
their charters and the laws under which they
were organized before the passage of this Act,
may continue to make such loans on real estates
as prescribed by such charters and laws.

Section 118. Banking corporations, other than

savings and mortgage bank, shall not be
permitted to file their articles of incorporation
with the Chief of the Division of Archives, Patents,
Copyrights, and Trade-Marks of the Executive
Bureau, or to receive his certificate of

Section 119. The total liabilities to a banking

corporation of any person, or of any company,
corporation, or firm, for money borrowed,
including in the liabilities of the company or firm
the liabilities of the several members thereof,
shall at no time exceed fifteen per centum of the
surplus and capital stock of such bank actually
paid in. But the discount of bills of exchange
drawn in good faith against actually existing
values and the discount of commercial or
business paper actually owned by the person
negotiating the same not be considered as money
borrowed.

Section 120. No bank organized under this Act

shall make any loan or discount on the security of
the shares of its own capital stock, nor be the
purchaser or holder of any such shares, unless
such security or purchase shall be necessary to
prevent loss upon a debt previously contracted in
good faith, and stock so purchased or acquired
shall, within six months from the time of its
purchase, be sold or disposed of at public or
private sale, or, in default thereof, a receiver may
be appointed to close up the business of the bank
in accordance with law.

Section 121. No such bank shall at any time be

indebted or in any way liable to an amount
exceeding the amount of its capital stock at such
time actually paid in and remaining undiminished

37

by losses or otherwise, except on account of

demands of the following nature:

(1)
Moneys deposited with or collected by
the bank;

(2)
Bills of exchange or drafts drawn against
money actually on deposit to the credit of the
bank or due thereto;

But no bank shall hold the possession of any real

estate under mortgage or trust deeds or the title
and possession of any real estate purchased to
secure any debts due to it for a longer period
than five years.

Section 123. No such bank shall loan money to

any director or officer thereof, unless such loan
shall previously have been approved in writing by
a majority of the directors thereof and such
approval shall have been entered upon the
records of the bank.

(3)
Liabilities to the stockholders of the bank
for dividends and reserve profits;

Section 122. Such bank may purchase, hold,

and convey real estate for the following purposes
and no other;

(1)
Such as shall be necessary for its
immediate accommodation in the transaction of
its business;

(2)
Such as shall be mortgaged to it in good
faith by way of security for debts previously
contracted;

(3)
Such as shall be conveyed to it in
satisfaction of debts previously contracted in the
course of its dealing;

(4)
Such as it shall purchase at sales under
judgments, decrees, mortgages, or trust deeds
held by the bank or shall purchase to secure
debts due to it.

Section 124. If losses have at any time been

sustained by any such bank equal to or exceeding
the undivided profits in hand, no dividend shall
be made; and no dividend shall ever be made by
any such bank while it continues in banking
operations, to an amount greater than its net
profits then on hand, deducting therefrom its
losses and bad debts. All debts due to any bank,
on which interest is past due and unpaid for a
period of six months, unless the same are well
secured and in process of collection, shall be
considered bad debts within the meaning of this
section.

Section 125. Every such bank shall at all times

have on hand, in lawful money of the Philippine
Islands or of the United States, an amount equal
to at least twenty per centum of the aggregate
amount of its deposits in all respects. The term
"lawful money of the Philippine Islands" shall
include silver certificates issued under authority
of Act Numbered Nine hundred and thirty-eight,
ordinarily called the "Gold Standard Act," and
gold certificates should the issue thereof be
authorized for the Philippine Islands by the
Congress of the United States, and the term
"lawful money of the United States" shall include
38

gold and silver certificates of the United States

and bank notes issued by national banks in the
United States: PROVIDED, HOWEVER, That in case
of a bank having branches as provided in section
one hundred and twenty-eight of this Act the
provision for a twenty per centum reserve shall
be deemed to be complied with if the principal
bank and its branches in the aggregate have on
hand twenty per centum in lawful money of the
aggregate amount of the deposits in the principal
bank and all of its branches.

Section 126. Whenever the lawful money as

defined in the last preceding section of any bank
shall be below the amount of twenty per centum
of its deposits, such bank shall not diminish the
amount of such lawful money by making any new
loans or discounts, nor make any dividend of its
profits until the required proportion between the
aggregate amount of its deposits and its lawful
money has been restored. In case of the violation
of this provision the business of the bank may be
wound up by the appointment of a receiver or in
the manner provided by Act Numbered Five
hundred and fifty-six.

Section 127. Each such bank, before the

declaration of a dividend, shall carry ten per
centum of its net profits accruing since the last
preceding dividend to a surplus fund until the
same shall amount to twenty per centum of its
authorized capital stock; and no part of the
surplus fund shall at any time be paid out in
dividends, but losses accruing in the course of
business of the bank may be paid from the
surplus fund. Nothing herein contained shall
prevent the accumulation of a larger surplus fund
should the directors so determine.

Section 128. It shall be lawful for any such bank

having its head office in the city of Manila, and
having a paid-up capital of not less than one
million pesos, to establish a branch or branches in
any municipality or municipalities in the
Philippine Islands, and to conduct its authorized
banking business in the city of Manila and in such
branch or branches; but the corporation shall be
responsible for all the business conducted in its
branch or branches had all been conducted in the
principal institutions at Manila. In the case of the
establishment of a branch, or branches, the
business shall be treated as an entirety.

Section 129. Any director or officer of any

banking corporation who receives or permits or
causes to be received in said bank any deposit or
who pays out or permits or causes to be paid out
of any funds of said bank or who transfers or
permits or causes to be transferred any securities
or property of said bank after said bank becomes
insolvent shall be punished by a fine of not less
than one thousand nor more than ten thousand
pesos and by imprisonment for not less than two
or more than ten years.

Section 130. Any banking corporation when

advertising the amount of its capital stock shall in
the advertisement state the specific amount of
such capital which has actually been paid in cash.

TRUST CORPORATIONS

Section 131. Any corporation formed or

organized for the purpose of acting as trustees or
administering any trust or holding property in
trust or on deposit for the use, benefit, or behoof
of others shall be known as a trust corporation.
39

Section 132. No trust corporation shall be

permitted to file articles of incorporation with the
Chief of the Division of Archives, Patents,
Copyrights, and Trade-Marks of the Executive
Bureau or to receive his certificate of
incorporation unless such articles show under
oath of the incorporators that the capital stock of
such corporation is not less than one million
pesos, that fifty per centum of the whole stock
has been actually subscribed, and that fifty per
centum of the subscription has been actually paid
in cash into the treasury of the corporation.

Section 133. At least four hundred thousand

pesos of the capital stock of any such corporation
must be paid in cash into the treasury within one
year after filing the articles of incorporation, and
for a failure to cause such amount of its capital
stock to be paid into the treasury within the time
limited, such corporation shall not be permitted
to transact any new business other than that
required for the administration of the business
already undertaken by it. Any officer, official,
director, or trustee of the corporation authorizing
or transacting any business in violation of this
section shall be punished by imprisonment for
not less than one year nor more than five years
and by a fine of not less than one thousand nor
more than five thousand pesos.

Section 134. After filing its articles of

incorporation and the issuance to it of the
certificate of incorporation by the Chief of the
Division of Archives, Patents, Copyrights, and
Trade-Marks of the Executive Bureau, any trust
corporation, in addition to the powers conferred
by general corporation laws, shall have power -

(1)
To act as trustee on any mortgage or bond
issued by any municipality, body politic, or
corporation, and to accept and execute any other
municipal or corporate trust not inconsistent with
law;

(2)
To act under the order or appointment of
any court of record as guardian, receiver, trustee,
or depositary of the estate of any minor, insane
person, idiot, habitual drunkard, or other
incompetent or irresponsible person, and as
receiver and depositary of any moneys paid into
court by parties to any legal proceedings and of
property of any kind which may be brought under
the jurisdiction of the court by proper legal
proceedings;

(3)
To act as the executor of any last will or
testament when it is named in the last will and
testament as the executor thereof;

(4)
To act under appointment of a court of
competent jurisdiction as administrator of the
estate of any deceased person, with the will
annexed, or as administrator of the estate of any
deceased person when there is no will and when
in either case there is no person qualified,
competent, willing, able, and entitled to accept
such administration;

(5)
To accept and execute any legal trust
confided to it by any court of record or by any
person or corporation for the holding,
management, and administration of any estate,
real or personal, and the rents, issues, and profits
thereof;

40

(6)
To accept deposits of money or other
personal property and to allow to the depositors
of money such interest thereon as may be
provided by the by-laws.

Section 135. No bond or other security shall be

required from any such trust corporation for the
faithful performance of its duties as trustee,
executor, administrator, guardian, receiver, or
depositary: PROVIDED, HOWEVER, That the court
or officer appointing such corporation as trustee,
executor, administrator, guardian, receiver, or
depositary may, upon proper application showing
special cause therefor, require any corporation
which shall seek to be or shall have been so
appointed to give adequate security for the
protection of the funds or property confided to
the corporation, and upon failure of the
corporation to give the security required its
appointment as trustee, executor, administrator,
guardian, receiver, or depositary shall be
revoked.

The court shall require the corporation to make

all reports, render all accounts, perform such
duties, and to do such acts as might be required
by the court of a natural person acting as trustee,
executor, administrator, guardian, receiver, or
depositary.

Section 136. Upon the application of any

executor, administrator, guardian, receiver,
trustee, or depositary or any other person in
interest, any court having jurisdiction of such
officer, trustee, receiver, or depositary and of the
subject-matter of the trust or deposit may, upon
such notice to the parties in interest as the court
shall direct and after hearing the application and
all parties in interest desiring to be heard, order
said officer, trustee, receiver, or depositary to

deposit with some trust corporation lawfully

doing business in the Philippine Islands the whole
or any part of the moneys or personal property
held by such officer, trustee, receiver, or
depositary. Upon presentation to the court of the
receipt or written acknowledgment of the trust
corporation that the deposit of said moneys and
personal property has been made in accordance
with the order of the court, the court may order
that the bond given or required to be given by
such officer, trustee, receiver, or depositary for
the faithful performance of his duties be reduced
to such sum as the court may seem proper:
PROVIDED, HOWEVER, That the reduced bond
shall be sufficient to adequately secure the
proper administration and care of any property
remaining in the hands or under the control of
such officer, trustee, receiver, or depositary and
the proper accounting for such property.
Property deposited with any trust corporation in
conformity with this section shall be held by said
corporation under the orders and directions of
the court.

Section 137. The accounts of all moneys,

properties, or securities received by any trust
corporations as executor of the will of any
deceased person or as administrator, with or
without the will annexed, of the estate of any
deceased person, or as guardian, receiver,
trustee, or depositary of the estate of any minor,
insane person, idiot, habitual drunkard, or other
incompetent or irresponsible person, or as
receiver or depositary under and by virtue of any
order or appointment of any court, shall be kept
separate and distinct from the accounts of its
general business.

Section 138. No trust corporation shall have the

right to accept any trust whatever which it would
be unlawful for any individual to make, accept, or
41

execute, and it shall be the duty of a trust

corporation, acting as trustee of any legal trust,
to execute such trust in accordance with the
lawful terms of the trust.

Section 139. Deposits or moneys received by

any trust corporation as executor of the will of
any deceased person or as administrator, with or
without the will annexed, or as guardian,
receiver, trustee, or depositary of the estate of
any minor, insane person, idiot, habitual
drunkard, or other incompetent or irresponsible
person, or as receiver or depositary under and by
virtue of any order or appointment of any court,
or as trustee under any instrument in writing
constituting the corporation a trustee, unless
otherwise directed by the instrument creating the
trust, can be loaned only on unencumbered
improved real estate in cities and centers of
population of municipalities in the Philippine
Islands or on actually cultivated agricultural lands
in the Philippine Islands to an amount not
exceeding forty per centum of the value of the
real estate, or on railroad bonds guaranteed by
the Philippine Insular Government or on first
mortgages transferred to the corporation as
collateral security on improved and otherwise
unencumbered real estate in cities and centers of
population of municipalities in the Philippine
Islands: PROVIDED, That such first mortgages
with interest accrued shall not exceed in value
forty per centum of the value of the mortgaged
property or on the security of gold or silver
bullion; PROVIDED, That the amount loaned shall
not exceed ninety per centum of the value of the
bullion pledged or on the security of United
States Government bonds or on the security of
bonds of the Philippine Government or of the city
of Manila or of any municipality authorized by
law to issue bonds. No loan of such deposits on
the security of real estate shall be made unless
the title to such real estate shall have been first
registered in accordance with the Land

Registration Act. Any officer or director

authorizing or making any loan on security
otherwise than as provided in this section shall be
punished by imprisonment not exceeding ten
years and by a fine of not less than one thousand
nor more than five thousand pesos.

Section 140. The capital stock and funds of the

corporation other than those mentioned in
section one hundred and thirty-nine may be
loaned or otherwise invested as the by-laws may
prescribe and the directors authorize.

Section 141. The capital stock of any trust

corporation shall be security for the faithful
performance of all the trust duties of the
corporation: PROVIDED, HOWEVER, That claims
against such corporation as executor of the will of
any deceased person or as administrator, with or
without the will annexed, of any deceased
person, or as guardian, receiver, trustee, or
depositary of the estate of any minor, insane
person, idiot, habitual drunkard, or other
incompetent or irresponsible person, or as
receiver or depositary under and by virtue of an
order or appointment of any court, shall have
priority over all the other claims.

Section 142. Five per centum of the net profits

of every trust corporation shall be set apart as a
reserve fund, which shall be loaned or invested as
prescribed in section one hundred and thirtynine, and the earnings of the reserve funds shall
constitute a part of the reserve. The reserve fund
shall be used solely for the purpose of meeting
the losses sustained in the lawful transaction of
its business; PROVIDED, That the corporation may
provide in its by-laws for the disposal of any
excess of the reserve fund over twenty per
centum of its liabilities, inclusive of stock, and for
42

the final disposal thereof on the dissolution of the

corporation after the payment of all liabilities.

Section 143. No loan shall be made by any trust

corporation, directly or indirectly, to any director
or officer thereof, except by written approval of
the majority of the directors.

Any officer or director of a trust corporation

authorizing, receiving, or making any such loan
without the authority prescribed shall be
punished by imprisonment for not less than five
years nor more than ten years and by a fine of
not less than two thousand nor more than twenty
thousand pesos.

Section 144. Any director or officer of any trust

corporation who receives for said corporation or
permits or causes to be received by said
corporation any deposit, or who pays out or
permits or causes to be paid out of any funds of
said corporation or who transfers or permits or
causes to be transferred any securities or
property of said corporation after said
corporation becomes insolvent, shall be punished
by a fine of not less than one thousand nor more
than ten thousand pesos and by imprisonment of
not less than two nor more than ten years.

Section 145. The ordinary business of any trust

corporation shall be transacted at the place of
business specified in its articles of incorporation.

Section 146. Savings banks, commercial banks,

banks or issue and discount, trust corporations,
and banking institutions of every kind shall be
subject to all the provisions of Act Numbered
Fifty-two, entitled "An Act providing for

examinations of banking institutions in the

Philippine Islands, and for reports by either
officers," as amended by Act Numbered Five
hundred and fifty-six.

DOMESTIC INSURANCE CORPORATIONS

Section 147. Corporations formed or organized

to save any person or persons or other
corporation harmless form loss, damage, or
liability arising from any unknown or future or
contingent event, or to indemnify or to
compensate any person or persons or other
corporation for any such loss, damage, or liability,
or to guarantee the contractual obligations or
debts of others, shall be known as insurance
corporations for the purposes of this Act.

Section 148. No insurance corporation shall be

permitted to file articles of incorporation with the
Chief of the Division of Archives, Patents,
Copyrights, and Trade-Marks of the Executive
Bureau or to receive his certificate of
incorporation unless such articles show, under
oath of the incorporators, that the capital stock
of such corporation is not less than five hundred
thousand pesos, that fifty per centum of the
whole stock has been actually subscribed, and
that fifty per centum of the subscription has been
actually paid in cash into the treasury of the
corporation.

The whole subscribed capital stock of any fire or

fire and marine insurance corporation must be
fully paid up in cash within one year after filing its
articles of incorporation, and for a failure to have
its subscribed capital stock paid up within the
time prescribed the corporation shall not be
43

permitted to take any new risks or any kind or

character.

Any officer, official, or director of the corporation

taking or authorizing the taking of any risk for the
corporation in violation of the terms of this
section shall be punished by imprisonment for
not less than one year nor more than five years
and by a fine of not less than one thousand nor
more than five thousand pesos.

Section 149. No insurance corporation shall

loan any of its money or deposits except upon the
security of unencumbered improved real estate
in cities and centers of population of
municipalities in the Philippine Islands, or on
actually cultivated real estate in the Philippine
Islands when the value of such real estate is at
least one hundred per centum more than the
amount to be loaned, or upon the security or first
mortgages on real estate not otherwise
encumbered transferred to it as collateral
security when the value of the real estate
described in the mortgage is one hundred per
centum more than the amount of the mortgage
with interest accrued, or upon bonds or other
evidence of debt of the Government of the
United States or of the Philippine Islands or of the
city of Manila or of municipalities in the
Philippine Islands authorized by law to issue
bonds: PROVIDED, HOWEVER, That a life
insurance corporation may loan its money upon
the security of a policy to an amount not
exceeding the cash value of the policy.

Section 150. No loan by any insurance

corporation on the security of real estate shall be
made unless the title to such real estate shall
have been first registered in accordance with the
Land Registration Act.

Section 151. Insurance

corporations
may
purchase, hold, own, and convey real and
personal property as follows:

(1)
The lot with the building thereon in which
the corporation conducts and carries on its
business, which shall not exceed in value one
hundred thousand pesos, or such additional sum
as may be fixed by the affirmative vote of the
stockholders representing two-thirds of the
subscribed capital stock;

(2)
Such property, real and personal, as may
have been mortgaged, pledged, or conveyed to it
in good faith in trust for its benefit by reason of
money loaned by it in pursuance of the regular
business of the corporation, and such real or
personal property as may have been purchased
by it at sales under pledges, mortgages, or deeds
of trust for its benefit on account of money
loaned by it, and such real and personal property
as may have been conveyed to it by borrowers in
satisfaction and discharge of loans made by the
corporation to them: PROVIDED, HOWEVER, That
any real estate purchased by said corporation in
payment or by reason of any loan made by said
corporation shall be sold by the corporation
within five years after the title thereto has been
vested in it;

(3)
Bonds and other evidences of debt of the
Government of the United States or of the
Philippine Islands or of the city of Manila or of
any municipality in the Philippine Islands
authorized by law to issue bonds, at the
reasonable market value thereof, and such other
securities as may be approved by the Secretary of
Finance and Justice.
44

Section 152. No insurance corporation shall

declare any dividend except from the profits of
the transaction of the corporate business, and
then only after retaining unimpaired the entire
subscribed capital stock, a sum sufficient to pay
all expenses incurred by the corporation,
inclusive of taxes, and a sum sufficient to pay all
losses reported or in the course of settlement.

Section 153. No fire or marine insurance

corporation shall insure on any one risk to an
amount more than one-tenth of its capital stock
paid in and intact at the time of taking the risk
without reinsuring the excess.

(1)
That he is the bishop, chief priest, or
presiding elder of his religious denomination,
society, or church and that he desires to become
a corporation sole;

(2)
That the rules, regulations, and discipline
of his religious denomination, society, or church
are not inconsistent with his becoming a
corporation sole and do not forbid it;

(3)
That as such bishop, chief priest, or
presiding elder he is charged with the
administration of the temporalities and the
management of the estates and properties of his
religious denomination, society, or church within
his territorial jurisdiction, describing it;

RELIGIOUS CORPORATIONS

Section 154. For the administration of the

temporalities of any religious denomination,
society, or church, and the management of the
estates and properties thereof, it shall be lawful
for the bishop, chief priest, or presiding elder of
any such religious denomination, society, or
church to become a corporation sole unless
inconsistent with the rules, regulations, or
discipline of his religious denomination, society,
or church or forbidden by competent authority
thereof.

Section 155. In order to become a corporation

sole, the bishop, chief priest, or presiding elder of
any religious denomination, society, or church
must file with the Chief of the Division of
Archives, Patents, Copyrights, and Trade-Marks of
the Executive Bureau articles of incorporation
setting forth the following facts:

(4)
The manner in which any vacancy
occurring in the office of bishop, chief priest, or
presiding elder is required to be filed, according
to the rules, regulations, or discipline of the
religious denomination, society, or church to
which he belongs;

(5)
The place where the principal office of the
corporation sole is to be established and located,
which place must be within the Philippine Islands.

Section 156. The articles of incorporation must

be verified before filing by affidavit or affirmation
of the bishop, chief priest, or presiding elder, as
the case may be, and accompanied by a copy of
the commission, certificate of election or letters
of appointment of such bishop, chief priest, or
presiding elder, duly certified to be correct by any
notary public or clerk of a court of record.

45

Section 157. From and after the filing with the

Chief of the Division of Archives, Patents,
Copyrights, and Trade-Marks of the Executive
Bureau of the said articles of incorporation,
verified or affirmation as aforesaid and
accompanied by the copy of the commission,
certificate of election, or letters of appointment
of the bishop, chief, priest, or presiding elder,
duly certified as prescribed in the section
immediately preceding, such bishop, chief priest,
or presiding elder, as the case may be, shall
become a corporation sole, and all temporalities,
estates, and properties of the religious
denomination, society, or church theretofore
administered or managed by him such bishop,
chief priest, or presiding elder shall be held in
trust by him as a corporation sole for the use,
purpose, behoof, and sole benefit of his religious
denomination, society, or church, including
hospitals, schools, colleges, orphan asylums,
parsonages, and cemeteries thereof. For the filing
of such articles of incorporation the Chief of the
said Division of Archives, Patents, Copyrights, and
Trade-Marks shall collect twenty-five pesos.

Section 158. The successors in office of any

bishop, chief priest, or presiding elder
incorporated as a corporation sole shall become
the corporation sole on accession to office, and
shall be permitted to transact business as such on
filing with the Chief of the Division of Archives,
Patents, Copyrights, and Trade-Marks of the
Executive Bureau of copy of their commissions,
certificates of election, or letters of appointment
duly certified to be correct by any notary public
or clerk or a court of record.

For filing such copy of a commission, certificate,

or letters the said Chief of the Division of
Archives, Patents, Copyrights and Trade-Marks
shall collect the sum of ten pesos.

During the vacancy in the office of bishop, chief

priest, or presiding elder of any church
incorporated as a corporation sole, the person or
persons authorized and empowered by the rules,
regulations, or discipline of the religious
denomination, society, or church represented by
the corporation sole to administer the
temporalities and manage the states and estates
and property of the corporation sole during the
vacancy shall exercise all the power and authority
of the corporation sole during such vacancy.

Section 159. Any

corporation
sole
may
purchase and hold real estate and personal
property for its church, charitable, benevolent, or
educational purposes and may receive bequests
or gifts for such purposes. Such corporation may
mortgage or sell real property held by it upon
obtaining an order for that purpose from the
Court of First Instance of the province in which
the property is situated; but before making the
order proof must be made to the satisfaction of
the court that notice of the application for leave
to mortgage or sell has been given by publication
or otherwise in such manner and for such time as
said court or the judge thereof may have
directed, and that it is to the interest of the
corporation that leave to mortgage or sell should
be granted. The application for leave to mortgage
or sell must be made by petition, duly verified by
the bishop, chief priest, or presiding elder, acting
as corporation sole, and may be opposed by any
member of the religious denomination, society,
or church represented by the corporation sole:
PROVIDED, HOWEVER, That in cases where the
rules, regulations, and discipline of the religious
denomination, society, or church concerned
represented by such corporation sole regulate
the methods of acquiring, holding, selling and
mortgaging real estate and personal property,
such rules, regulations, and discipline shall
46

control and the intervention of the courts shall

not be necessary.

regulations, or discipline of the society, church, or

order or which if forms a part;

Section 160. Any religious society or religious

order, or any diocese, synod, or district
organization of any church, unless forbidden by
the constitution, rules, regulations or discipline of
the religious order, society, or church of which it
is a part, or by competent authority, may, upon
the written consent of two-thirds of the
membership, or by an affirmative vote of twothirds of membership had at a regular meeting,
incorporate for the administration of its
temporalities or for the management of its
properties or estates by filling with the Chief of
the Division of Archives, Patents, Copyrights, and
Trade-Marks of the Executive Bureau articles of
incorporation verified by the affidavit or
affirmation of the presiding officer, secretary, or
clerk or other member of such religious society,
religious order, or diocese, synod, or district
organization of the church setting forth the
following facts:

(4)
That the religious society or religious
order or diocese, synod, or district organization of
the church desires to incorporate for the
administration of its temporalities or the
management of its properties or estates;

(1)
That the religious society or religious
order or synod, diocese, or district organization is
a religious society or religious order or diocese,
synod, or district organization of some church;

(2)
That two-thirds of its membership have
given their written consent or have voted two
incorporate at a regular meeting of the body;

(3)
That the incorporation of the religious
society, religious order, or diocese, synod, or
district organization of the church desiring to
incorporate is not forbidden by competent
authority or by the constitution, rules,

(5)
The place where the principal office of the
corporation is to be established and located,
which place must be within the Philippine Islands;

(6)
The names and residences of the directors
or trustees elected by the religious society or
order, or the diocese, synod, or district
organization of the church to serve for the first
year or such other times as may be prescribed by
the laws of the society or order, or of the diocese,
synod, or district organization of the church, the
board of directors or trustees to be not less than
five nor more than fifteen. For the filing of such
articles of incorporation the Chief of the Division
of Archives, Patents, Copyrights, and Trade-Marks
of the Executive Bureau shall collect twenty-five
pesos.

Section 161. By-laws for the government of the

corporation not inconsistent with law or with the
constitution, by-laws, rules, regulations, or
discipline of the religious society, religious order,
or church of which the corporation forms a part
may be adopted or amended at any regular
meeting called for the purpose by the
incorporated religious society or religious order
or by conversation, synod, or other legal
representative body of the church in an for the
district.
47

Section 162. The by-laws of the corporation

shall be signed and attested by the presiding
officer and secretary or clerk of the religious
society or order or of the convention, synod, or
other representative body of the church adopting
the same.

Section 163. The right to administer all

temporalities and all property held or owned by a
religious order or society, or by the diocese,
synod, or district organization of any religious
denomination or church shall, on its
incorporation, pass to the corporation and shall
be held in trust for the use, purpose, behoof, and
benefit of the religious society or order so
incorporated or of the church of which the
diocese, synod, or district organization is an
organized and constituent part.

Section 164. Such corporations shall have the

right to purchase, hold, mortgage, or sell real
estate for its church, charitable, benevolent, or
educational purposes by and with the consent of
a majority of its membership.

COLLEGES AND INSTITUTIONS OF LEARNING

Section 165. Any number of persons not less

than five who have established or who may
desire to establish a college, school, or other
institution of learning may incorporate
themselves by filing with the Chief of the Division
of Archives, Patents, Copyrights, and Trade-Marks
of the Executive Bureau articles of incorporation
setting forth the following facts:

(1)

The name of the corporation;

(2)

The purpose for which it is organized;

(3)
The place where the college, school, or
institution of learning is to be conducted;

(4)
The qualifications of trustees and the
number of trustees, which shall not be less than
five nor more than fifteen: PROVIDED, HOWEVER,
That the number of trustees shall be some
multiple of five;

(5)
The term for which trustees shall serve
and the names and residences of the trustees
elected for the first term;

(6)
The amount of money and description of
the property to be devoted to the maintenance
and support of the college, school, or other
institutions of learning.

Section 166. Societies or organizations which

have established colleges, schools, or other
institutions or learning may, unless forbidden by
their constitutions or by competent authority
exercised over them, incorporate with the
written consent of two-thirds of the membership,
or by an affirmative vote of two-thirds of the
membership had at a regular meeting or at a
special meeting called for the purpose, by filing
with the Chief of the Division of Archives, Patents,
Copyrights, and Trade-Marks of the Executive
Bureau articles of incorporation setting forth the
facts prescribed for articles of incorporation in
section one hundred and sixty-five.
48

Section 167. Societies or organizations so

incorporated shall have the power to adopt bylaws not inconsistent with law and may provide in
such by-laws for the election of trustees and their
terms of office.

Section 168. Whenever so empowered in

writing by the Secretary of Public Instruction and
under such terms and conditions as said
Secretary may prescribe, universities and colleges
duly incorporated in accordance with this Act
may grant diplomas and confer degrees.

Section 169. Unless otherwise provided in the

by-laws the board of trustees of incorporated
schools, colleges, or other institutions of learning
shall, as soon as organized, so classify themselves
that the term of office of one-fifth of their
number shall expire every year. Trustees
thereafter elected to fill vacancies occurring
before the expiration of term shall hold office
only for the unexpired term. Trustees elected
thereafter to fill vacancies caused by expiration of
term shall hold office for five years. A majority of
the trustees shall constitute a quorum for the
transaction of business. The office of the
corporation shall be at the college, school, or
other institution of learning. The powers and
authority of trustees shall be defined in the bylaws.

Section 170. Any educational society or

organization, by a two-thirds vote of its
membership had at a regular or at a special
meeting called for the purpose, or by the written
consent of two-thirds of its members without a
meeting, and any existing educational
corporation or body claiming to be such may, by a
unanimous vote of its trustees present at a

regular or special meeting called for the purpose

or by the written consent of such trustees
without a meeting, convey all or any part of its
property, rights, and franchises to a corporation
organized for educational purposes in conformity
with this Act. Any corporation organized for
educational purposes in accordance with this Act
shall have the right by and with the consent of a
majority of its membership to purchase, hold,
mortgage, or sell real estate for educational
purposes.

BUILDING AND LOAN CORPORATIONS

Section 171. All corporations whose capital

stock is required or its permitted to be paid by
the stockholders in regular, equal, periodical,
payments and who purpose is to accumulate the
savings of its stockholders, to repay to said
stockholders their accumulated savings and
profits upon surrender of their stock, to
encourage industry, frugality, and home building
among its stockholders, and to loan its funds and
fund borrowed for the purpose to stockholders
on the security of unencumbered real estate and
the pledge of shares of capital stock owned by
the stockholders as collateral security, shall be
know as building and loan corporations, and the
words "mutual building and loan association"
shall form part of the name of every such
corporation.

Section 172. The articles of incorporation shall

state the purposes of the corporation as set forth
in section one hundred and seventy-one.

Section 173. Any person may become a

stockholder of any building and loan corporation
by subscribing for one or more shares therein and
49

signing the by-laws of the corporation, following

his signature with his post-office address.

Section 174. The capital stock of corporations

shall be paid by the stockholders in regular,
equal, periodical payments, known as dues, at
such times and in such amounts as shall be
provided in the by-laws of the corporation. The
dues on each share or stock subscribed for by a
stockholder shall continue to be paid by the
stockholder to the corporation until the share has
been duly withdrawn, cancelled, or forfeited, or
until the share has reached its mature value; that
is to say, when the dues paid on each share and
the net earnings thereof, in accordance with the
by-laws, shall amount to the par value of the
share, but such corporation may issued and sell at
par, for cash, paid-up or investment stock, and
may pay to the holders of such shares a rate of
interest or dividend to be fixed by the board of
directors of the corporation, which shall be
expressed in the stock shares and shall not
participate further in the profits or accretions of
the corporation. Such paid-up or investment
stock may be surrendered by the holder at any
time upon the giving of ninety days' notice to the
corporation, or such briefer notice as the
corporation may fix, and upon such surrender the
holder will be entitled to receive only the amount
of principal invested together with the accrued
interest or earned dividend fixed by the board of
directors and expressed in the stock shares. The
capital stock shall consist of the proceeds of such
paid-up or investment stock and of such
accumulated dues together with the earnings and
profits of the corporation, and shall in no case
exceed three million pesos.

Section 175. The capital stock shall be divided

into shares of the matured or par value of two
hundred pesos each.

Section 176. Certificates of stock shall be issued

to each stockholder on the payment of
membership fee and first installment of dues by
him. The corporation shall have the power to
charge a membership or entrance fee not
exceeding one peso upon each share of stock
issued and may also charge a transfer fee not
exceeding twenty centavos on each share
transferred, all of which shall be paid into the
treasury and accounted for as funds of the
corporation. Shares which have not been pledged
as security for the payment of a loan shall be
called "pledged shares".

Section 177. Payment of dues on shares of

stock shall commence from the time that such
shares were issued.

Section 178. For any neglect, refusal, or failure

to make payment of dues or premiums or interest
on loans when due, the corporation shall have
power by its by-laws to impose and collect a fine
on the delinquent or defaulting stockholder not
exceeding ten per centum of the defaulted
amount due from him and a like fine on every
regular pay during such default. Payments of
dues or interest may be made in advance, but the
corporation shall not allow interest on such
advance payments at a greater rate than six per
centum per annum nor for a longer period than
one year.

Section 179. Whenever any stockholder shall be

six months in arrears in the payment of his dues
upon free shares, the secretary or clerk of the
corporation shall give him notice in writing of his
arrearages by mailing to him at the last postoffice address given by him to corporation a
statement of all such arrearages. If the
50

stockholder shall not pay within two months after

such notice the full amount of his arrearages the
board of directors may, at its option, declare his
shares forfeited. At the time of the forfeiture the
withdrawal value of the forfeited shares shall be
determined and stated by the board of directors,
and the defaulting stockholder shall be entitled to
receive such value without interest upon such
notice as is required of a withdrawing
stockholder. In determining the withdrawal value
of such forfeited shares the board of directors
shall charge such shares with all fines assessed in
accordance with this section.

time to time by the board of directors. The

premium may be deducted from the amount of
the loan or such proportion may be so deducted
as may be prescribed in the by-laws. Where only
a part of the premium is deducted the balance
thereof must be paid to the corporation in such
installments as the by-laws shall determine:
PROVIDED, HOWEVER, That the number of
installments into which the premium is divided
shall be uniform for all loans made by the
corporation, and that the time and manner of
payment of such installments shall be prescribed
in the by-laws.

Section 180. When the stock shall have reached

its matured valued, payment of dues thereon
shall cease and holders of such matured shares
shall be paid out of funds of the corporation the
matured value of their shares with interest
thereon at the rate determined in the by-laws,
from the time the board of directors shall declare
such shares to have matured until payment is
made. The order of payment of matured shares
shall be determined by the by-laws and at no
time shall more than one-third of the receipts of
the corporation be applied to the payment of
matured shares without the consent of the board
of directors: PROVIDED, HOWEVER, That if shares
pledged to the corporation as security for loans
shall mature before the loan is repaid the
matured value may be paid to the holder in cash
as in this section provided or may be credited t
the loan at the option of the board of directors.

Section 182. Every loan made by the

corporation must be properly evidenced by a
note or other instrument in writing and must be
secured by a first mortgage or deed of trust on
unencumbered real estate and also by the pledge
to the corporation of shares of stock of the
corporation the matured value of which shall at
least equal the amount loaned: PROVIDED,
HOWEVER, That loans may be made on the
security of free shares pledged to the corporation
for the repayment of the loan in case, at the time
that the loan is made, the withdrawal value of
such free shares under the by-laws shall exceed
the amount borrowed and interest thereon for six
months: AND PROVIDED FURTHER, That no loan
on the security of real estate shall be made unless
the title to such real estate have been first
registered in accordance with the Land
Registration Act and unless such real estate shall
be situate within the city or municipality in which
the principal place of business of the corporation
is established.

Section 181. The moneys in the hands of the

treasurer of the corporation and such sums as
may be borrowed by the corporation for the
purpose shall be loaned out in open meeting to
the stockholders who shall pay the highest
premium for such loan, or said moneys may be
loaned at such premium as may be fixed from

Section 183. In the discretion of the board of

directors a loan may be repaid by the surrender
of pledged shares whose withdrawal value equals

51

the amount loaned and all interest and fines

accrued thereon.

Section 184. The rate of interest on all loans

may be fixed in the by-laws or may be prescribed
from time to time by the board of directors.

Section 185. Whenever

a
borrowing
stockholder shall be three months in arrears in
the payment of his dues on stock or the interest
or premium or installments of premium on any
loan, the whole loan, at the option of the board
of directors, shall become due and payable and
the board may proceed by action to enforce
collection upon the securities held by the
corporation. The withdrawal value of all shares
pledged as collateral security at the time of the
commencement of the action shall be applied to
the payment of the loan, and such shares from
the time of such application shall be deemed to
be surrendered to the corporation.

Section 186. The corporation may purchase at

any sale, public or private, any real estate upon
which it may have a mortgage, judgment, lien, or
other encumbrance, or in which it may have any
interest, and may sell, convey, lease, or mortgage
such real estate: PROVIDED, That real estate so
purchased must be finally disposed of or sold by
the corporation within five years after receiving
title to the same.

Section 187. Stockholders may surrender their

shares and withdraw from the corporation after
paying twelve monthly installments of dues and
upon giving sixty day's notice in writing to the
board of directors, and the withdrawal value of
such shares shall be the total sum of the dues
paid thereon plus such interest as shall be

allowed by the board of directors: PROVIDED,

HOWEVER, That not more than one-third of the
total receipts of the corporation shall be paid in
any one month to retire such shares: AND
PROVIDED FURTHER, That payment for such
surrendered shares shall be made in the order in
which notices of withdrawal have been received
by the board of directors: AND PROVIDED
FURTHER, That should the business of the
corporation during the period such withdrawing
member has been a stockholder show a loss, the
withdrawal value of stock shall be charged with
its proportion of such loss. Except in cases of
voluntary or forced liquidation of a building and
loan corporation or of forfeited as provided by
section one hundred and seventy-nine of this Act,
the board of directors of such corporations shall
not have power to force the surrender and
withdrawal of unmatured stock.

Section 188. At least once a year profits and

losses on all business transacted shall be
determined by the board of directors and
apportioned to all the shares in each series
outstanding at the time of such apportionment
on the basis of the actual value of shares as
distinguished from their withdrawal value.

Section 189. Building and loan corporations

shall be subject to all the provisions of Act
Numbered Fifty-two, entitle "An Act providing for
examinations of banking institutions in the
Philippine Islands, and for reports by their
officers," as amended by Act Numbered Five
hundred and fifty-six, in the same way and to the
same extent as if such corporations were
engaged in the banking business in the Philippine
Islands.

52

Section 190. No foreign building and loan

corporation or building and loan corporation not
formed, organized, or existing under the laws of
the Philippine Islands shall be permitted to
transact business in the Philippine Islands.

laws that were in force prior to the passage of

this Act in relation to their organization and
method of transacting business and to the rights
of members thereof as between themselves, but
their relations to the public and public officials
shall be governed by the provisions of this Act.

REPEALING PROVISIONS
Section 192. This Act shall take effect on April
first, nineteen hundred and six.
Section 191. The Code of Commerce, in so far
as it relates to corporations or Sociedades
Anonimas, and all other Acts or parts of Acts in
conflict or inconsistent with this Act, are hereby
repealed, with the exception of Act Numbered
Fifty-two, entitled "An Act providing for
examinations of banking institutions in the
Philippine Islands, and for reports by their
officers," as amended, and Act Numbered Six
hundred and sixty-seven, entitled "An Act
prescribing the method of applying to
governments of municipalities, except the city of
Manila, and of provinces for franchises to
construct and operate street highway, electric
light and power, and telephone lines, the
conditions upon which the same may be granted,
certain powers of the grantees of said franchises,
and of grantees of similar franchises under
special Act of the Commission, and for other
purposes": PROVIDED, HOWEVER, That nothing in
this Act contained shall be deemed to repeal the
existing law relating to those classes of
associations which are termed Sociedades
Colectivas, Sociedades en Comandita, and
Sociedades de Cuentas en Participation, as to
which associations the existing law shall be
deemed to be still in force: AND PROVIDED
FURTHER, That existing corporations or
Sociedades Anonimas, lawfully organized as such,
which elect to continue their business as such
Sociedades Anonimas instead of reforming and
reorganizing under and by virtue of the provisions
of this Act, shall continue to be governed by the

ENACTED, March 1, 1906.

____________________________________

Begun and held in Metro Manila, on Monday, the

twenty-eight day of July, two thousand three.
Republic Act No. 9266

March 17, 2004

AN ACT PROVIDING FOR A MORE RESPONSIVE

AND COMPREHENSIVE REGULATION FOR THE
REGISTRATION, LICENSING AND PRACTICE OF
ARCHITECTURE, REPEALING FOR THE PURPOSE
REPUBLIC ACT NO. 545, AS AMENDED,
OTHERWISE KNOWN AS "AN ACT TO REGULATE
THE PRACTICE OF ARCHITECTURE IN THE
PHILIPPINES," AND FOR OTHER PURPOSES.
Be it enacted by the Senate and House of
Representatives of the Philippines in Congress
assembled:
ARTICLE I
GENERAL PROVISION
SECTION 1. Short Title. - This Act shall be known
as "The Architecture Act of 2004."
SECTION 2. Statement of Policy. - The State
recognizes the importance of architects in nation
building and development. Hence, it shall develop
and nurture competent, virtuous, productive and
well-rounded professional architects whose
53

standards of practice and service shall be

excellent, qualitative, world-class and globally
competitive through inviolable, honest, effective
and credible licensure examinations and through
regulatory measures, programs and activities that
foster their professional growth and
development.
SECTION 3. Definition of Terms. - As used in this
Act, the following terms shall be defined as
follows:
(1) "Architecture" is the art, science or
profession of planning, designing and
constructing buildings in their totality
taking into account their environment, in
accordance with the principles of utility,
strength and beauty;
(2) "Architect" means a person
professionally and academically qualified,
registered and licensed under this Act
with a Certificate of Registration and
Professional Identification Card issued by
the Professional Regulatory Board of
Architecture and the Professional
Regulation Commission, and who is
responsible for advocating the fair and
sustainable development, welfare and
cultural expression of society's habitat in
terms of space, forms and historical
context;
(a) "Architect-of-record" means
the architect registered and
licensed under this Act, who is
directly and professionally
responsible for the total design of
the project for the client and who
shall assume the civil liability for
the plans, specifications and
contract documents he/she has
signed and sealed;
(b) "Architecture-in-charge of
construction" means an architect
registered and licensed under this
Act, who is directly and
professionally responsible and

liable for the construction

supervision of the project;
(c) "Consulting Architect" means
the architect registered and
licensed or permitted to practice
under this Act, who is
professionally and academically
qualified and with exceptional or
recognized expertise or
specialization in any branch of
architecture;
(3) "General Practice of Architecture"
means the act of planning and
architectural designing, structural
conceptualization, specifying, supervising
and giving general administration and
responsible direction to the erection,
enlargement or alterations of buildings
and building environments and
architectural design in engineering
structures or any part thereof; the
scientific, aesthetic and orderly
coordination of all the processes which
enter into the production of a complete
building or structure performed through
the medium of unbiased preliminary
studies of plans, consultations,
specifications, conferences, evaluations,
investigations, contract documents and
oral advice and directions regardless of
whether the persons engaged in such
practice are residents of the Philippines or
have their principal office or place of
business in this country or another
territory, and regardless of whether such
persons are performing one or all these
duties, or whether such duties are
performed in person or as the directing
head of an office or organization
performing them;
(4) "Scope of the Practice of Architecture"
encompasses the provision of professional
services in connection with site, physical
and planning and the design, construction,
enlargement, conservation, renovation,
remodeling, restoration or alteration of a

54

building or group of buildings. Services

may include, but are not limited to:
(a) planning, architectural
designing and structural
conceptualization;
(b) consultation, consultancy,
giving oral or written advice and
directions, conferences,
evaluations, investigations, quality
surveys, appraisals and
adjustments, architectural and
operational planning, site analysis
and other pre-design services;
(c) schematic design, design
development, contract documents
and construction phases including
professional consultancies;
(d) preparation of preliminary,
technical, economic and financial
feasibility studies of plans, models
and project promotional services;
(e) preparation of architectural
plans, specifications, bill of
materials, cost estimates, general
conditions and bidding documents;
(f) construction and project
management, giving general
management, administration,
supervision, coordination and
responsible direction or the
planning, architectural designing,
construction, reconstruction,
erection, enlargement or
demolition, renovation, repair,
orderly removal, remodeling,
alteration, preservation or
restoration of buildings or
structures or complex buildings,
including all their components,
sites and environs, intended for
private or public use;
(g) the planning, architectural layouting and utilization of spaces
within and surrounding such

buildings or structures, housing

design and community
architecture, architectural interiors
and space planning, architectural
detailing, architectural lighting,
acoustics, architectural lay-outing
of mechanical, electrical,
electronic, sanitary, plumbing,
communications and other utility
systems, equipment and fixtures;
(h) building programming, building
administration, construction
arbitration and architectural
conservation and restoration;
(i) all works which relate to the
scientific, aesthetic and orderly
coordination of all works and
branches of the work, systems and
process necessary for the
production of a complete building
or structure, whether for public or
private use, in order to enhance
and safeguard life, health and
property and the promotion and
enrichment of the quality of life,
the architectural design of
engineering structures or any part
thereof; and
(j) all other works, projects and
activities which require the
professional competence of an
architect, including teaching of
architectural subjects and
architectural computer-aided
design;
(5) "Structural Conceptualization" means
the act of conceiving, choosing and
developing the type, disposition,
arrangement and proportioning of the
structural elements of an architectural
work giving due consideration to safety,
cost-effectiveness, functionality and
aesthetics;
(6) "Architectural Firm" means a sole
proprietorship, a partnership or a
55

corporation registered with the proper

government agencies;
(7) "Authorship" refers to the author or
authors of a set of architectural plans or
specifications who are in charge of their
preparation, whether made by them
personally or under their immediate
supervision;
(8) "Board" refers to the Professional
Regulatory Board of Architecture;
(9) "Commission" means the Professional
Regulation Commission;
(10) "Service Agreement" means a duly
notarized written contract or equivalent
public instrument stipulating the scope of
services and guaranteeing compensation
of such services to be rendered by an
architect registered and licensed under
this Act;
(11) "Integrated and Accredited
Professional Organization" means the
existing official national organization of all
architects of the Philippines in which all
registered Filipino architects shall be
members without prejudice to
membership in other voluntary
professional associations;
(12) "Continuing Professional
Development" refers to a sustaining and
progressive learning process that
maintains, enhances, or increases the
knowledge and continuing ability of
architects;
(13) "DTI" shall mean the Department of
Trade and Industry; and
(14) "SEC" shall mean the Securities of
Exchange Commission.
ARTICLE II
PROFESSIONAL REGULATORY BOARD OF
ARCHITECURE

SECTION 4. Creation and Composition of the

Professional Regulatory Board. - There is hereby
created a Professional Regulatory Board of
Architecture, hereinafter referred to as the
Board, a collegial body under the supervision and
administrative control of the Professional
Regulation Commission, hereinafter referred to
as the Commission, to be composed of a
chairman and two (2) members appointed by the
President of the Philippines from a lists of three
(3) recommendees chosen from a list of five (5)
nominees for each position submitted to the
Commission by the integrated and the accredited
professional organization of architects. The Board
shall be organized not later than six (6) months
from the effectivity of this Act.
SECTION 5. Qualifications of Members of the
Professional Regulatory Board. - Each member
shall have at the time of his/her appointment,
possess the following qualifications:
(a) be a citizen and resident of the
Philippines;
(b) be a holder of a degree in Bachelor of
Science in Architecture conferred by a
school, college or university in the
Philippines or abroad that is recognized
and/or accredited by the Commission on
Higher Education (CHED);
(c) be an architect with a valid Certificate
of Registration and Professional
Identification Card and active practitioner
of architecture for at least ten (10) years
on the date of his/her appointment;
(d) not be a member of the faculty of any
good school, college, university or review
institution where a regular course or
review course in architecture is taught,
nor have pecuniary interest in such
institution. No former member of the
faculty of any school, institute, university
or review center where architecture is
taught can become a member of the
Board unless he/she had officially
resigned from such an institution and has
completely stopped teaching, advising or
56

reviewing activities for at least five (5)

years prior to the nomination; and
(e) Has never been convicted of any crime
involving moral turpitude.
SECTION 6. Term of Office. - The members of the
Board shall hold office for a term of three (3)
years after appointment or until their successors
shall have been appointed and duly qualified. Any
vacancy occurring within the term of a member
shall be filled for the unexpired portion of the
term only. Each member of the Board may be
reappointed for one full term of three (3) years.
Of the members of the Board first appointed
under this Act, one (1) member shall be
appointed and hold office as chairman for three
(3) years, one (1) member for two (2) years, and
one (1) member for one (1) year. Each member of
the Board shall qualify by taking the proper oath
prior to the performance shall qualify by taking
the proper oath prior to the performance of their
duties. Provided, That the incumbent members of
the Board shall continue to serve for the
remainder of their term as members of the
herein created Professional Regulatory Board of
Architecture until a new Board shall have been
properly organized.
SECTION 7. Powers and Functions of the Board. The Board shall exercise the following specific
powers, functions and responsibilities:
(a) Prescribe and adopt the rules and
regulations necessary for carrying out the
provisions of this Act;
(b) Supervise the registration, licensure
and practice of architects;
(c) Administer oaths in connection with
the administration of this Act;
(d) Issue, suspend, revoke, or reinstate the
Certificate of Registration and the
professional Identification Card for the
practice of the architecture profession;
(e) Adopt an official seal of the Board;

(f) Monitor the conditions affecting the

practice of architecture and adopt such
measures as may be deemed proper for
the enhancement and maintenance of
high professional, ethical and technical
standards of the profession;
(g) Prescribe and/or adopt the Code of
Ethical Conduct and Standards of
Professional Practice;
(h) Hear and decide administrative cases
involving violations of this Act, its
implementing rules and regulations, the
Code of Ethical Conduct and Standards of
Professional Practice, and for this
purpose, to issue subpoena ad
testifcandum and subpoena duces tecum
to secure the appearance of witnesses
and the production of documents in
connection therewith: Provided, That the
decision of the Board shall, unless
appealed to the Commission, become
final and executory after fifteen (15) days
from receipt of notice of judgment or
decision. The decision of the Commission
may be appealed to the Court of Appeals
in accordance with the procedure under
the Rules of Court;
(i) Prescribe guidelines for the Continuing
Professional Development (CPD) program
in consultation with the integrated and
accredited professional organization of
architects: Provided, That the attendance
to said CPD shall not be a mandatory
requirement for the renewal of a
professional license;
(j) Prepare, adopt, issue or amend the
syllabi of the subjects for examinations by
determining and preparing questions
which shall be within the scope of the
syllabi of the subject for examination as
well as administer, correct and release the
results of the licensure examinations;
(k) Approve, issue, limit or cancel
temporary or special permit to practice
architecture;
57

(l) In coordination with the CHED, ensure

that all higher educational instruction and
offerings of architecture comply with the
policies, standards and requirements of
the course prescribed by the CHED in the
areas of curriculum, faculty, library and
facilities;

(b) Violation of tolerance of the violation

of this Act, or its implementing rules and
regulations or the Code of Ethical Conduct
and Standards of Professional Practice;

(m) To adopt a program for the full

computerization of the licensure
examination; and

(d) Manipulation or rigging of the

architecture licensure examination
results, disclosure of secret and
confidential information in the
examination questions prior to the
conduct of the said examination or
tampering of grades.

(n) Discharge such other duties and

functions as may be deemed necessary for
the enhancement of the architecture
profession and the upgrading,
development and growth of the
architecture education.
The policies, resolutions, rules and regulations,
issued or promulgated by the Board shall be
subject to review and approval of the
Commission. However, the Board's decisions,
resolutions or orders rendered in administrative
cases shall be subject to review only if on appeal.
SECTION 8. Administrative Supervision of the
Board, Custodian of its Records, Secretariat and
Support Services. - The Board shall be under the
administrative supervision of the Commission. All
records of the Board, including applications for
examination, and administrative and other
investigative cases conducted by the Board shall
be under the custody of the Commission. The
Commission shall designate the Secretary of the
Board and shall provide the secretariat and other
support services to implement the provisions of
this Act.
SECTION 9. Grounds for Suspension or Removal
of Members of the Board. - The President of the
Philippines, upon the recommendation of the
Commission, after giving the concerned member
an opportunity to defend himself in a proper
administrative investigation to be conducted by
the Commission, may suspend or remove any
member on the following grounds:
(a) Neglect of duty or incompetence;

(c) Final judgment of crimes involving

moral turpitude; and

SECTION 10. Compensation and Allowances of

the Board. - The chairman and members of the
Board shall receive compensation and allowances
comparable to that being received by the
chairman and members of existing regulatory
Boards under the Commission as provided for in
the General Appropriations Act.
SECTION 11. Annual Report. - The Board shall
submit an annual report to the Commission after
the close of each year giving a detailed account of
its proceedings during the year and making such
recommendations as it may deem proper.
ARTICLE III
EXAMINATION, REGISTRATION AND LICENSURE
SECTION 12. Examination Required. - All
applicants for registration for the practice of
architecture shall be required to undergo a
licensure examination to be given by the Board in
such places and dates as the Commission may
designate in accordance with the provisions of
Republic Act No. 8981.
SECTION 13. Qualifications of Applicant for
Examination. - Any person applying for
examination shall establish to the satisfaction of
the Board that:
(a) He/she is a Filipino citizen or a citizen
of a foreign country qualified to take the
examination as provided for in this Act;
(b) He/she is of good moral character;
58

(c) He/she is a holder of a degree of

Bachelor of Science in Architecture
conferred by a school, college, academy
or institute duly recognized and/or
accredited by the Commission on Higher
Education (CHED) and in addition has a
specific record of at least two (2) years or
equivalent of diversified architectural
experience duly certified by a
registered/licensed architect: Provided,
however, That an applicant holding a
Master's Degree in Architecture from a
school, college, university or institute
recognized by the government shall be
credited one (1) year in his/her practical
experience; and
(d) He/she has not been convicted of any
criminal offensive involving moral
turpitude.
SECTION 14. Subjects for Examination. - The
licensure examination for architects shall cover,
but are not limited to, the following subjects:
(1) History and Theory of Architecture;
Principles of Planning and Architectural
Practice;
(2) Structural Design, Building Materials,
and Architectural Specifications, and
Methods of Construction and Utilities;
(3) Urban Design and Architectural
Interiors; and
(4) Architectural Design and Site Planning.

lower than fifty percent (50%) in any given

subject.
SECTION 16. Report of Ratings. - The Board shall
submit to the Commission the ratings obtained by
each candidate within thirty (30) calendar days
after the examination, unless extended for just
cause. Upon the release of the results of the
examination, the Board shall send by mail the
rating received by each examinee at his/her given
address using the mailing envelope submitted
during the examination.
SECTION 17. Oath. - All successful candidates in
the examination shall be required to take an oath
of profession before any member of the Board,
any government official authorized by the
Commission or any person authorized by law to
administer oaths, prior to entering upon the
practice of the profession.
SECTION 18. Issuance of Certificates of
Registration and Professional Identification
Card. - A Certificate of Registration and
Professional Identification Card shall be issued to
examinees who pass the licensure examination
subject to payment of fees prescribed by the
Commission. The Certificate of Registration shall
bear the signature of the chairperson of the
Commission and the chairman and members of
the Board, stamped with the official seal,
indicating that the person named therein is
entitled to the practice of the profession with all
the privileges appurtenant thereto. The said
certificate shall remain in full force and affect
until withdrawn, suspended or revoked in
accordance with this Act.

The Board, subject to the approval of the

Commission, may revise or exclude any of the
subjects and their syllabi, and add new ones as
the need arises to conform to technological
changes brought about by continuing trends in
the profession.

A Professional Identification Card bearing the

registration number, date of issuance, expiry
date, duly signed by the chairperson of the
Commission, shall likewise be issued to every
registrant who has paid the prescribed fee.

SECTION 15. Rating in the Licensure

Examination. - To be qualified as having passed
the licensure examination for architects, a
candidate must obtain a weighted general
average of seventy percent (70%), with no grade

SECTION 19. Roster of Architects. - A roster

showing the names and place of business of all
registered professional architects shall be
prepared and updated by the Board and copies
thereof shall be made available to any party as
may be deemed necessary.
59

SECTION 20. Seal, Issuance and Use of Seal. - A

duly licensed architect shall affix the seal
prescribed by the Board bearing the registrant's
name, registration number and title "Architect"
on all architectural plans, drawings, specifications
and all other contract documents prepared by or
under his/her direct supervision.

of work for any function of architectural

practice, not actually performed by
him/her. The architect-of-record shall be
fully responsible for all architectural plans,
specifications and other documents issued
under his/her seal or authorized
signature.

(1) Each registrant hereunder shall, upon

registration, obtain a seal of such design
as the Board shall authorize and direct.
Architectural plans and specifications
prepared by, or under the direct
supervision of a registered architect shall
be stampede with said seal during the life
of the registrant's certificate, and it shall
be unlawful for any one to stamp or seal
any documents with said seal after the
certificate of the registrant named
thereon has expired or has been revoked,
unless said certificate shall have been
renewed or re-issued.

(4) Drawings and specifications duly

signed, stamped or sealed, as instruments
of service, are the intellectual properties
and documents of the architect, whether
the object for which they are made is
executed or not, It shall be unlawful for
any person, without the consent of the
architect or author of said documents, to
duplicate or to make copies of said
documents for use in the repetition of and
for other projects or buildings, whether
executed partly or in whole.

(2) No officer or employee of this

Republic. Chartered cities, provinces and
municipalities, now or hereafter charged
with the enforcement of law, ordinances
or regulations relating to the construction
or alteration of buildings, shall accept or
approve any architectural plans or
specifications which have not been
prepared and submitted in full accord
with all the provisions of this Act; nor shall
any payments be approved by any such
officer for any work, the plans and
specifications for which have not been so
prepared and signed and sealed by the
author.
(3) It shall be unlawful for any architect to
sign his/her name, affix his/her seal or use
any other method of signature on
architectural plans, specifications or other
documents made under another
architect's supervision, unless the same is
made in such manner as to clearly indicate
the part or parts of such work actually
performed by the former, and it shall be
unlawful for any person, except the
architect-of-record, to sign for any branch

(5) All architectural plans, designs,

specifications, drawings and architectural
documents relative to the construction of
a building shall bear the seal and signature
only of an architect registered and
licensed under this Act together with
his/her professional identification card
number and the date of its expiration.
SECTION 21. Indication of Certificate of
Registration/Professional Identification Card
and Professional Tax Receipt. - The architect
shall be required to indicate his/her Certificate of
Registration and Professional Identification Card,
its date of issuance and the duration of validity,
including the professional tax receipt number, on
the documents he/she signs, uses or issues in
connection with the practice of his/her
profession.
SECTION 22. Refusal to Issue Certificate of
Registration and Professional Identification
Card. - The Board shall not register and issue a
Certificate of Registration and Professional
Identification Card to any person who has falsely
sworn or misrepresented himself/herself in
his/her application for examination or to any
person convicted by a court of competent
jurisdiction of a criminal offense involving moral
60

turpitude or guilty of immoral and dishonorable

conduct or to any person of unsound mind. In the
even of refusal to issue certificate for any reason,
the Board shall give the applicant a written
statement setting forth the reasons for such
action, which statement shall be incorporated in
the record of the Board: Provided, however, That
registration shall not be refused and a name shall
not be removed from the roster of architects on
conviction for a political offense or for an offense
which should not, in the opinion of the Board,
either from the nature of the offense or from the
circumstances of the case, disqualify a person
from practicing under this Act.
SECTION 23. Suspension and Revocation of
Certificates of Registration, Professional
Identification Card or the Special/Temporary
Permit. - The Board shall have the power, upon
notice and hearing, to suspend or revoke the
validity of a Certificate of
Registration/Professional Identification Card, or
shall cancel a special permit granted under this
Act to an architect, on any ground mentioned
under Section 22 hereof for the use of or
perpetuation of any fraud or deceit in obtaining a
Certificate of Registration and Professional
Identification Card or special/temporary or
dishonorable conduct; or for any cause specified
hereunder: Provided, however, That such action
of the Board shall be subject to appeal to the
Commission whose decision shall be final if
he/she:
(a) has signed and affixed or permitted to
be signed or affixed his name or seal on
architectural plans and designs,
specification, drawings, technical reports,
valuation, estimates, or other similar
documents or work not prepared by
him/her or not executed under his/her
immediate supervision; or
(b) has paid money except the regular
fees provided for to secure a Certificate of
Registration; or
(c) has falsely impersonated a
practitioner, or former practitioner of
alike or different name or has practiced

under an assumed, fictitious or corporate

name other than that of the registered; or
(d) has aided or abetted in the practice of
architecture any person not duly
authorized to practice architecture in the
Philippines; or
(e) has openly solicited projects by
actually undertaking architectural services
without a valid service agreement
guaranteeing compensation of services to
be rendered and/or has actually allowed
himself/herself to be exploited by
undertaking architectural services without
a valid sevice agreement, both acts being
prejudicial to other architects registered
and licensed under this Act and inimical to
the interests of the profession; or
(f) has violated any provision of this Act,
its implementing rules and regulations,
the Code of Ethical Conduct and
Standards of Professional Practice.
The Board shall periodically examine the grounds
for the revocation of the Certificate of
Registration and Professional Identification Card
and update these as necessary under the
implementing rules and regulations.
Any person, firm or association, may prepare
charges in accordance with the provisions of this
section against any registrant, or the Board may
motu proprio investigate and/or take cognizance
of act and practices constituting sufficient cause
for suspension or revocation of the Certificate of
Registration by proper resolution or order. Such
charges shall be in writing and shall be sworn to
by the person making them and shall be filed with
the Secretary of the Board.
SECTION 24. Re-issuance or Replacement of
Revoked or Lost Certificates of Registration
Professional Identification Card or Special and
Temporary Permit. - The Board may, after the
expiration of two (2) years from the date of
revocation of a Certificate of Registration,
Professional Identification Card or
special/temporary permit, and upon application
and for reasons deemed proper and sufficient,
61

reinstate the validity of a revoked Certificate of

Registration and in so doing may, in its discretion,
exempt the applicant from taking another
examination.
A new Certificate of Registration or Professional
Identification Card, temporary/special permit
replace those which have been lost, destroyed, or
mutilated, may be re-issued, subject to the rules
promulgated by the Board and the Commission,
upon payment of the required fees.
ARTICLE IV
PRACTICE OF ARCHITECTURE
SECTION 25. Registration of Architects
Required. - No person shall practice architecture
in this country, or engage in preparing
architectural plans, specification or preliminary
data for the erection or alteration of any building
located within the boundaries of this country or
use the title "Architect," or display or use any
title, sign, card, advertisement, or other device to
indicate such person practices or offers to
practice architecture, or is an architect, unless
such person shall have received from the Board a
Certificate of Registration and be issued a
Professional Identification Card in the manner
hereinafter provided and shall thereafter comply
with the provisions of this Act.
A foreign architect or any person not authorized
to practice architecture in the Philippines, who
shall stay in the country and perform any of the
activities mentioned in Sections 3 and 4 of this
Act, or any other activity analogous thereto, in
connection with the construction of any
building/structure/edifice or land development
project, shall be deemed engaged in the
unauthorized practice of architecture.
SECTION 26. Vested Rights: Architects Registered
When this Law is Passed. - All architects
registered at the time this law takes effect shall
automatically be registered under the provisions
hereof, subject, however, to the provisions herein
set forth as to future requirements.
Certificate of Registration held by such persons in
good standing shall have the same force and

effect as though issued after the passage of this

Act.
SECTION 27. Reciprocity Requirements. - A
person who is not a citizen of the Philippines at
the time he/she applies to take the examination
shall not be allowed to take the licensure
examination unless he/she can prove, in the
manner provided by the Rules of Court that, by
specific provision of law, the country of which
he/she is a citizen, subject or national either
admits citizens of the Philippines to the practice
of the same profession without restriction or
allows them to practice it after passing an
examination on terms of strict and absolute
equality with citizens, subjects or national of the
country concerned, including the unconditional
recognition of prerequisite degrees/diplomas
issued by the institutions of learning duly
recognized for the purpose by the Government of
the Philippines.
SECTION 28. Continuing Professional
Development (CPD). - To promote public interest
and to safeguard life, health and property, all
practicing architects shall maintain a program of
continuing professional organization shall have
the responsibility of developing a continuing
professional development program for architects.
Other entities or organizations may become CPD
providers upon accreditation by the Board.
SECTION 29. Prohibition in the Practice of
Architecture and Penal Clause. - Any person who
shall practice or offer to practice architecture in
the Philippines without being registered/licensed
and who are not holders of temporary or special
permits in accordance with the provisions of this
Act, or any person presenting or attempting to
use as his/her own the Certificate of
Registration/Professional Identification Card or
seal of another or temporary or special permit, or
any person who shall give any false or forged
evidence o any kind to the Board or to any
member thereof in obtaining a Certificate of
Registration/Professional Identification Card or
temporary or special permit, or any person who
shall falsely impersonate any registrant of like or
different name, or any person who shall attempt
to use a revoked or suspended Certificate of
62

Registration/Professional Identification Card or

cancelled special/temporary permit, or any
person who shall use in connection with his/her
name or otherwise assume, use or advertise any
title or description tending to convey the
impression that he/she is an architect when
he/she is not an architect, or any person whether
Filipino or foreigner, who knowingly allows the
use, adoption, implementation of plans, designs
or specification made by any person, firm,
partnership or company not duly licensed to
engage in the practice of architecture, or any
person who shall violate any of the provisions of
this Act, its implementing rules and regulations,
the Code of Ethical Conduct and Standards of
Professional Practice, or any policy of the Board
and the Commission, shall be guilty of
misdemeanor and charged in court by the
Commission and shall, upon conviction be
sentenced to a fine of not less than One hundred
thousand pesos (P100,000.00) but not more than
Five Million pesos (P5,000,000,00) or to suffer
imprisonment for a period not less than six (6)
months or not exceeding six (6) years, or both, at
the discretion of the Court.

shall be deemed guilty of violation of this Act.

Solicitation of architectural work shall be
construed as offering to practice architecture and
shall be unlawful for any non-registered and
unlicensed persons to do so.

SECTION 30. Prohibition in the Practice of

Architecture. - Any person or entity, whether
public or private, Filipino or foreigner, who/which
shall entice, compel, coerce, require or otherwise
force an architect registered and licensed under
this Act to undertake/perform any service under
the general practice of architecture as defined
under this Act, without first executing a written
contract/service agreement, shall be guilty of a
misdemeanor and shall, upon conviction be
sentenced to a fine of not less than Two hundred
thousand pesos (P200,000.00) or to suffer
imprisonment for a period not exceeding six (6)
years, or both, at the discretion of the Court.

SECTION 33. Ownership of Plans, Specifications

and other Contract Documents. - Drawings and
specifications and other contract documents duly
signed, stamped or sealed, as instruments of
service, are the intellectual property and
documents of thr architect, whether the object
for which they are made is executed or not. It
shall be unlawful for any person to duplicate or to
make copies of said documents for use in the
repetition of and for other projects or buildings,
whether executed partly or in whole, without the
written consent of architect or author of said
documents.

SECTION 31. Liability of Representatives of NonRegistered Persons. - It shall be unlawful for any
person or firm or corporation to seek to avoid the
provisions of this Act by having a representative
or employee seek architectural work in their
behalf, unless and until, such persons have duly
qualified and are duly registered/licensed,
otherwise, both those represented and
representative, the employer and the employee

SECTION 32. Signing of Architectural Plans,

Specifications and Other Contract Documents. It shall be unlawful for any architect to sign
his/her name, affix his/her seal, or use any other
method of signature or architectural plans,
specifications or other contract documents made
under another architect's supervision, unless the
same is made in such manner as to clearly
indicate the part or parts of such work actually
performed by the former; and shall be unlawful
for any person, except the Architect-of record
shall be fully responsible for all architectural
plans, specifications, and other documents issued
under his/her seal or authorized signature.
The Board shall make all the necessary rules and
regulations with regards to the signing and
sealing of drawings, specifications, reports, and
other documents.

All architects shall incorporate this provision in all

contract documents and other instruments of
service.
SECTION 34. Non-Registered Person Shall Not
Claim Equivalent Service. - Persons not registered
as an architect shall not claim nor represent
either services or work as equivalent to those of a
duly qualified registered architect, or that they
are qualified for any branch or functions of
63

function of architectural practice, even though no

form of the title "Architect" is used.
SECTION 35. Positions in Government Requiring
the Services of Registered and Licensed
Architects. - Within (3) years from the effectivity
of this Act, all existing and proposed positions in
the local and national government, whether
career, permanent, temporary or contractual and
primarily requiring the services of an architect
shall be filled only by registered and licensed
architects.
SECTION 36. Collection of Professional Fees. - It
shall be unlawful for any unregistered person to
collect a fee for architectural services except as
an employee collecting a fee as representative of
a Registered Architect.
SECTION 37. Limitation to the Registration of a
Firm, Company, Partnership, Corporation or
Association. - The practice of architecture is a
professional service, admission to which shall be
determined upon the basis of individual personal
qualifications. However, a firm, company,
partnership, corporation or association may be
registered or licensed as such for the practice of
architecture under the following conditions:
(a) Only Filipino citizens properly
registered and licensed as architects
under this Act may, among themselves, or
together with allied technical
professionals, form and obtain
registration as a firm, company,
partnership, association or corporation for
the practice of architecture;
(b) Registered and licensed architects shall
compose at least seventy-five percent
(75%) of the owners, shareholders,
members incorporators, directors,
executive officers, as the case may be;
(c) Individual members of such firm,
partnership association or corporation
shall be responsible for their individual
and collective acts as an entity and as
provided by law;

(d) Such firm, partnership, association or

corporation shall be registered with the
Securities and Exchange Commission and
Board.
SECTION 38. Coverage of Temporary/Special
Permits. - Foreign nationals who have gained
entry in the Philippines to perform professional
services as architects or consultants in foreignfunded or assisted projects of the government or
employed or engaged by Filipino or foreign
contractors or private firms, shall, before
assuming the duties, functions and
responsibilities as architects or consultants,
secure a special/temporary permit from the
Board subject to approval of the Commission. To
practice his/her profession in connection with the
project to which he/she was commissioned:
Provided, That a foreign national or foreign firm,
whose name or company name, with title
architect, architectural consultant, design
consultant, consultant or designer appear on
architectural plans, specifications and other
related construction documents, for securing
buildings permits, licenses and government
authority clearances for actual building project
construction in the Philippines and advertisement
and billboards for marketing purposes, shall be
deemed practicing architecture in the Philippines,
whether the contract for professional services is
consummated in the Philippines or in a foreign
country: Provided, further, That the following
conditions are satisfied as follows:
(a) That he/she is a citizen or subject of a
country which specifically permits Filipino
professionals to practice his/her
profession within their territorial limits, on
the same basis as the subjects or citizens
of such foreign state or country;
(b) That he/she is legally qualified to
practice architecture in his/her own
country, and that his/her expertise is
necessary and advantageous to our
country particularly in the aspects of
technology transfer and specialization;
(c) That foreign nationals shall be required
to work with a Filipino counterpart and
64

shall also be responsible for public utilities

and taxes due to the Philippine
government, relative to their participation
in, or professional services rendered to
the project, in accordance with the
established implementing rules and
regulations providing for the procedure
for the registration and/or issuance of
temporary/special permits to foreign
architects allowed by law to practice their
profession in the Philippines by the Board
of Architecture and the accredited
professional organization; and
(d) Agencies, organizations or individuals,
whether public or private, who secure the
services of foreign professional authorized
by law to practice in the Philippines for
reasons aforementioned, shall be
responsible for securing a special permit
from the Professional Regulation
Commission (PRC) and the Department of
Labor and Employment (DOLE) pursuant
to PRC and DOLE rules.
SECTION 39. Liability Insurance of a Person or
Entity Allowed to Practice under a
Temporary/Special Permit. - Foreign nationals,
including former Filipinos wanting to engage in
the general practice of architecture as defined in
Section 3 (c) of this Act must secure locally their
professional liability insurance or malpractice
insurance or their acceptable equivalent in bond
form commensurate with the nature and
magnitude of their project involvement and their
compensation the implementing rules and
regulations for such a requirement for practice
shall be implemented by the Board in
consultation with the integrated and accredited
professional organization of architects within six
(6) months from the effectivity of this Act.
ARTICLE V
Final Provisions
SECTION 40. Integration of the Architecture
Profession. - The Architecture profession shall be
integrated into one (1) national organization
which shall be accredited by the Board, subject to
the approval by the Commission, as the

integrated and accredited professional

organization of architects: Provided, however,
That such an organization shall be registered with
the Securities and Exchange Commission, as a
non-profit, non-stock corporation to governed by
by-laws providing for a democratic election of its
officials. An architect duly registered with the
Board shall automatically become member of the
integrated and accredited professional
organization of architects and shall receive the
benefits and privileges provided for in this Act
upon payment of the required fees and dues.
Membership in the integrated and accredited
professional organization of architects shall not
be a bar to membership in other associations of
architects.
SECTION 41. Implementing Rules and
Regulations. - Within sixty (60) days after the
effectivity of this Act, the Board, subject to the
approval of the Commission and in coordination
with the integrated and accredited professional
organization, shall adopt and promulgate such
rules and regulations, Code of Ethical Conduct
and Standards of Professional Practice, to carry
out the provisions of this Act and which shall be
effective fifteen (15) days following their
publication in the Official Gazette or in two (2)
major daily newspapers of general circulation.
SECTION 42. Appropriations. - The Chairperson of
the Professional Regulation Commission shall
immediately include in the Commission programs
the implementation of this Act, the funding of
which shall be included in the annual General
Appropriations Act.
SECTION 43. Act Not Affecting Other
Professionals. - This Act shall not be construed to
affect or prevent the practice of any other legally
recognized profession.
SECTION 44. Enforcement of the Act. - It shall be
the primary duty of the Commission and the
Board to effectively enforce the provision of this
Act. All duly constituted law enforcement
agencies and officers of national, provincial, city
or municipal government or of any political
subdivision thereof, shall, upon the call or
request of the Commission or the Board, render
65

assistance in enforcing the provisions of this Act

and to prosecute any person violating the
provisions of the same. The Secretary of Justice
or his duly designated representative shall act as
legal adviser to the Commission and the Board
and shall render legal assistance as may be
necessary in carrying out the provisions of this
Act.
Any person may bring before the Commission,
Board or the aforementioned officers of the law,
cases of illegal practice or violations of this Act
committed by any person or party.
The Board shall assist the Commission, Board or
the aforementioned officers of the law, cases of
illegal practice or violations of this Act committed
by any person or party.
The Board shall assist the Commission in filing the
appropriate charges through the concerned
prosecution office in accordance with law and the
Rules of Court.
SECTION 45. Separability Clause. - If any clause,
provision, paragraph or part hereof shall be
declared unconstitutional or invalid, such
judgment shall not affect, invalidate or impair any
other part hereof, but such judgment shall be
merely confined to the clause, provision,
paragraph or part directly involved in the
controversy in which such judgment has been
rendered.
SECTION 46. Repealing Clause. - Republic Act No.
545, as amended by Republic Act No. 1581 is
hereby repealed and all other laws, orders, rules
and regulations or resolutions or part/s thereof
inconsistent with the provisions of this Act are
hereby repealed or modified accordingly.
SECTION 47. Effectivity. - This Act shall take
effect after fifteen 15 (5) days following its
publication in the Official Gazette or in two (2)
newspapers of general circulation.

AN ACT TO DEFINE CONDOMINIUM, ESTABLISH

REQUIREMENTS FOR ITS CREATION, AND
GOVERN ITS INCIDENTS.
Sec. 1. The short title of this Act shall be "The
Condominium Act".
Sec. 2. A condominium is an interest in real
property consisting of separate interest in a unit
in a residential, industrial or commercial building
and an undivided interest in common, directly or
indirectly, in the land on which it is located and in
other common areas of the building. A
condominium may include, in addition, a
separate interest in other portions of such real
property. Title to the common areas, including
the land, or the appurtenant interests in such
areas, may be held by a corporation specially
formed for the purpose (hereinafter known as
the "condominium corporation") in which the
holders of separate interest shall automatically
be members or shareholders, to the exclusion of
others, in proportion to the appurtenant interest
of their respective units in the common areas.
The real right in condominium may be ownership
or any other interest in real property recognized
by law, on property in the Civil Code and other
pertinent laws.
Sec. 3. As used in this Act, unless the context
otherwise requires:
(a) "Condominium" means a condominium as
defined in the next preceding section.
(b) "Unit" means a part of the condominium
project intended for any type of independent use
or ownership, including one or more rooms or
spaces located in one or more floors (or part or
parts of floors) in a building or buildings and such
accessories as may be appended thereto.
(c) "Project" means the entire parcel of real
property divided or to be divided in
condominiums, including all structures thereon,

_____________________________________
(d) "Common areas" means the entire project
excepting all units separately granted or held or
reserved.
REPUBLIC ACT NO. 4726 June 18, 1966
66

(e) "To divide" real property means to divide the

ownership thereof or other interest therein by
conveying one or more condominiums therein
but less than the whole thereof.
Sec. 4. The provisions of this Act shall apply to
property divided or to be divided into
condominiums only if there shall be recorded in
the Register of Deeds of the province or city in
which the property lies and duly annotated in the
corresponding certificate of title of the land, if the
latter had been patented or registered under
either the Land Registration or Cadastral Acts, an
enabling or master deed which shall contain,
among others, the following:
(a) Description of the land on which the building
or buildings and improvements are or are to be
located;
(b) Description of the building or buildings,
stating the number of stories and basements, the
number of units and their accessories, if any;
(c) Description of the common areas and
facilities;
(d) A statement of the exact nature of the
interest acquired or to be acquired by the
purchaser in the separate units and in the
common areas of the condominium project.
Where title to or the appurtenant interests in the
common areas is or is to be held by a
condominium corporation, a statement to this
effect shall be included;
(e) Statement of the purposes for which the
building or buildings and each of the units are
intended or restricted as to use;
(f) A certificate of the registered owner of the
property, if he is other than those executing the
master deed, as well as of all registered holders
of any lien or encumbrance on the property, that
they consent to the registration of the deed;
(g) The following plans shall be appended to the
deed as integral parts thereof:

(1) A survey plan of the land included in the

project, unless a survey plan of the same
property had previously bee filed in said office;
(2) A diagrammatic floor plan of the building or
buildings in the project, in sufficient detail to
identify each unit, its relative location and
approximate dimensions;
(h) Any reasonable restriction not contrary to law,
morals or public policy regarding the right of any
condominium owner to alienate or dispose of his
condominium.
The enabling or master deed may be amended or
revoked upon registration of an instrument
executed by the registered owner or owners of
the property and consented to by all registered
holders of any lien or encumbrance on the land
or building or portion thereof. The term
"registered owner" shall include the registered
owners of condominiums in the project. Until
registration of a revocation, the provisions of this
Act shall continue to apply to such property.
Sec. 5. Any transfer or conveyance of a unit or an
apartment, office or store or other space therein,
shall include the transfer or conveyance of the
undivided interests in the common areas or, in a
proper case, the membership or shareholdings in
the condominium
corporation: Provided, however, That where the
common areas in the condominium project are
owned by the owners of separate units as coowners thereof, no condominium unit therein
shall be conveyed or transferred to persons other
than Filipino citizens, or corporations at least sixty
percent of the capital stock of which belong to
Filipino citizens, except in cases of hereditary
succession. Where the common areas in a
condominium project are held by a corporation,
no transfer or conveyance of a unit shall be valid
if the concomitant transfer of the appurtenant
membership or stockholding in the corporation
will cause the alien interest in such corporation to
exceed the limits imposed by existing laws.
Sec. 6. Unless otherwise expressly provided in the
enabling or master deed or the declaration of

67

restrictions, the incidents of a condominium

grant are as follows:
(a) The boundary of the unit granted are the
interior surfaces of the perimeter walls, floors,
ceilings, windows and doors thereof. The
following are not part of the unit bearing walls,
columns, floors, roofs, foundations and other
common structural elements of the building;
lobbies, stairways, hallways, and other areas of
common use, elevator equipment and shafts,
central heating, central refrigeration and central
air-conditioning equipment, reservoirs, tanks,
pumps and other central services and facilities,
pipes, ducts, flues, chutes, conduits, wires and
other utility installations, wherever located,
except the outlets thereof when located within
the unit.
(b) There shall pass with the unit, as an
appurtenance thereof, an exclusive easement for
the use of the air space encompassed by the
boundaries of the unit as it exists at any particular
time and as the unit may lawfully be altered or
reconstructed from time to time. Such easement
shall be automatically terminated in any air space
upon destruction of the unit as to render it
untenantable.
(c) Unless otherwise, provided, the common
areas are held in common by the holders of units,
in equal shares, one for each unit.
(d) A non-exclusive easement for ingress, egress
and support through the common areas is
appurtenant to each unit and the common areas
are subject to such easements.
(e) Each condominium owner shall have the
exclusive right to paint, repaint, tile, wax, paper
or otherwise refinish and decorate the inner
surfaces of the walls, ceilings, floors, windows
and doors bounding his own unit.
(f) Each condominium owner shall have the
exclusive right to mortgage, pledge or encumber
his condominium and to have the same appraised
independently of the other condominiums but
any obligation incurred by such condominium
owner is personal to him.

(g) Each condominium owner has also the

absolute right to sell or dispose of his
condominium unless the master deed contains a
requirement that the property be first offered to
the condominium owners within a reasonable
period of time before the same is offered to
outside parties;
Sec. 7. Except as provided in the following
section, the common areas shall remain
undivided, and there shall be no judicial partition
thereof.
Sec. 8. Where several persons own
condominiums in a condominium project, an
action may be brought by one or more such
persons for partition thereof by sale of the entire
project, as if the owners of all of the
condominiums in such project were co-owners of
the entire project in the same proportion as their
interests in the common
areas:Provided, however, That a partition shall be
made only upon a showing:
(a) That three years after damage or destruction
to the project which renders material part
thereof unit for its use prior thereto, the project
has not been rebuilt or repaired substantially to
its state prior to its damage or destruction, or
(b) That damage or destruction to the project has
rendered one-half or more of the units therein
untenantable and that condominium owners
holding in aggregate more than thirty percent
interest in the common areas are opposed to
repair or restoration of the project; or
(c) That the project has been in existence in
excess of fifty years, that it is obsolete and
uneconomic, and that condominium owners
holding in aggregate more than fifty percent
interest in the common areas are opposed to
repair or restoration or remodeling or
modernizing of the project; or
(d) That the project or a material part thereof has
been condemned or expropriated and that the
project is no longer viable, or that the
condominium owners holding in aggregate more
than seventy percent interest in the common
areas are opposed to continuation of the
68

condominium regime after expropriation or

condemnation of a material portion thereof; or
(e) That the conditions for such partition by sale
set forth in the declaration of restrictions, duly
registered in accordance with the terms of this
Act, have been met.
Sec. 9. The owner of a project shall, prior to the
conveyance of any condominium therein, register
a declaration of restrictions relating to such
project, which restrictions shall constitute a lien
upon each condominium in the project, and shall
insure to and bind all condominium owners in the
project. Such liens, unless otherwise provided,
may be enforced by any condominium owner in
the project or by the management body of such
project. The Register of Deeds shall enter and
annotate the declaration of restrictions upon the
certificate of title covering the land included
within the project, if the land is patented or
registered under the Land Registration or
Cadastral Acts.
The declaration of restrictions shall provide for
the management of the project by anyone of the
following management bodies: a condominium
corporation, an association of the condominium
owners, a board of governors elected by
condominium owners, or a management agent
elected by the owners or by the board named in
the declaration. It shall also provide for voting
majorities quorums, notices, meeting date, and
other rules governing such body or bodies.
Such declaration of restrictions, among other
things, may also provide:
(a) As to any such management body;
(1) For the powers thereof, including power to
enforce the provisions of the declarations of
restrictions;
(2) For maintenance of insurance policies,
insuring condominium owners against loss by fire,
casualty, liability, workmen's compensation and
other insurable risks, and for bonding of the
members of any management body;

(3) Provisions for maintenance, utility, gardening

and other services benefiting the common areas,
for the employment of personnel necessary for
the operation of the building, and legal,
accounting and other professional and technical
services;
(4) For purchase of materials, supplies and the
like needed by the common areas;
(5) For payment of taxes and special assessments
which would be a lien upon the entire project or
common areas, and for discharge of any lien or
encumbrance levied against the entire project or
the common areas;
(6) For reconstruction of any portion or portions
of any damage to or destruction of the project;
(7) The manner for delegation of its powers;
(8) For entry by its officers and agents into any
unit when necessary in connection with the
maintenance or construction for which such body
is responsible;
(9) For a power of attorney to the management
body to sell the entire project for the benefit of
all of the owners thereof when partition of the
project may be authorized under Section 8 of this
Act, which said power shall be binding upon all of
the condominium owners regardless of whether
they assume the obligations of the restrictions or
not.
(b) The manner and procedure for amending such
restrictions: Provided, That the vote of not less
than a majority in interest of the owners is
obtained.
(c) For independent audit of the accounts of the
management body;
(d) For reasonable assessments to meet
authorized expenditures, each condominium unit
to be assessed separately for its share of such
expenses in proportion (unless otherwise
provided) to its owners fractional interest in any
common areas;

69

(e) For the subordination of the liens securing

such assessments to other liens either generally
or specifically described;
(f) For conditions, other than those provided for
in Sections eight and thirteen of this Act, upon
which partition of the project and dissolution of
the condominium corporation may be made.
Such right to partition or dissolution may be
conditioned upon failure of the condominium
owners to rebuild within a certain period or upon
specified inadequacy of insurance proceeds, or
upon specified percentage of damage to the
building, or upon a decision of an arbitrator, or
upon any other reasonable condition.
Sec. 10. Whenever the common areas in a
condominium project are held by a condominium
corporation, such corporation shall constitute the
management body of the project. The corporate
purposes of such a corporation shall be limited to
the holding of the common areas, either in
ownership or any other interest in real property
recognized by law, to the management of the
project, and to such other purposes as may be
necessary, incidental or convenient to the
accomplishment of said purposes. The articles of
incorporation or by-laws of the corporation shall
not contain any provision contrary to or
inconsistent with the provisions of this Act, the
enabling or master deed, or the declaration of
restrictions of the project. Membership in a
condominium corporation, regardless of whether
it is a stock or non-stock corporation, shall not be
transferable separately from the condominium
unit of which it is an appurtenance. When a
member or stockholder ceases to own a unit in
the project in which the condominium
corporation owns or holds the common areas, he
shall automatically cease to be a member or
stockholder of the condominium corporation.
Sec. 11. The term of a condominium corporation
shall be co-terminus with the duration of the
condominium project, the provisions of the
Corporation Law to the contrary notwithstanding.
Sec. 12. In case of involuntary dissolution of a
condominium corporation for any of the causes
provided by law, the common areas owned or

held by the corporation shall, by way of

liquidation, be transferred pro-indiviso and in
proportion to their interest in the corporation to
the members or stockholders thereof, subject to
the superior rights of the corporation creditors.
Such transfer or conveyance shall be deemed to
be a full liquidation of the interest of such
members or stockholders in the corporation.
After such transfer or conveyance, the provisions
of this Act governing undivided co-ownership of,
or undivided interest in, the common areas in
condominium projects shall fully apply.
Sec. 13. Until the enabling or the master deed of
the project in which the condominium
corporation owns or holds the common area is
revoked, the corporation shall not be voluntarily
dissolved through an action for dissolution under
Rule 104 of the Rules of Court except upon a
showing:
(a) That three years after damage or destruction
to the project in which the corporation owns or
holds the common areas, which damage or
destruction renders a material part thereof unfit
for its use prior thereto, the project has not been
rebuilt or repaired substantially to its state prior
to its damage or destruction; or
(b) That damage or destruction to the project has
rendered one-half or more of the units therein
untenantable and that more than thirty percent
of the members of the corporation, if non-stock,
or the shareholders representing more than
thirty percent of the capital stock entitled to vote,
if a stock corporation, are opposed to the repair
or reconstruction of the project, or
(c) That the project has been in existence in
excess of fifty years, that it is obsolete and
uneconomical, and that more than fifty percent
of the members of the corporation, if non-stock,
or the stockholders representing more than fifty
percent of the capital stock entitled to vote, if a
stock corporation, are opposed to the repair or
restoration or remodeling or modernizing of the
project; or
(d) That the project or a material part thereof has
been condemned or expropriated and that the
70

project is no longer viable, or that the members

holding in aggregate more than seventy percent
interest in the corporation, if non-stock, or the
stockholders representing more than seventy
percent of the capital stock entitled to vote, if a
stock corporation, are opposed to the
continuation of the condominium regime after
expropriation or condemnation of a material
portion thereof; or
(e) That the conditions for such a dissolution set
forth in the declaration of restrictions of the
project in which the corporation owns of holds
the common areas, have been met.
Sec. 14. The condominium corporation may also
be dissolved by the affirmative vote of all the
stockholders or members thereof at a general or
special meeting duly called for the
purpose: Provided, That all the requirements of
Section sixty-two of the Corporation Law are
complied with.
Sec. 15. Unless otherwise provided for in the
declaration of restrictions upon voluntary
dissolution of a condominium corporation in
accordance with the provisions of Sections
thirteen and fourteen of this Act, the corporation
shall be deemed to hold a power of attorney
from all the members or stockholders to sell and
dispose of their separate interests in the project
and liquidation of the corporation shall be
effected by a sale of the entire project as if the
corporation owned the whole thereof, subject to
the rights of the corporate and of individual
condominium creditors.
Sec. 16. A condominium corporation shall not,
during its existence, sell, exchange, lease or
otherwise dispose of the common areas owned
or held by it in the condominium project unless
authorized by the affirmative vote of all the
stockholders or members.
Sec. 17. Any provision of the Corporation Law to
the contrary notwithstanding, the by-laws of a
condominium corporation shall provide that a
stockholder or member shall not be entitled to
demand payment of his shares or interest in
those cases where such right is granted under the

Corporation Law unless he consents to sell his

separate interest in the project to the corporation
or to any purchaser of the corporation's choice
who shall also buy from the corporation the
dissenting member or stockholder's interest. In
case of disagreement as to price, the procedure
set forth in the appropriate provision of the
Corporation Law for valuation of shares shall be
followed. The corporation shall have two years
within which to pay for the shares or furnish a
purchaser of its choice from the time of award.
All expenses incurred in the liquidation of the
interest of the dissenting member or stockholder
shall be borne by him.
Sec. 18. Upon registration of an instrument
conveying a condominium, the Register of Deeds
shall, upon payment of the proper fees, enter and
annotate the conveyance on the certificate of
title covering the land included within the project
and the transferee shall be entitled to the
issuance of a "condominium owner's" copy of the
pertinent portion of such certificate of title. Said
"condominium owner's" copy need not
reproduce the ownership status or series of
transactions in force or annotated with respect to
other condominiums in the project. A copy of the
description of the land, a brief description of the
condominium conveyed, name and personal
circumstances of the condominium owner would
be sufficient for purposes of the "condominium
owner's" copy of the certificate of title. No
conveyance of condominiums or part thereof,
subsequent to the original conveyance thereof
from the owner of the project, shall be registered
unless accompanied by a certificate of the
management body of the project that such
conveyance is in accordance with the provisions
of the declaration of restrictions of such project.
In cases of condominium projects registered
under the provisions of the Spanish Mortgage
Law or Act 3344, as amended, the registration of
the deed of conveyance of a condominium shall
be sufficient if the Register of Deeds shall keep
the original or signed copy thereof, together with
the certificate of the management body of the
project, and return a copy of the deed of
conveyance to the condominium owner duly
acknowledge and stamped by the Register of
71

Deeds in the same manner as in the case of

registration of conveyances of real property
under said laws.
Sec. 19. Where the enabling or master deed
provides that the land included within a
condominium project are to be owned in
common by the condominium owners therein,
the Register of Deeds may, at the request of all
the condominium owners and upon surrender of
all their "condominium owner's" copies, cancel
the certificates of title of the property and issue a
new one in the name of said condominium
owners as pro-indiviso co-owners thereof.
Sec. 20. An assessment upon any condominium
made in accordance with a duly registered
declaration of restrictions shall be an obligation
of the owner thereof at the time the assessment
is made. The amount of any such assessment plus
any other charges thereon, such as interest, costs
(including attorney's fees) and penalties, as such
may be provided for in the declaration of
restrictions, shall be and become a lien upon the
condominium assessed when the management
body causes a notice of assessment to be
registered with the Register of Deeds of the city
or province where such condominium project is
located. The notice shall state the amount of such
assessment and such other charges thereon a
may be authorized by the declaration of
restrictions, a description of the condominium,
unit against which same has been assessed, and
the name of the registered owner thereof. Such
notice shall be signed by an authorized
representative of the management body or as
otherwise provided in the declaration of
restrictions. Upon payment of said assessment
and charges or other satisfaction thereof, the
management body shall cause to be registered a
release of the lien.
Such lien shall be superior to all other liens
registered subsequent to the registration of said
notice of assessment except real property tax
liens and except that the declaration of
restrictions may provide for the subordination
thereof to any other liens and encumbrances.

Such liens may be enforced in the same manner

provided for by law for the judicial or extrajudicial foreclosure of mortgages of real property.
Unless otherwise provided for in the declaration
of restrictions, the management body shall have
power to bid at foreclosure sale. The
condominium owner shall have the same right of
redemption as in cases of judicial or extra-judicial
foreclosure of mortgages.
Sec. 21. No labor performed or services or
materials furnished with the consent of or at the
request of a condominium owner or his agent or
his contractor or subcontractor, shall be the basis
of a lien against the condominium of any other
condominium owner, unless such other owners
have expressly consented to or requested the
performance of such labor or furnishing of such
materials or services. Such express consent shall
be deemed to have been given by the owner of
any condominium in the case of emergency
repairs of his condominium unit. Labor
performed or services or materials furnished for
the common areas, if duly authorized by the
management body provided for in a declaration
of restrictions governing the property, shall be
deemed to be performed or furnished with the
express consent of each condominium owner.
The owner of any condominium may remove his
condominium from a lien against two or more
condominiums or any part thereof by payment to
the holder of the lien of the fraction of the total
sum secured by such lien which is attributable to
his condominium unit.
Sec. 22. Unless otherwise provided for by the
declaration of restrictions, the management
body, provided for herein, may acquire and hold,
for the benefit of the condominium owners,
tangible and intangible personal property and
may dispose of the same by sale or otherwise;
and the beneficial interest in such personal
property shall be owned by the condominium
owners in the same proportion as their respective
interests in the common areas. A transfer of a
condominium shall transfer to the transferee
ownership of the transferor's beneficial interest
in such personal property.

72

Sec. 23. Where, in an action for partition of a

condominium project or for the dissolution of
condominium corporation on the ground that the
project or a material part thereof has been
condemned or expropriated, the Court finds that
the conditions provided for in this Act or in the
declaration of restrictions have not been met, the
Court may decree a reorganization of the project,
declaring which portion or portions of the project
shall continue as a condominium project, the
owners thereof, and the respective rights of said
remaining owners and the just compensation, if
any, that a condominium owner may be entitled
to due to deprivation of his property. Upon
receipt of a copy of the decree, the Register of
Deeds shall enter and annotate the same on the
pertinent certificate of title.
Sec. 24. Any deed, declaration or plan for a
condominium project shall be liberally construed
to facilitate the operation of the project, and its
provisions shall be presumed to be independent
and severable.
Sec. 25. Whenever real property has been divided
into condominiums, each condominium
separately owned shall be separately assessed,
for purposes of real property taxation and other
tax purposes to the owners thereof and the tax
on each such condominium shall constitute a lien
solely thereon.
Sec. 26. All Acts or parts of Acts in conflict or
inconsistent with this Act are hereby amended
insofar as condominium and its incidents are
concerned.
Sec. 27. This Act shall take effect upon its
approval.
_______________________________________

REPUBLIC ACT NO. 7899

AN ACT AMENDING SECTION FOUR AND SECTION

SIXTEEN OF REPUBLIC ACT NUMBERED FOUR
THOUSAND SEVEN HUNDRED
TWENTY-SIX,

OTHERWISE KNOWN AS "THE CONDOMINIUM

ACT."

Be it enacted by the Senate and the House of

Representatives of the Philippines in Congress
assembled:

Section 1. Sec. 4, last paragraph of Republic Act

No. 4726 is hereby amended as follows;
"Sec. 4. xxx

"The enabling or master deed may be amended

or revoked upon registration of an instrument
executed by a simple majority of the registered
owners of the property: Provided, That in a
condominium project exclusively for either
residential or commercial use, simple majority
shall be on per unit of ownership basis and that
in the case of mixed use, simple majority shall be
on floor area of ownership basis: Provided
further, That prior notifications to all registered
owners are done, and Provided, finally, That any
amendment or revocation already decided by a
simple majority of all registered owners shall be
submitted to the Housing and Land Use
Regulatory Board and the city/municipal engineer
for approval before it can be registered. Until
registration of a revocation, the provision of this
Act shall continue to apply to such property."
Sec. 2. Sec. 16 of the same Act is hereby amended
to read as follows:cralaw
"Sec. 16. A condominium corporation shall not,
during its existence, sell, exchange,lease or
otherwise dispose of the common areas owned
or held by it in the condominium project unless
authorized by the affirmative vote of a simple
majority of the registered owners: Provided, That
prior notifications to all registered owners are
73

done: and, Provided, further, That the

condominium corporation may expand or
integrate the project with another upon the
affirmative vote of a simple majority of the
registered owners, subject only to the final
approval of the Housing and Land Use Regulatory
Board."
Sec. 3. Effectivity. - This Act shall take effect
fifteen (15) days after its complete publication in
at least two (2) national newspapers of general
circulation.

in such activity by the Constitution and relevant

laws. Foreign investments shall be encouraged in
enterprises that significantly expand livelihood
and employment opportunities for Filipinos;
enhance economic value of farm products;
promote the welfare of Filipino consumers;
expand the scope, quality and volume of exports
and their access to foreign markets; and/or
transfer relevant technologies in agriculture,
industry and support services. Foreign
investments shall be welcome as a supplement to
Filipino capital and technology in those
enterprises serving mainly the domestic market.

________________________________________

Republic Act No. 7042

June 13, 1991

AN ACT TO PROMOTE FOREIGN INVESTMENTS,

PRESCRIBE THE PROCEDURES FOR REGISTERING
ENTERPRISES DOING BUSINESS IN THE
PHILIPPINES, AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of

Representatives of the Philippines in Congress
assembled::

Section 1. Title. - This Act shall be known as the,

"Foreign Investments Act of 1991".

Section 2. Declaration of Policy. - It is the policy of

the State to attract, promote and welcome
productive investments from foreign individuals,
partnerships, corporations, and governments,
including their political subdivisions, in activities
which significantly contribute to national
industrialization and socioeconomic development
to the extent that foreign investment is allowed

As a general rule, there are no restrictions on

extent of foreign ownership of export
enterprises. In domestic market enterprises,
foreigners can invest as much as one hundred
percent (100%) equity except in areas included in
the negative list. Foreign owned firms catering
mainly to the domestic market shall be
encouraged to undertake measures that will
gradually increase Filipino participation in their
businesses by taking in Filipino partners, electing
Filipinos to the board of directors, implementing
transfer of technology to Filipinos, generating
more employment for the economy and
enhancing skills of Filipino workers.

Section 3. Definitions. - As used in this Act:

a) The term "Philippine national" shall mean a

citizen of the Philippines or a domestic
partnership or association wholly owned by
citizens of the Philippines; or a corporation
organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital
stock outstanding and entitled to vote is owned
and held by citizens of the Philippines; or a
trustee of funds for pension or other employee
74

retirement or separation benefits, where the

trustee is a Philippine national and at least sixty
(60%) of the fund will accrue to the benefit of the
Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own
stocks in a Securities and Exchange Commission
(SEC) registered enterprise, at least sixty percent
(60%) of the capital stocks outstanding and
entitled to vote of both corporations must be
owned and held by citizens of the Philippines and
at least sixty percent (60%) of the members of
the Board of Directors of both corporations must
be citizens of the Philippines, in order that the
corporations shall be considered a Philippine
national;

contemplate to that extent the performance of

acts or works, or the exercise of some of the
functions normally incident to, and in progressive
prosecution of, commercial gain or of the
purpose and object of the business organization:
Provided, however, That the phrase "doing
business: shall not be deemed to include mere
investment as a shareholder by a foreign entity in
domestic corporations duly registered to do
business, and/or the exercise of rights as such
investor; nor having a nominee director or officer
to represent its interests in such corporation; nor
appointing a representative or distributor
domiciled in the Philippines which transacts
business in its own name and for its own account;

b) The term "investment" shall mean equity

participation in any enterprise organized or
existing under the laws of the Philippines;

e) The term "export enterprise" shall mean an

enterprise which produces goods for sale, or
renders services to the domestic market entirely
or if exporting a portion of its output fails to
consistently export at least sixty percent (60%)
thereof; and

c) The term "foreign investment" shall mean as

equity investment made by a non-Philippine
national in the form of foreign exchange and/or
other assets actually transferred to the
Philippines and duly registered with the Central
Bank which shall assess and appraise the value of
such assets other than foreign exchange;

d) The praise "doing business" shall include

soliciting orders, service contracts, opening
offices, whether called "liaison" offices or
branches;
appointing
representatives
or
distributors domiciled in the Philippines or who in
any calendar year stay in the country for a period
or periods totalling one hundred eighty (180)
days or more; participating in the management,
supervision or control of any domestic business,
firm, entity or corporation in the Philippines; and
any other act or acts that imply a continuity of
commercial dealings or arrangements, and

g) The term "Foreign Investments Negative List"

or "Negative List" shall mean a list of areas of
economic activity whose foreign ownership is
limited to a maximum of forty ownership is
limited to a maximum of forty percent (40%) of
the equity capital of the enterprise engaged
therein.

Section 4. Scope. - This Act shall not apply to

banking and other financial institutions which are
governed and regulated by the General Banking
Act and other laws under the supervision of the
Central Bank.

Section 5. Registration of Investments of NonPhilippine Nationals. - Without need of prior

75

approval, a non-Philippine national, as that term

is defined in Section 3 a), and not otherwise
disqualified by law may upon registration with
the Securities and Exchange Commission (SEC), or
with the Bureau of Trade Regulation and
Consumer Protection (BTRCP) of the Department
of Trade and Industry in the case of single
proprietorships, do business as defined in Section
3 (d) of this Act or invest in a domestic enterprise
up to one hundred percent (100%) of its capital,
unless participation of non-Philippine nationals in
the enterprise is prohibited or limited to a smaller
percentage by existing law and/or limited to a
smaller percentage by existing law and/or under
the provisions of this Act. The SEC or BTRCP, as
the case may be, shall not impose any limitations
on the extent of foreign ownership in an
enterprise additional to those provided in this
Act: Provided, however, That any enterprise
seeking to avail of incentives under the Omnibus
Investment Code of 1987 must apply for
registration with the Board of Investments (BOI),
which shall process such application for
registration in accordance with the criteria for
evaluation prescribed in said Code: Provided,
finally, That a non-Philippine national intending
to engage in the same line of business as an
existing joint venture in his application for
registration with SEC. During the transitory period
as provided in Section 15 hereof, SEC shall
disallow registration of the applying nonPhilippine national if the existing joint venture
enterprise, particularly the Filipino partners
therein, can reasonably prove they are capable to
make the investment needed for they are
competing applicant. Upon effectivity of this Act,
SEC shall effect registration of any enterprise
applying under this Act within fifteen (15) days
upon submission of completed requirements.

Section 6. Foreign Investments in Export

Enterprises. - Foreign investment in export
enterprises whose products and services do not

fall within Lists A and B of the Foreign Investment

Negative List provided under Section 8 hereof is
allowed up to one hundred percent (100%)
ownership.

Export enterprises which are non-Philippine

nationals shall register with BOI and submit the
reports that may be required to ensure
continuing compliance of the export enterprise
with its export requirement. BOI shall advise SEC
or BTRCP, as the case may be, of any export
enterprise that fails to meet the export ratio
requirement. The SEC or BTRCP shall thereupon
order the non-complying export enterprise to
reduce its sales to the domestic market to not
more than forty percent (40%) of its total
production; failure to comply with such SEC or
BTRCP order, without justifiable reason, shall
subject the enterprise to cancellation of SEC or
BTRCP registration, and/or the penalties provided
in Section 14 hereof.

Section 7. Foreign Investments in Domestic

Market Enterprises. - Non-Philippine nationals
may own up to one hundred percent (100%) of
domestic market enterprises unless foreign
ownership therein is prohibited or limited by
existing law or the Foreign Investment Negative
List under Section 8 hereof.

A domestic market enterprise may change its

status to export enterprise if over a three (3) year
period it consistently exports in each year thereof
sixty per cent (60%) or more of its output.

Section 8. List of Investment Areas Reserved to

Philippine Nationals (Foreign Investment
Negative List). - The Foreign Investment Negative
76

List shall have three (3) component lists: A, B, and

C:

dollars (US$500,000) are likewise reserved to

Philippine nationals.

a) List A shall enumerate the areas of activities

reserved to Philippine nationals by mandate of
the Constitution and specific laws.

Amendments to List B may be made upon

recommendation of the Secretary of National
Defense, or the Secretary of Health, or the
Secretary of Education, Culture and Sports,
indorsed by the NEDA, or upon recommendation
motu propio of NEDA, approved by the President,
and promulgated by Presidential Proclamation.

b) List B shall contain the areas of activities and

enterprises pursuant to law:

1) Which are defense-related activities, requiring

prior clearance and authorization from
Department of National Defense (DND) to engage
in such activity, such as the manufacture, repair,
storage and/or distribution of firearms,
ammunition, lethal weapons, military ordnance,
explosives, pyrotechnics and similar materials;
unless such manufacturing or repair activity is
specifically authorized, with a substantial export
component, to a non-Philippine national by the
Secretary of National Defense; or

2) Which have implications on public health and

morals, such as the manufacture and distribution
of dangerous drugs; all forms of gambling;
nightclubs, bars, beerhouses, dance halls; sauna
and steambath houses and massage clinics.

Small and medium-sized domestic market

enterprises with paid-in equity capital less than
the equivalent of five hundred thousand US
dollars (US$500,000) are reserved to Philippine
nationals, unless they involve advanced
technology as determined by the Department of
Science and Technology. Export enterprises which
utilize raw materials from depleting natural
resources, with paid-in equity capital of less than
the equivalent of five hundred thousand US

c) List C shall contain the areas of investment in

which existing enterprises already serve
adequately the needs of the economy and the
consumer and do not require further foreign
investments, as determined by NEDA applying
the criteria provided in Section 9 of this Act,
approved by the President and promulgated in a
Presidential Proclamation.

The Transitory Foreign Investment Negative List

established in Sec. 15 hereof shall be replaced at
the end of the transitory period by the first
Regular Negative List to the formulated and
recommended by the NEDA, following the
process and criteria provided in Section 8 and 9 of
this Act. The first Regular Negative List shall be
published not later than sixty (60) days before the
end of the transitory period provided in said
section, and shall become immediately effective
at the end of the transitory period. Subsequent
Foreign Investment Negative Lists shall become
effective fifteen (15) days after publication in two
(2) newspapers of general circulation in the
Philippines: Provided, however, That each Foreign
Investment Negative List shall be prospective in
operation and shall in no way affect foreign
investments existing on the date of its
publication.

77

Amendments to List B and C after promulgation

and publication of the first Regular Foreign
Investment Negative List at the end of the
transitory period shall not be made more often
than once every two (2) years.

f) The leading firms of the industry substantially

comply with environmental standards; and

Section 9. Determination of Areas of Investment

for Inclusion in List C of the Foreign Investment
Negative List. - Upon petition by a Philippine
national engage therein, an area of investment
may be recommended by NEDA for inclusion in
List C of the Foreign Investment Negative List
upon determining that it complies with all the
following criteria:

The petition shall be subjected to a public hearing

at which affected parties will have the
opportunity to show whether the petitioner
industry adequately serves the economy and the
consumer, in general, and meets the above
stated criteria in particular. NEDA may delegate
evaluation of the petition and conduct of the
public hearing to any government agency having
cognizance of the petitioner industry. The
delegated agency shall make its evaluation report
and recommendations to NEDA which retains the
right and sole responsibility to determine
whether to recommend to the President to
promulgate the area of investment in List C of the
Negative List. An industry or area of investment
included in List C of the Negative List by
Presidential Proclamation shall remain in the said
List C for two (2) years, without prejudice to reinclusion upon new petition, and due process.

a) The industry is controlled by firms owned at

least sixty percent (60%) by Filipinos;

b) Industry capacity is ample to meet domestic

demand;

c) Sufficient competition exists within the

industry;

d) Industry products comply with Philippine

standards of health and safety or, in the absence
of such, with international standards, and are
reasonably competitive in quality with similar
products in the same price range imported into
the country;

e) Quantitative restrictions are not applied on

imports of directly competing products;

g) The prices of industry products are reasonable.

Section 10. Strategic Industries. - Within eighteen

(18) months after the effectivity of this Act, the
NEDA Board shall formulate and publish a list of
industries strategic to the development of the
economy. The list shall specify, as a matter of
policy and not as a legal requirement, the desired
equity participation by Government and/or
private Filipino investors in each strategic
industry. Said list of strategic industries, as well as
the corresponding desired equity participation of
government and/or private Filipino investors,
may be amended by NEDA to reflect changes in
economic needs and policy directions of
Government. The amended list of strategic
industries shall be published concurrently with
78

publication of the Foreign Investment Negative

List.

The term "strategic industries" shall mean

industries that are characterized by all of the
following:

a) Crucial to the accelerated industrialization of

the country,

b) Require massive capital investments to achieve

economies of scale for efficient operations;

c) Require highly specialized or advanced

technology which necessitates technology
transfer and proven production techniques in
operations;

d) Characterized by strong backward and forward

linkages with most industries existing in the
country, and

e) Generate substantial foreign exchange savings

through import substitution and collateral foreign
exchange earnings through export of part of the
output that will result with the establishment,
expansion or development of the industry.

Section 11. Compliance with Environmental

Standards. - All industrial enterprises regardless
of nationality of ownership shall comply with
existing rules and regulations to protect and
conserve the environment and meet applicable
environmental standards.

Section 12. Consistent Government Action. - No

agency, instrumentality or political subdivision of
the Government shall take any action on conflict
with or which will nullify the provisions of this
Act, or any certificate or authority granted
hereunder.

Section 13. Implementing Rules and Regulations.

- NEDA, in consultation with BOI, SEC and other
government agencies concerned, shall issue the
rules and regulations to implement this Act
within one hundred and twenty (120) days after
its effectivity. A copy of such rules and
regulations shall be furnished the Congress of the
Republic of the Philippines.

Section 14. Administrative Sanctions. - A person

who violates any provision of this Act or of the
terms and conditions of registration or of the
rules and regulations issued pursuant thereto, or
aids or abets in any manner any violation shall be
subject to a fine not exceeding One hundred
thousand pesos (P100,000).

If the offense is committed by a juridical entity, it

shall be subject to a fine in an amount not
exceeding of 1% of total paid-in capital but not
more than Five million pesos (P5,000,000). The
president and/or officials responsible therefor
shall also be subject to a fine not exceeding Two
hundred thousand pesos (P200,000).

In addition to the foregoing, any person, firm or

juridical entity involved shall be subject to
forfeiture of all benefits granted under this Act.

SEC shall have the power to impose

administrative sanctions as provided herein for
79

any violation of this Act or its implementing rules

and regulations.

Section 15. Transitory Provisions. - Prior to

effectivity of the implementing rules and
regulations of this Act, the provisions of Book II of
Executive Order 226 and its implementing rules
and regulations shall remain in force.

During the initial transitory period of thirty-six

(36) months after issuance of the Rules and
Regulations to implement this Act, the Transitory
Foreign Investment Negative List shall consist of
the following:

A. List A:

1. All areas of investment in which foreign

ownership is limited by mandate of Constitution
and specific laws.

2. Manufacture and distribution of dangerous

drugs; all forms of gambling; nightclubs, bars,
beerhouses, dance halls; sauna and steam
bathhouses, massage clinic and other like
activities regulated by law because of risks they
may pose to public health and morals;

3. Small and medium-size domestic market

enterprises with paid-in equity capital or less than
the equivalent of US$500,000, unless they involve
advanced technology as determined by the
Department of Science and Technology, and

4. Export enterprises which utilize raw materials

from depleting natural resources, and with paidin equity capital of less than the equivalent
US$500,000.

C. List C:

1. Import and wholesale activities not integrated

with production or manufacture of goods;
B. List B:

1. Manufacture, repair, storage and/or

distribution of firearms, ammunitions, lethal
weapons,
military
ordinance,
explosives,
pyrotechnics and similar materials required by
law to be licensed by and under the continuing
regulation of the Department of National
Defense; unless such manufacturing or repair
activity is specifically authorized with a
substantial export component, to a nonPhilippine national by the Secretary of National
Defense;

2. Services requiring a license or specific

authorization, and subject to continuing
regulations by national government agencies
other than BOI and SEC which at the time of
effectivity of this Act are restricted to Philippine
nationals by existing administrative regulations
and practice of the regulatory agencies
concerned: Provided, That after effectivity of this
Act, no other services shall be additionally
subjected to such restrictions on nationality of
ownership by the corresponding regulatory
agencies, and such restrictions once removed
shall not be reimposed; and

80

3. Enterprises owned in the majority by a foreign

licensor and/or its affiliates for the assembly,
processing or manufacture of goods for the
domestic market which are being produced by a
Philippine national as of the date of effectivity of
this Act under a technology, know-how and/or
brand name license from such licensor during the
term of the license agreement: Provided, That,
the license is duly registered with the Central
Bank and/or the Technology Transfer Board and
is operatively in force as of the date of effectivity
of this Act.

reason whatsoever, such declaration shall not in

any way affect the other parts or sections of this
Act.

Section 18. Effectivity. - This Act shall take effect

fifteen (15) days after approval and publication in
two (2) newspaper of general circulation in the
Philippines.

NEDA shall make the enumeration as appropriate

of the areas of the investment covered in this
Transitory Foreign Investment Negative List and
publish the Negative List in full at the same time
as, or prior to, the publication of the rules and
regulations to implement this Act.

The areas of investment contained in List C above

shall be reserved to Philippine nationals only
during the transitory period. The inclusion of any
of them in the regular Negative List will require
determination by NEDA after due public hearings
that such inclusion is warranted under the criteria
set forth in Section 8 and 9 hereof.

Section 16. Repealing Clause. - Articles forty-four

(44) to fifty-six (56) of Book II of Executive Order
No. 226 are hereby repealed.

All other laws or parts of laws inconsistent with

the provisions of this Act are hereby repealed or
modified accordingly.

Section 17. Separability. - If any part or section of

this Act is declared unconstitutional for any
81

THE SECURITIES REGULATION CODE

(a) Shares of stocks, bonds, debentures, notes

evidences of indebtedness, asset-backed
securities;

Be it enacted by the Senate and the House of

Representative of the Philippines in the Congress
assembled:

(b) Investment contracts, certificates of interest

or participation in a profit sharing agreement,
certifies of deposit for a future subscription;

CHAPTER I

(c) Fractional undivided interests in oil, gas or

other mineral rights;

COMMERCIAL LAW (WEEK 8)

TITLE AND DEFINITIONS

Section 1. Title. - This shall be known as "The

Securities Regulation Code"

Section 2. Declaration of State Policy. The State

shall establish a socially conscious, free market
that regulates itself, encourage the widest
participation of ownership in enterprises,
enhance the democratization of wealth, promote
the development of the capital market, protect
investors, ensure full and fair disclosure about
securities, minimize if not totally eliminate insider
trading and other fraudulent or manipulative
devices and practices which create distortions in
the free market. To achieve these ends, this
Securities Regulation Code is hereby enacted.

(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.

3.2. "Issuer" is the originator, maker, obligor, or

creator of the security.
Section 3. Definition of Terms. - 3.1. "Securities"
are shares, participation or interests in a
corporation or in a commercial enterprise or
profit-making venture and evidenced by a
certificate, contract, instruments, whether
written or electronic in character. It includes:

3.3. "Broker" is a person engaged in the business

of buying and selling securities for the account of
others.

3.4. "Dealer" means many person who buys sells

securities for his/her own account in the ordinary
course of business.
82

3.5. "Associated person of a broker or dealer" is

an employee therefor whom, directly exercises
control of supervisory authority, but does not
include a salesman, or an agent or a person
whose functions are solely clerical or ministerial.

3.6. "Clearing Agency" is any person who acts as

intermediary in making deliveries upon payment
effect settlement in securities transactions.

3.7. "Exchange" is an organized market place or

facility that brings together buyers and sellers
and executes trade of securities and/or
commodities.

3.8. "Insider" means (a) the issuer; (b) a director

or officer (or any person performing similar
functions) of, or a person controlling the issuer;
gives or gave him access to material information
about the issuer or the security that is not
generally available to the public; (d) A
government employee, director, or officer of an
exchange, clearing agency and/or self-regulatory
organization who has access to material
information about an issuer or a security that is
not generally available to the public; or (e) a
person who learns such information by a
communication from any forgoing insiders.

3.9. "Pre-need plans" are contracts which provide

for the performance of future services of or the
payment of future monetary considerations at
the time actual need, for which plan holders pay
in cash or installment at stated prices, with or
without interest or insurance coverage and
includes life, pension, education, interment, and

other plans which the Commission may from time

to time approve.

3.10. "Promoter" is a person who, acting alone or

with others, takes initiative in founding and
organizing the business or enterprise of the issuer
and receives consideration therefor.

3.11. "Prospectus" is the document made by or

an behalf of an issuer, underwriter or dealer to
sell or offer securities for sale to the public
through registration statement filed with the
Commission.

3.12. "Registration statement" is the application

for the registration of securities required to be
filed with the Commission.

3.13. "Salesman" is a natural person, employed as

such as an agent, by a dealer, issuer or broker to
buy and sell securities.

3.14. "Uncertificated security" is a security

evidenced by electronic or similar records.

3.15. "Underwriter" is a person who guarantees

on a firm commitment and/or declared best
effort basis the distribution and sale of securities
of any kind by another company.

CHAPTER II
SECURITIES AND EXCHANGE COMMISSION

83

Section 4. Administrative Agency. 4.1. This Code

shall be administered by the Security and
Exchange Commission (hereinafter referred to as
the "Commission") as a Collegial body, composed
of a chairperson and (4) Commissioners,
appointed by the President for a term of (7)
seven years each and who shall serves as such
until their successor shall have been appointed
and qualified. A Commissioner appointed to fill a
vacancy occurring prior to the expiration of the
term for which his/her predecessor was
appointed, shall serve only for the unexpired
portion of their terms under Presidential Decree
No. 902-A. Unless the context indicates
otherwise, the term "Commissioner" includes the
Chairperson.

4.2. The Commissioners must be natural-born

citizens of the Philippines, at least forty (40) years
of age for the Chairperson and at least thirty-five
(35) years of age for the Commissioners, of good
moral character, or unquestionable integrity, of
known probity and patriotism, and with
recognized competence in social and economic
disciplines: Provided, That the majority of
Commissioners, including the Chairperson, shall
be members of the Philippine Bar.

4.3. The chairperson is chief executive officer of

the Commission. The Chairperson shall execute
and administer the policies, decisions, orders and
resolutions approved by the Commission and
shall have the general executive direction and
supervision of the work and operation of the
Commission and its members, bodies, boards,
offices, personnel and all its administrative
business.

4.4. The salary of the Chairperson and the

Commissioners shall be fixed by the President of

the Philippines based on the objective

classification system, at a sum comparable to the
members of the Monetary Board and
commensurate importance and responsibilities
attached to the position.

4.5. The Commission shall hold meetings at least

once a week for the conduct of business or as
often as may be necessary upon the call of the
Chairperson or upon the request of (3)
Commissioners. The notice of the meeting shall
be given to all Commissioners and the presence
of three (3) Commissioners shall constitute a
quorum. In the absence of the Chairperson, the
most senior Commissioner shall act as presiding
officer of the meeting.

4.6. The Commission may, for purposes of

efficiency, delegate any of its functions to any
department of office of the Commission, an
individual Commissioner or staff member of the
Commission except its review or appellate
authority and its power to adopt, alter and
supplement any rule or regulation.

The commission may review upon its own

initiative or upon the petition of any interested
party any action of any department or office,
individual Commissioner, or staff member of the
Commission.

Section 5. Powers and Functions of the

Commission. 5.1. The commission shall act with
transparency and shall have the powers and
functions provided by this code, Presidential
Decree No. 902-A, the Corporation Code, the
Investment Houses law, the Financing Company
Act and other existing laws. Pursuant thereto the
84

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;

(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;
(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;

(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;

(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;

(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
85

implied from, or which are necessary or

incidental to the carrying out of, the express
powers granted the Commission to achieve the
objectives and purposes of these laws.

5.2. The Commissions jurisdiction over all cases

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

Section 6. Indemnification and Responsibilities of

Commissioners. 6.1. The Commission shall
indemnify each Commissioner and other officials
of the Commission, including personnel
performing supervision
and
examination
functions for all cost and expenses reasonably
incurred by such persons in connection with any
civil or criminal actions, suits or proceedings to be
liable for gross negligence or misconduct. In the
event
of
settlement
or
compromise,
indemnification shall be provided only in
connection with such matters covered by the
settlement as to which the Commission is advised
by external counsel that the persons to be
indemnified did not commit any gross negligence
or misconduct. The costs and expenses incurred
in defending the aforementioned action, suit or
proceeding may be paid by the Commission in
advance of the final disposition of such action,

suit or proceeding upon receipt of an undertaking

by or on behalf of the Commissioner, officer or
employee to repay the amount advanced should
it ultimately be determined by the Commission
that he/she is not entitled to be indemnified as
provided in this subsection.

6.2. The Commissioners, officers and employees

of the Commission who willfully violate this Code
or who are guilty of negligence, abuse or acts of
malfeasance or fail to exercise extraordinary
diligence in the performance of their duties shall
be held liable for any loss or injury suffered by
the Commission or other institutions such as a
result of such violation, negligence, abuse, or
malfeasance, or failure to exercise extraordinary
diligence. Similar responsibility shall apply to the
Commissioners, officers and employees of the
Commission for (1) the disclosure of any
information, discussion or resolution of the
Commission of a confidential nature, or about the
confidential operations of the Commission unless
the disclosure is in connection with the
performance of official functions with the
Commission or prior authorization of the
Commissioners; or (2) the use of such information
for personal gain or to the detriment of the
government, the Commission or third parties:
Provided, however, That any data or information
required to be submitted to the President and/or
Congress or its appropriate committee, or to be
published under the provisions of this Code shall
not be considered confidential.

Section 7. Reorganization. 7.1. To achieve the

goals of this Code, consistent with the Civil
Service laws, the Commission is hereby
authorized to provide for its reorganization, to
streamline its structure and operations, upgrade
its human resource component and enable it to

86

more efficiently and effectively perform its

functions and exercise its power under this Code.

7.2. All positions of the Commissions shall be

governed by a compensation and position
classification system and qualification standards
approved by the Commission based on
comprehensive job analysis and audit of actual
duties and personal responsibilities. The
compensation plan shall be comparable with the
prevailing compensation plan in the Bangko
Sentral ng Pilipinas and other government
financial institutions and shall be subject to
periodic review by the Commission no more than
once every two (2) years without prejudice to
yearly merit review or increases based on
productivity and efficiency. The Commission shall,
therefore, be exempt from laws, rules, and
regulations
on
compensation,
position
classification and qualifications standards. The
Commission shall, however, endeavor to make its
system conform as closely as possible with the
principles under the Compensation and Position
Classification Act of 1989 (Republic Act. 6758, as
amended).

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.

CHAPTER III
REGISTRATION OF SECURITIES

Section 8. Requirement of Registration of

Securities. 8.1. Securities shall not be sold or
offered for sale or distribution within the
Philippines, without a registration statement duly
filed with and approved by the Commission. Prior
to such sale, information on the securities, in
such form and with such substance as the
Commission may prescribe, shall be made
available to each prospective purchaser.

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.

87

(b) Any security issued or guaranteed by the

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

(c) Certificates issued by a receiver or by a trustee

in bankruptcy duly approved by the proper
adjudicatory body.

(d) Any security or its derivatives the sale or

transfer of which, by law, is under the supervision
and regulation of the Office of the Insurance
Commission, Housing and Land Use Rule
Regulatory Board, or the Bureau of Internal
Revenue.

(e) Any security issued by a bank except its own

shares of stock.

9.2. The Commission may, by rule or regulation

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

Section 10. Exempt Transactions. 10.1. The

requirement of registration under Subsection 8.1
shall not apply to the sale of any security in any of
the following transactions:

(a) At any judicial sale, or sale by an executor,

administrator, guardian or receiver or trustee in
insolvency or bankruptcy.

(b) By or for the account of a pledge holder, or

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

(c) An isolated transaction in which any security is

sold, offered for sale, subscription or delivery by
the owner therefore, or by his representative for
the owners 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
88

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) Brokers transaction, executed upon

customers 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.

89

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 onetenth (1/10) of one percent (1%) of the maximum
value aggregate price or issued value of the
securities.

Section 11. Commodity Futures Contracts. - No

person shall offer, sell or enter into commodity
futures contracts except in accordance with the
rules, regulations and orders the Commission
may prescribe in the public interest. The
Commission shall promulgate rules and
regulations
involving
commodity
futures
contracts to protect investors to ensure the
development of a fair and transparent
commodities market.

Section 12. Procedure of Registration Securities. 12.1. All securities required to be registered
under Subsection 8. I shall be registered through
the filing by the issuer in the main office of the
Commission, of a sworn registration statement
with the respect to such securities, in such form
and containing such information and document
as the Commission prescribe. The registration
statement shall include any prospectus required
or permitted to be delivered under Subsections
8.2, 8.3, and 8.4.

12.2. In promulgating rules governing the content

of any registration statement (including any
prospectus made a part thereof or annex
thereto), the Commission may require the
registration statement to contain such
information or documents as it may, by rule,
prescribe. It may dispense with any such
requirements, or may require additional
information or documents, including written
information from an expert, depending on the
necessity thereof or their applicability to the class
of securities sought to be registered.

12.3. The information required for the

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

12.4. The registration statement shall be signed

by the issuers 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
90

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.

12.7. Upon affectivity of the registration

statement, the issuer shall state under oath in
every
prospectus
that
all
registration
requirements have been met and that all
information are true and correct as represented
by the issuer or the one making the statement.
Any untrue statement of fact or omission to state
a material fact required to be stated herein or
necessary to make the statement therein not
misleading shall constitute fraud.

Section 13. Rejection and Revocation of

Registration of Securities. 13.1. The Commission
may reject a registration statement and refuse
registration of the security there-under, or revoke
the affectivity of a registration statement and the
registration of the security there-under after the
due notice and hearing by issuing an order to
such effect, setting forth its finding in respect
thereto, if it finds that:

(a) The issuer:

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.

(i) Has been judicially declared insolvent;

(ii) Has violated any of the provision of this Code,

the rules promulgate pursuant thereto, or any
order of the Commission of which the issuer has
notice in connection with the offering for which a
registration statement has been filed

(iii) Has been or is engaged or is about to engage

in fraudulent transactions;

(iv) Has made any false or misleading

representation of material facts in any prospectus
concerning the issuer or its securities;
91

(v) Has failed to comply with any requirements

that the Commission may impose as a condition
for registration of the security for which the
registration statement has been filed; or

(b) The registration statement is on its face

incomplete or inaccurate in any material respect
or includes any untrue statements of a material
fact required to be stated therein or necessary to
make the statement therein not misleading; or

(c) The issuer, any officer, director or controlling

person performing similar functions, or any under
writer has been convicted, by a competent
judicial or administrative body, upon plea of
guilty, or otherwise, of an offense involving moral
turpitude and /or fraud or is enjoined or
restrained by the Commission or other
competent or administrative body for violations
of securities, commodities, and other related
laws.

For the purposes of this subsection, the term

"competent judicial or administrative body" shall
include a foreign court of competent jurisdiction
as provided for under Rules of Court.

13.2. The Commission may compel the

production of all the books and papers of such
issuer, and may administer oaths to, and examine
the officers of such the issuer or any other person
connected therewith as to its business and
affairs.

13.3. If any issuer shall refuse to permit an

examination to be made by the Commission, its

refusal shall be ground for the refusal or

revocation of the registration of its securities.

13.4. If the Commission deems its necessary, it

may issue an order suspending the offer and sale
of the securities pending any investigation. The
order shall state the grounds for taking such
action, but such order of suspension although
binding upon the persons notified thereof, shall
be deemed confidential, and shall not be
published. Upon the issuance of the suspension
order, no further offer or sale of such security
shall be made until the same is lifted or set aside
by the Commission. Otherwise, such sale shall be
void.

13.5. Notice of issuance of such order shall be

given to the issuer and every dealer and broker
who shall have notified the Commission of an
intention to sell such security.

13.6. A registration statement may be withdrawn

by the issuer only with the consent of the
Commission.

Section 14. Amendment to the Registration

Statement. 14.1. If a registration statement is
on its face incomplete or inaccurate in any
material respect, the Commission shall issue an
order directing the amendment of the
registration statement. Upon compliance with
such order, the amended registration statement
shall become effective in accordance with the
procedure mentioned in Subsection 12.6 hereof.

14.2. An amendment filed prior to the effective

date of the registration statement shall
recommence the forty-five (45) day period within
92

which the Commission shall act on a registration

statement. An amendment filed after the
effective date of the registration statement shall
become effective only upon such date as
determined by the Commission.

14.3. If any change occurs in the facts set forth in

a registration statement, the issuer shall file an
amendment thereto setting forth the change.

14.4. If, at any time, the Commission finds that

the registration statement contains any false
statement or omits to state any fact required to
be stated therein or necessary to make the
statements therein not misleading, the
Commission may conduct an examination, and,
after due notice and hearing, issue an order
suspending the affectivity registration statement.
If the statement is duly amended, the suspension
order may be lifted.

14.5. In making such examination the

Commission or any officer or officers designated
by it may administer oaths and affirmations and
shall have access to, and may demand the
production of, any books, records or documents
relevant to the examination. Failure of the issuer,
underwriter, or any other person to cooperate, or
his obstruction or refusal to undergo an
examination, shall be a ground for the issuance of
a suspension order.

Section 15. Suspension of Registration. - 15.1. If

at any time, the information contained in the
registration statement filed is or has become
misleading, incorrect, inadequate or incomplete
in any material respect, or the sale or offering for
sale of the security registered thereunder may
work or tend to work a fraud, the Commission

may require from the issuer such further

information as may in its judgement be necessary
to enable the Commission to ascertain whether
the registration of such security should be
revoked on any ground specified in this Code. The
Commission may also suspend the right to sell
and offer for the sale such security pending
further investigation, by entering an order
specifying the grounds for such action, and by
notifying the issuer, underwriter, dealer or broker
known as participating in such offering.

15.2. The refusal to furnish information required

by the Commission may be a ground for the
issuance of an order of suspension pursuant to
Subsection 15.1. Upon the issuance of any such
order and notification to the issuer, underwriter,
dealer or broken know as participating in such
offering, no further offer or sale of any such
security shall be made until the same is lifted or
set aside by the Commission. Otherwise such sale
shall be void.

15.3. Upon issuance of an order of suspension,

the Commission shall conduct a hearing. If the
Commission determines that the sale of any
security should be revoked is shall issue an order
prohibiting sale of such security.

15.4. Until the issuance of a final order, the

suspension of the right to sell, though binding
upon the persons notified there of, shall be
deemed confidential, and shall not be published,
unless it shall appear that the order of suspension
has been violated after notice. If, however, the
Commission finds that the sale of the security will
neither be fraudulent nor result in fraud, it shall
forthwith issue an order revoking the order of
suspension, and such security shall be restored to

93

its status as a registered security as of the date of

such order of suspension.

discussion and analysis of results of operation;

and

CHAPTER IV

(b) Such other periodical reports for interim fiscal

periods and current reports on significant
developments of the issuer as the Commission
may prescribe as necessary to keep current
information on the operation of the business and
financial condition of the issuer.

REGULATION OF PRE-NEED PLANS

Section 16. Pre-Need Plans. No person shall sell

or offer for sale to the public any pre-need plan
except in accordance with rules and regulations
which the Commission shall prescribe. Such rules
shall regulate the sale of pre-need plans by,
among other things, requiring the registration of
pre-need plans, licensing persons involved in the
sale of pre- need plans, requiring disclosures to
prospective plan holders, prescribing advertising
guidelines, providing for uniform accounting
system, reports and recording keeping with
respect to such plans, imposing capital, bonding
and other financial responsibility, and
establishing trust funds for the payment of
benefits under such plans.

CHAPTER V

17.2. The reportorial requirements of Subsection

17.1 shall apply to the following:

(a) An issuer which has sold a class of its

securities pursuant to a registration under section
12 hereof: Provided however, That the obligation
of such issuer to file reports shall be suspended
for any fiscal year after the year such registration
became effective if such issuer, as of the first day
of any such fiscal year, has less than one hundred
(100) holder of such class securities or such other
number as the Commission shall prescribe and it
notifies the Commission of such;

REPORTORIAL REQUIREMENTS
(b) An issuer with a class of securities listed for
trading on an Exchange; and
Section 17. Periodic and Other Reports of Issuer.
17.1. Every issuer satisfying the requirements in
Subsection 17.2 hereof shall file with the
Commission:

(a) Within one hundred thirty-five (135) days,

after the end of the issuers fiscal year, or such
other time as the Commission may prescribe, an
annual report which shall include, among others,
a balance sheet, profit and loss statement and
statement of cash flows, for such last fiscal year,
certified public accountant, an a management

(c) An issuer with assets of at least Fifty million

pesos (50,000,000.00) or such other amount as
the Commission shall prescribe, and having two
hundred (200) or more holder each holding at
least one hundred (100) share of a class of its
equity securities: Provided, however, That the
obligation of such issuer to file report shall be
terminate ninety (90) days after notification to
the Commission by the issuer that the number of
its holders holding at least one hundred (100)
share reduced to less than one hundred (100).
94

17.3. Every issuer of a security listed for trading

on an Exchange a copy of any report filed with
the Commission under Subsection 17.1. hereof.

17.4. All reports (including financial statements)

required to be filed with the Commission
pursuant to Subsection 17.1 hereof shall be in
such form, contain such information and be filed
at such times as the Commission shall prescribe,
and shall be in lieu of any periodical or current
reports or financial statements otherwise
required to be filed under the Commission shall
prescribe.

17.5. Every issuer which has a class of equity

securities satisfying any of the requirements in
Subsection 17.2 shall furnish to each holder of
such equity security an annual report in such
form and containing such information as the
Commission shall prescribe.

17.6. Within such period as the Commission may

prescribe preceding the annual meeting of the
holders of any equity security of a class entitled
to vote at such meeting , the issuer shall transmit
to such holders an annual report in conformity
with subsection 17.5.

Section 18. Reports by five per centum (5%)

Holders of Equity Securities. 18.1. In every case
in which an issuer satisfies the requirements of
Subsection 17.2 hereof any person who acquires
directly or indirectly the beneficial ownership of
more than five of per centum (5%) of such class
or in excess of such lesser per centum as the
Commission by rule may prescribe, shall, within
ten (10) days after such acquisition or such

reasonable time as fixed by the Commission,

submit to the issuer of the securities, to the
Exchange where the security is traded, and to the
Commission a sworn statement containing the
following information and such order information
as the Commission may require in the public
interest or for the protection of investors.

(a) The personal background, identity, residence,

and citizenship of, and the nature of such
beneficial ownership by, such person and all
other person by whom or on whose behalf the
purchases are effected; in the event the
beneficial owner is a juridical person, the of
business of the beneficial owner shall also be
reported;

(b) If the purpose of the purchases or prospective

purchases is to acquire control of the business of
the issuer of the securities, any plans or proposals
which such persons may have that will effect a
major change in its business or corporate
structure;

(c) The number of shares of such security which

are beneficially owned, and the number of shares
concerning which there is a right to acquire,
directly or indirectly, by; (i) such person, and (ii)
each associate of such person, giving the
background, identity, residence, and citizenship
of each such associate; and

(d) Information as to any contracts,

arrangements, or understanding with any person
with respect to any securities of the issuer
including but not limited to transfer, joint
ventures, loan or option arrangements, puts or
call guarantees or division of losses or profits, or
proxies naming the persons with whom such
95

contracts, arrangements, or understanding have

been entered into, and giving the details thereof.

18.2. If any change occurs in the facts set forth in

the statements, an amendment shall be
transmitted to the issuer, the Exchange and the
Commission.

18.3. The Commission, may permit any person to

file in lieu of the statement required by
subsection 17.1 hereof, a notice stating the name
of such person, the shares of any equity securities
subject to Subsection 17.1 which are owned by
him, the date of their acquisition and such other
information as the commission may specify, if it
appears to the commission that such securities
were acquired by such person in the ordinary
course of his business and were not acquired for
the purpose of and do not have the effect of
changing or influencing the control of the issuer
nor in connection with any transaction having
such purpose or effect.

CHAPTER VI
PROTECTION OF SHAREHOLDERS INTERESTS

Section 19. Tender Offers. Any person or group

of persons acting in concert who intends to
acquire at least 15% of any class of any equity
security of a listed corporation of any class of any
equity security of a corporation with assets of at
least fifty million pesos (50,000,000.00) and
having two hundred(200) or more stockholders at
least one hundred shares each or who intends to
acquire at least thirty percent(30%) of such
equity over a period of twelve months(12) shall
make a tender offer to stockholders by filling with
the Commission a declaration to that effect; and

furnish the issuer, a statement containing such of

the information required in Section 17 of this
Code as the Commission may prescribe. Such
person or group of persons shall publish all
request or invitations or tender offer or
requesting such tender offers subsequent to the
initial solicitation or request shall contain such
information as the Commission may prescribe,
and shall be filed with the Commission and sent
to the issuer not alter than the time copies of
such materials are first published or sent or given
to security holders.

(a) Any solicitation or recommendation to the

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

(b) Securities deposited pursuant to a tender

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

(c) Where the securities offered exceed that

which person or group of persons is bound or
willing to take up and pay for, the securities that
are subject of the tender offers shall be taken up
us nearly as may be pro data, disregarding
fractions, according to the number of securities
deposited to each depositor. The provision of this
subject shall also apply to securities deposited
within ten (10) days after notice of increase in the
consideration offered to security holders, as
96

described in paragraph (e) of this subsection, is

first published or sent or given to security
holders.

(d) Where any person varies the terms of a

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

19.2. It shall be lawful for any person to make any

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

Section 20. Proxy solicitations. - 20.1. Proxies

must be issued and proxy solicitation must be
made in accordance with rules and regulations to
be issued by the Commission;

20.2. Proxies must be in writing, signed by the

stockholder or his duly authorized representative

and file before the scheduled meeting with the

corporate secretary.

20.3. Unless otherwise provided in the proxy, it

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

20.4. No broker or dealer shall give any proxy,

consent or any authorization, in respect of any
security carried for the account of the customer,
to a person other than the customer, without
written authorization of such customer.

20.5. A broker or dealer who holds or acquire the

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

Section 21. Fees of Tender Offers and Certain

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

21.1. The propose aggregate purchase price in

the case of a transaction under Section 20 or
72.2; or
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21.2. The proposed payment in cash, and ion

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

Section 22. Internal Record Keeping and

Accounting Control. - Every issuer which has a
class of securities that satisfies the requirements
of Subsection 17.2 shall:

22.1. Device and maintain a system of internal

accounting controls sufficient to provide
reasonable assurance that: (a) Transactions and
access to assets are pursuant to management
authorization; (b) Financial statements are
provided in conformity with generally accepted
accounting principles that are adopted by the
Accounting standards council and the rules
promulgated by the Commission with the regard
to the preparation of the financial statements;
and (c) Recorded assets are compared with
existing assets at reasonable intervals and
differences are reconciled.

Section 23. Transactions of Directors officers and

Principal Stockholders. 23.1. Every person who
is directly or indirectly the beneficial owner of
more than ten per centum (10%) of any class of
any equity security which satisfies the
requirements of subsection 17.2, or who is a
director or an officer of the issuer of such
security, shall file, at the time either such
requirement is first satisfied or after ten days

after he becomes such a beneficial owner,

director, or officer, a statement form the
Commission and, if such security is listed for
trading on an exchange, also with the exchange
of the amount of all the equity security of such
issuer of which he is the beneficial owner, and
within ten days after the close of each calendar
month thereafter, if there has been a change in
such ownership at the close of the calendar
month and such changes in his ownership as have
occurred during such calendar month.

23.2. For the purpose of preventing the unfair use

of information which may have been obtained by
such beneficial owner, director or officer by
reason of his relationship to the issuer, any profit
realized by him from any purchase or sale, or any
sale or purchase, of any equity security of such
issuer within any period of less than (6) months
unless such security was acquired in good faith in
connection with a debt previously contracted,
shall inure to and be recoverable by the issuer,
irrespective of any intention of holding the
security purchased or of not repurchasing the
security sold for a period exceeding six (6)
months. Suit to recover such profit may be
instituted before the Regional Trial Court by the
issuer, or by the owner of any security of the
issuer in the name and in behalf of the issuer if
the issuer shall fail or refuse to bring such suit
within sixty (60) days after request or shall fail
diligently to prosecute the same thereafter, but
not such shall be brought more than two years
after the date such profit was realized. This
Subsection shall not be construed to cover any
transaction were such beneficial owner was not
such both time of the owner or the sale, or the
sale of purchase, of the security involved, or any
transaction or transactions which the Commission
by rules and regulations may exempt as not
comprehended within the purpose of this
subsection.
98

23.3. It shall be unlawful for any such beneficial

owner, director or officer, directly or indirectly, to
sell any equity security of such issuer if the
person selling the principal: (a) Does not own the
security sold: or (b) If owning the security, does
not deliver not deliver it against such sale within
20 days thereafter, or does not within five days
after such sale deposit in the mails or the unusual
channels of transportation; but no person shall be
deemed to have violated this subsection if he
proves not withstanding the exercise of good
faith he was unable to make such delivery in such
time, or that to do so would cause undue
inconvenience or expense.

23.4. The provisions of subsection 23.2 shall not

apply to any purchase and sale, or sale and
purchase, and the provisions of Subsection 23.3
shall not apply to any sale, of an equity security
not then or thereafter held by him and an
investment account, by a dealer in the ordinary
course of his business and incident to the
establishment or maintenance by him of a
primary or secondary market, otherwise than on
an Exchange, for such security. The Commission
may, by such rules and regulations as it deems
necessary or appropriate in the public interest,
define and prescribe terms and conditions with
respect to securities held in an investment
account and transactions made in the ordinary
course of business and incident to the
establishment or maintenance of a primary or
secondary market.

CHAPTER VII
PROHIBITIONS AND FRAUD, MANIPULATION AND
INSIDER TRADING

Section 24. Manipulation of Security Prices;

Devices and Practices. 24.1 It shall be unlawful
for any person acting for himself or through a
dealer or broker, directly or indirectly:

(a) To create a false or misleading appearance of

active trading in any listed security traded in an
Exchange of any other trading market (hereafter
referred to purposes of this Chapter as
"Exchange"):

(i) By effecting any transaction in such security

which involves no change in the beneficial
ownership thereof;

(ii) By entering an order or orders for the

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

(iii) By performing similar act where there is no

change in beneficial ownership.

(b) To affect, alone or with others, a securities or

transactions in securities that: (I) Raises their
price to induce the purchase of a security,
whether of the same or a different class of the
same issuer or of controlling, controlled, or
commonly controlled company by others; or (iii)
Creates active trading to induce such a purchase
or sale through manipulative devices such as
marking the close, painting the tape, squeezing
the float, hype and dump, boiler room operations
and such other similar devices.
99

(c) To circulate or disseminate information that

the price of any security listed in an Exchange will
or is likely to rise or fall because of manipulative
market operations of any one or more persons
conducted for the purpose of raising or
depressing the price of the security for the
purpose of inducing the purpose of sale of such
security.

(d) To make false or misleading statement with

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

(e) To effect, either alone or others, any series of

transactions for the purchase and/or sale of any
security traded in an Exchange for the purpose of
pegging, fixing or stabilizing the price of such
security; unless otherwise allowed by this Code or
by rules of the Commission.

24.2. No person shall use or employ, in

connection with the purchase or sale of any
security any manipulative or deceptive device or
contrivance. Neither shall any short sale be
effected nor any stop-loss order be executed in
connection with the purchase or sale of any
security except in accordance with such rules and
regulations as the Commission may prescribe as
necessary or appropriate in the public interest for
the protection of investors.

24.3. The foregoing provisions notwithstanding,

the Commission, having due regard to the public
interest and the protection of investors, may, by

rules and regulations, allow certain acts or

transactions that may otherwise be prohibited
under this Section.

Section 25. Regulation of Option Trading. No

member of an Exchange shall, directly or
indirectly endorse or guarantee the performance
of any put, call, straddle, option or privilege in
relation to any security registered on a securities
exchange. The terms "put", "call", "straddle",
"option", or "privilege" shall not include any
registered warrant, right or convertible security.

Section 26. Fraudulent Transactions. It shall be

unlawful for any person, directly or indirectly, in
connection with the purchase or sale of any
securities to:

26.1. Employ any device, scheme, or artifice to

defraud;

26.2. Obtain money or property by means of any

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

26.3. Engage in any act, transaction, practice or

course of business which operates or would
operate as a fraud or deceit upon any person.

Section 27. Insiders Duty to Disclose When

Trading. 27.1. It shall be unlawful for an insider
to sell or buy a security of the issuer, while in
possession of material information with respect
to the issuer or the security that is not generally
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available to the public, unless: (a) The insider

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

27.2. For purposes of this Section, information is

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

27.3. It shall be unlawful for any insider to

communicate material nonpublic information
about the issuer or the security to any person
who, by virtue of the communication, becomes
an insider as defined in Subsection 3.8, where the
insider communicating the information knows or

has reason to believe that such person will likely

buy or sell a security of the issuer whole in
possession of such information.

27.4. (a) It shall be unlawful where a tender offer

has commenced or is about to commence for:

(i) Any person (other than the tender offeror)

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

(ii) Any tender offeror, those acting on its behalf,

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

(b) For purposes of this subsection the term

"securities of the issuer sought or to be sought by
such tender offer" shall include any securities
convertible or exchangeable into such securities
or any options or rights in any of the foregoing
securities.

CHAPTER VIII
REGULATION
OF
PROFESSIONALS

SECURITIES

MARKET

101

Section 28. Registration of Brokers, Dealers,

Salesmen and Associated Persons. 28.1. No
person shall engage in the business of buying or
selling securities in the Philippine as a broker or
dealer, or act as a salesman, or an associated
person of any broker or dealer unless registered
as such with the Commission.

28.2. No registered broker or dealer shall employ

any salesman or any associated person, and no
issuer shall employ any salesman, who is not
registered as such with the Commission.

28.3. The Commission, by rule or order, may

conditionally or unconditionally exempt from
subsection 28.1 and 28.2 any broker, dealer,
salesman, associated person of any broker or
dealer, or any class of the foregoing, as it deems
consistent with the public interest and the
protection of investors.

28.4. The Commission shall promulgate rules and

regulation prescribing the qualifications for
registration of each category of applicant, which
shall, among other things, require as a condition
for registration that:

(a) If a natural person, the applicant satisfactorily

pass a written examination as to his proficiency
and knowledge in the area of activity for which
registration is sought;

(b) In the case of a broker or dealer, the applicant

satisfy a minimum net capital as prescribed by
the Commission, and provide a bond or other
security as the Commission may prescribe to

secure compliance with the provisions of this

Code; and

(c) If located outside of the Philippines, the

applicant files a written consent to service of
process upon the Commission pursuant to
Section 65 hereof.

28.5. A broker or dealer may apply for

registration by filing with the Commission a
written application in such forms and containing
such information and documents concerning such
broker or dealer as the Commission by rule shall
prescribe.

28.6. Registration of a salesman or of an

associated person of a registered broker or dealer
may be made upon written application filed with
the Commission by such salesman or associated
person. The application shall be separately signed
and certified by the registered broker or dealer to
which such salesman or associated person is to
become affiliated, or by the issuer in the case of a
salesman employed appointed or authorized
solely by such issuer. The application shall be in
such form and contain such information and
documents concerning the salesman or
associated person as the Commission by rule shall
prescribe. For purposes of this Section, a
salesman shall not include any employee of an
issuer whose compensation is not determined
directly or indirectly on sales of securities if the
issuer.

28.7. Applications filed pursuant to Subsections

28.5 and 28.6 shall be accompanied by a
registration fee in such reasonable amount
prescribed by the Commission.
102

28.8. Within thirty (30) days after the filing of any

application under this Section, the Commission
shall by order: (a) Grant registrations if it
determines that the requirements of this Section
and the qualifications for registrations set forth in
its rules and regulations have been satisfied ; or
(b) Deny said registration.

28.9. The names and addresses of all persons

approved for the registration as brokers, dealers,
associated persons or salesman and all orders of
the Commission with respect thereto shall be
recorded in a Register of Securities Market
Professionals kept in the office of the Commission
which shall be open to public inspection.

28.10. Every person registered pursuant to this

Section shall file with the Commission, in such
form as the Commission shall prescribe,
information necessary to keep the application for
registration current and accurate, including in the
case of a broker or dealer changes in salesmen,
associated persons and owners thereof.

28.11. Every person registered pursuant to this

Selection shall pay to the Commission an annual
fee at such time and in such reasonable amount
as the Commission shall prescribe. Upon notice
by the Commission that such annual fee has not
been paid as required, the registration of such
person shall be suspended until payment has
been made.

28.12. The registration of a salesman or

associated person shall be automatically
terminated upon the cessation of his affiliation
with said registered broker or dealer or with an

issuer in the case of a salesman employed,

appointed or authorized by such issuer. Promptly
following any such cessation of affiliation, the
registered broker or dealer, issuer as the case
may be, shall file with the Commission a notice of
separation of such salesman or associated
person.

Section 29. Revocation, Refusal or Suspension of

Registration of Brokers, Dealers, Salesmen and
Associated Persons. 29.1. Registration under
Section 28 of this Code may be refused , or any
registration granted thereunder may be revoked,
suspended, or limitations placed thereon, by the
Commission if, after due notice and hearing the
Commission determines the application or
registrant.

(a) Has willfully violated any provision of this

Code, any rule, regulation or order made
hereunder, or any other law administered by the
Commission, or in the case of a registered broker,
dealer or associated persons has failed to
supervise, with a view to preventing such
violation, another person who commits such
violation;

(b) Has willfully made or caused to be made a

materially false or misleading statement in any
application for registration or report filed with
the Commission or a self-regulatory organization,
or has willfully omitted to state any material fact
that is required to be stated therein;

(c) Has failed to satisfy the qualifications or

requirements for registration prescribed under
Section 28 and the rules and regulations of the
Commission promulgated thereunder;
103

(d) Has been convicted, by a competent judicial

or administrative body of an offense involving
moral
turpitude,
fraud,
embezzlement,
counterfeiting, theft, estafa, misappropriation,
forgery, bribery, false oath, or perjury, or of a
violation of securities, commodities, banking, real
state or insurance laws;

(e) Is enjoined or restrained by a competent

judicial or administrative body from engaging in
securities, commodities, banking, real state or
insurance activities or from willfully violating laws
governing such activities;

(f) Is subject to an order of a competent judicial

or administrative body refusing, revoking or
suspending any registration, licensed or other
permit under this Code, the rules and regulations
promulgated thereunder, any other law
administered by the Commission;

(g) Is subject to an order of a self-regulatory

organization suspending or expelling him from
membership or participating therein or from
association with a member or participant thereof;

(h) Has been found by a competent judicial or

administrative body to have willfully violated any
provisions of securities, commodities, banking,
real state or insurance laws, or has willfully aided,
abetted, counseled, commanded, induced or
procured such violation; or

(i) Has been judicially declared insolvent.

For purposes of this subsection, the term

"competent judicial or administrative body" shall
include a foreign court of competent jurisdiction
and a foreign financial regulator.

29.2. (a) In case of charges against a salesman or

associated person, notice thereof shall also be
given the broker, dealer or issuer employing such
salesman or associated person.

(b) Pending the hearing, the Commission shall

have the power to order the suspensions of such
brokers, dealers, associated persons or
salesmans registration: Provided, That such
order shall state the cause for such suspension.
Until the entry of a final order, the suspension of
such registration, though binding upon the
persons notified thereof, shall be deemed
confidential, and shall not be published, unless it
shall appear that the order of suspension has
been violated after notice.

29.3. The orders of the Commission refusing,

revoking, suspending or placing limitations on a
registration as herein above provided, together
with its findings, shall be entered in the Register
of Securities Market Professionals. The
suspension or revocation of the registration of a
dealer or broker shall also automatically suspend
the registration of all salesmen and associated
persons affiliated with such broker or dealer. The
order of the Commission refusing, revoking,
suspending or placing limitations on a registration
as herein above provided, together with its
findings, shall be entered in the Register of
Securities Market Professionals. The suspension
or revocation of the registration of a dealer or
broker shall also automatically suspend the
registration of a dealer or broker shall also
automatically suspend the registration of all
104

salesmen and associated persons affiliated with

such broker or dealer.

29.4. It shall be sufficient cause for refusal,

revocation or suspension of a brokers or dealers
registrations, if any associated person thereof or
any juridical entity controlled by such associated
person has committed any act or omission or is
subject to any disability enumerated in
paragraphs (a) through (i) of Subsection 29. I
hereof.

Section 30. Transactions and Responsibility of

Brokers and Dealers. 30.1 No brokers or dealer
shall deal in or otherwise buy or sell, for its own
account or for its own account or for the account
of customers, securities listed on an Exchange
issued by any corporation where any
stockholders, director, associated person or
salesman, or authorized clerk of said broker or
dealer and all the relatives of the foregoing within
the fourth civil degree of consanguinity or
affinity, is at the same time holding office in said
issuer corporation as a director, president, vicepresident, manager, treasurer, comptroller,
secretary or any office trust and responsibility, or
is a controlling of the issuer.

30.2. No broker or dealer shall effect any

transaction in securities or induce or attempt to
induce the purchase or sale of any security except
in compliance with such rules and regulations as
the Commission shall prescribe to ensure fair and
honest dealings in securities and provide financial
safeguards and other standards for the
operations of brokers and dealers, including the
establishments of minimum net capital
requirements, the acceptance of custody and use
of securities of customers, and the carrying and
use of deposits and credit balances of customers.

Section 31. Development of Securities Market

Professionals. The Commission in joint
undertaking with self regulatory organizations,
organizations and associations of finance
professionals as well as private educational and
research
institute
shall
undertake
or
facilitate/organize
continuing
training,
conferences/seminars,
updating
programs,
research and developments as well as technology
transfer at the latest and advance trends in
issuance and trading of securities, derivatives,
commodity trades and other financial
instruments, as well as securities markets of
other countries.

CHAPTER IX
EXCHANGES AND OTHER SECURITIES TRADING
MARKETS

Section 32. Prohibition on Use of Unregistered

Exchange; Regulation of Over-the-Counter
Markets. 32.1. No broker, dealer, salesman,
associated person of a broker or dealer, or
Exchange, directly or indirectly shall make use of
any facility of an Exchange in the Philippines to
effect any transaction in a security, or to report
such transaction, unless such Exchange is
registered as such under Section 33 of this Code.

32.2. (a) No broker, dealer, salesman or

associated person of a broker or dealer, singly or
in concert with any other person, shall make,
create or operate, or enable another to make,
create or operate, any trading market, otherwise
than on a registered Exchange, for the buying and
selling of any security, except in accordance with
rules and regulations the Commission may
prescribe.
105

(b) The Commission may promulgate rules and

regulations governing transactions by brokers,
dealers, salesmen or associated persons of a
broker or dealer, over any facilities of such
trading market and may require such market to
be administered by a self-regulatory organization
determined by the Commission as capable of
insuring the protection of investors comparable
to that provided in the case of a registered
Exchange. Such self-regulatory organization must
provide a centralized marketplace for trading and
must satisfy requirements comparable to those
prescribed for registration of Exchanges in
Section 33 of this Code.

Section 33. Registration of Exchanges. 33.1. Any

Exchange may be registered as such with the
Commission under the terms and conditions
hereinafter provided in this Section and Section
40 hereof, by filing an application for registration
in such form and containing such information and
supporting documents as the Commission by rule
shall prescribe, including the following:

(a) An undertaking to comply and enforce by its

members with the provisions of this Code, its
implementing rules and regulations and the rules
of the Exchange;

(b) The organizational charts of the Exchange,

rules of procedure, and a list of its officers and
members;

(c) Copies of the rules of the Exchange; and

(d) An undertaking that in the event a member

firm becomes insolvent or when the Exchange
shall have found that the financial condition of its
member firm has so deteriorated that it cannot
readily meet the demands of its customers for
the delivery of securities and/or payment of sales
proceeds, the Exchange shall, upon order of the
Commission, take over the operation of the
insolvent member firm and immediately proceed
to settle the member firms liabilities to its
customers.

33.2. Registrations of an Exchange shall be

granted upon compliance with the following
provisions:

(a) That the applicant is organized as a stock

corporation: Provided, That any registered
Exchange existing prior to the effectivity of this
Code shall within one (1) year reorganize as a
stock corporation pursuant to a demutualization
plan approved by the Commission;

(b) That the applicant is engaged solely in the

business of operating an exchange: Provided,
however, That the Commission may adopt rules,
regulations or issue an order, upon application,
exempting an Exchange organized as a stock
corporation and owned and controlled by
another juridical person from the restriction.

(c) Where the Exchange is organized as a stock

corporation, that no person may beneficially own
or control, directly or indirectly, more than five
percent (5%) of the voting rights of the Exchange
and no industry or business group may
beneficially own or control, directly or indirectly,
more than twenty percent (20%) of the voting
rights of the Exchange: Provided, however, That
106

the Commission may adopt rules, regulations or

issue an order, upon application from this
prohibition where it finds that such ownership or
control will not negatively impact on the
exchanges ability to effectively operate in the
public interest.

(d) The expulsion, suspension, or disciplining of a

member and persons associated with a member
for conduct or proceeding inconsistent with just
and equitable principles of fair trade, and for
violations of provisions of this Code, or any other
Act administered by the Commission, the rules,
regulations and orders thereunder, or the rules of
the Exchange;

(e) A fair procedure for the disciplining of

members and persons associated with members,
the denial of membership to any person seeking
to be a member, the barring of any person from
association with a member, and the prohibition
or limitation of any person from association with
member, and the prohibition or limitation of any
person from access to services offered by the
Exchange;

(f) That the brokers in the board of the Exchange

shall comprise of not more than forty-nine
percent (49%) of such board and shall
proportionately
represent
the
Exchange
membership in terms of volume/value or trade
and paid up capital, and that any natural person
associated with a juridical entity that is a member
for this purpose; Provide, That any registered
Exchange existing prior to the affectivity of this
Code shall immediately comply with this
requirement;

(g) For the board of the Exchange to include in its

composition (1) the president of the Exchange,
and (ii) no less than fifty one percent (51%) of the
remaining members of the board to be comprised
of three (3) independent directors and persons
who represent the interests of issuers, investors,
and other market participants, who are not
associated with any broker or dealer or member
of the Exchange for a period of two (2) years prior
to his/her appointment. No officer or employee
of a member, its subsidiaries or affiliates or
related interests shall become an independent
director: Provided, however, That the
Commission may by rule, regulation, or order
upon application, permit the exchange organized
as a stock corporation to use a different
governance structure: Provided, further, That the
Commission is satisfied that the Exchange is
acting in the public interest and is able to
effectively operate as a self-regulatory
organization under this Code: Provided, finally,
That any registered exchange existing prior to the
affectivity of this Code shall immediately comply
with this requirement.

(h) The president and other management of the

Exchange to consist only of persons who are not
members and are not associated in any capacity,
directly or indirectly with any broker or dealer or
member or listed company of the Exchange:
Provided, That the Exchange may only appoint,
and a person may only serve, as an officer of the
exchange if such person has not been a member
or affiliated with any broker, dealer, or member
of the Exchange for a period of at least two (2)
years prior to such appointment;

(i) The transparency of transactions on the

Exchange;

107

(j) The equitable allocation of reasonable dues,

fees, and other charges among members and
issuers and other persons using any facility or
system which the Exchange operates or controls;

(k) Prevention of fraudulent and manipulative

acts and practices, promotion of just and
equitable principles of trade, and, in general,
protection of investors and the public interest;
and

(l) The transparent, prompt and accurate

clearance and settlement of transactions effected
on the Exchange.

33.3. If the Commission finds that the applicant

Exchange is capable of complying and enforcing
compliance by its members, and persons
associated with such members, with the
provisions of this Code, and the rules of the
Exchange, and that the rules of Exchange are fair,
just and adequate, the Commission shall cause
such Exchange to be registered. If, after notice
due and hearing, the Commission finds
otherwise, the application shall be denied.

33.4. Within ninety (90) days after the filing of

the application the Commission may issue an
order either granting or denying registration as
an Exchange, unless the Exchange applying for
registration shall withdraw its application or shall
consent to the Commissions deferring action on
its application for a stated longer period after the
date of filing. The filing with the Commission of
an application for registration by an Exchange
shall be deemed to have taken place upon the
receipt thereof. Amendments to an application
may be made upon such terms as the
Commission may prescribe.

33.5. Upon the registration of an Exchange, it is

shall pay a fee in such amount and within such
period as the Commission may fix.

33.6. Upon appropriate application in accordance

with the rules and regulations of the Commission
and upon such terms as the Commission may
deemed necessary for the protection of investors,
an exchange may withdraw its registration or
suspend its operations or resume the same.

Section 34. Segregation and Limitation of

functions of Members, Broker and Dealers. - 34.1.
It shall be unlawful for any member-broker of an
Exchange to effect any transaction on such
Exchange for its own account, the account of an
associated person, or an account with the respect
to which it or an associated person thereof
exercises the investment discretion: Provided,
however, That this Section shall not make
unlawful-

(a) Any transaction by a member-broker acting in

the capacity of a market maker;

(b) Any transaction reasonably necessary to carry

on an odd-lot transactions;

(c) Any transaction to offset a transaction made

in error; and

(d) Any other transaction of a similar nature as

may be defined by the Commission.

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34.2. In all instances where the member-broker

effects a transaction on an Exchange for its own
account or the account of an associated person or
an account with the respect to which it exercises
investment discretion, it shall disclose to such
customer at or before the completion of the
transaction it is acting for its own account:
Provided, further, That this fact shall be reflected
in the order ticket and the confirmation slip.

34.3. Any member-broker who violates the

provisions of this Section shall be subject to the
administrative sanctions provided in Section 54 of
this Code.

Section 35. Additional Fees of Exchanges. In

addition to the registration fee prescribed in
Section 33 of this Code, every Exchange shall pay
to the Commission, on a semestral basis on or
before the tenth day of the end of the end of
every semester of the calendar year, a fee in such
an amount as the Commission shall prescribe, but
not more than one-hundredth of one per centum
(1%) of the aggregate amount of the sales of
securities transacted on such Exchange during the
preceding calendar year for the privilege of doing
business, during the preceding calendar year or
any part thereof.

Section 36. Powers with Respect to Exchanges

and Other Trading Market. 36.1. The
Commission is authorized, if in its opinion such
action is necessary or appropriate for the
protection of investors and the public interest so
requires, summarily to suspend trading in any
listed security on any Exchange or other trading
market for a period not exceeding thirty (30) days
but not exceeding ninety (90) days: Provided,
however, That the Commission promptly
following the issuance of the order of suspension,

shall notify the affected issuer of the reasons for

such suspension and provide such issuer with an
opportunity for hearing to determine whether
the suspension should be lifted.

36.2. Wherever two (2) or more Exchanges or

other trading markets exist, the Commission may
require and enforce uniformity of trading
regulations in and/or between or among said
Exchanges or other trading markets.

36.3. In addition to the existing Philippine Stock

Exchange, the Commission shall have the
authority to determine the number, size and
location of stock Exchanges, other trading
markets and commodity Exchanges and other
similar organizations in the light of national or
regional requirements for such activities with the
view to promote, enhance, protect, conserve or
rationalize investment.

36.4. The Commission, having due regard to the

public interest, the protection of investors, the
safeguarding of securities and funds, and
maintenance of fair competition among brokers,
dealers, clearing agencies, and transfer agents,
shall promulgate rules and regulations for the
prompt and accurate clearance and settlement of
securities transactions.

36.5. (a) The Commission may establish or

facilitate the establishment of trust funds which
shall be contributed by Exchanges, brokers,
dealers, underwriters, transfer agents, salesmen
and other persons transacting in securities, as the
Commission may require, for the purpose of
compensating investors for the extraordinary
losses or damage they may suffer due to business
failure or fraud or mismanagement of the
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persons with whom they transact, under such

rules and regulations as the Commission may
from time to time prescribe or approve in the
public interest.

(b) The Commission may, having due regard to

the public interest or the protection of investors,
regulate, supervise, examine, suspend or
otherwise discontinue such and other similar
funds under such rules and regulations which the
Commission may promulgate, and which may
include taking custody and management of the
fund itself as well as investments in and
disbursements from the funds under such forms
of control and supervision by the Commission as
it may from time to time require. The authority
granted to the Commission under this subsection
shall also apply to all funds established for the
protection of investors, whether established by
the Commission or otherwise.

Section 37. Registration of Innovative and Other

Trading Markets. The Commission, having due
regard for national economic development, shall
encourage competitiveness in the market by
promulgating within six (6) months upon the
enactment of this Code, rules for the registration
and licensing of innovative and other trading
markets or Exchanges covering, but not limited
to, the issuance and trading of innovative
securities, securities of small, medium, growth
and venture enterprises, and technology-based
ventures pursuant to Section 33 of this Code.

Section 38. Independent Directors. Any

corporation with a class of equity securities listed
for trading on an Exchange or with assets in
excess of Fifty million pesos (P50,000,000.00) and
having two hundred (200) or more holders, at
least of two hundred (200) of which are holding

at least one hundred (100) shares of a class of its

equity securities or which has sold a class of
equity securities to the public pursuant to an
effective registration statement in compliance
with Section 12 hereof shall have at least two (2)
independent directors or such independent
directors shall constitute at least twenty percent
(20%) of the members of such board whichever is
the lesser. For this purpose, an "independent
director" shall mean a person other than an
officer or employee of the corporation, its parent
or subsidiaries, or any other individual having a
relationship with the corporation, which would
interfere with the exercise of independent
judgement in carrying out the responsibilities of a
director.

CHAPTER X
REGISTRATION,
OVERSIGHT
ORGANIZATIONS

RESPONSIBILITIES
AND
OF
SELF-REGULATORY

Section 39. Associations of Securities Brokers, and

Dealers,
and
Other
Securities
Related
Organizations. 39.1. The Commission shall have
the power to register as a self-regulatory
organization, or otherwise grant licenses, and to
regulate, supervise, examine, suspend or
otherwise discontinue, as a condition for the
operation of organizations whose operations are
related to or connected with the securities
market such as but not limited to associations of
brokers and dealers, transfer agents, custodians,
fiscal and paying agents, computer services, news
disseminating services, proxy solicitors, statistical
agencies, securities rating agencies, and securities
information processor which are engaged in
business of: (a) Collecting, processing, or
preparing for distribution or publication, or
assisting, participating in, or coordinating the
distribution or publication of, information with
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respect to transactions in or quotations for any

security; or (b) Distributing or publishing,
whether by means of a ticker tape, a
communications network, a terminal display
device, or otherwise, on a current and continuing
basis, information with respect to such
transactions or quotations. The Commission may
prescribe rules and regulations which are
necessary or appropriate in the public interest or
for the protection of investors to govern selfregulatory organizations and other organizations
licensed or regulated pursuant to the authority
granted in Subsection 39.1 including the
requirement of cooperation within and among,
and electronic integration of the records of, all
participants in the securities market to ensure
transparency and facilitate exchange of
information.

39.2. An association of brokers and dealers may

be registered as a securities association pursuant
to Subsection 39.3 by filing with the Commission
an application for registration in such form as the
Commission, by rule, may prescribe containing
the rules of the association and such other
information and documents as the Commission,
by rule, may prescribe as necessary or
appropriate in the public interest or for the
protection of investors.

39.3. An association of brokers and dealers shall

not be registered as a securities association
unless the Commission determines that:

(a) The association is so organized and has the

capacity to be able to carry out the purposes of
this Code and to comply with, and to enforce
compliance by its members and persons
associated with its members, with the provisions

of this Code, the rules and regulations

thereunder, and the rules of the association.

(b) The rules of the association, notwithstanding

anything in the Corporation Code to the contrary,
provide that:

(i) Any registered broker or dealer may become a

member of the association;

(ii) There exist a fair representation of its

members to serve on the Board of Directors of
the association and in the administration of its
affairs, and that may any natural person
associated with a juridical entity that is a member
shall himself be deemed to be a member for this
purpose;

(iii) The Board of Directors of the association

includes in its composition:

(a) The president of the association and

(b) Person who represent the interests of the

issuer and public investors and are not associated
with any broker or dealer or member of the
association; that the president and other
management of the association not be a member
or associated with any broker, dealer or member
of the association;

(iv) For the equitable allocation of reasonable

dues, fees, and other charges among member
and issuers and other persons using any facility or

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system which the association operates or

controls;

experience or competence that are prescribe by

the rules of the association; or

(v) For the prevention of fraudulent and

manipulative acts and practices, the promotion of
just and equitable principles of trade, and, in
general, the protection of investors and the
public interest;

(ii) Has engaged, and there is a reasonable

likelihood it will again engage, in acts or practices
inconsistent with just and equitable principles of
fair trade.

(vi) That its members and persons associated with

its members shall be appropriately disciplined for
violation of any provision of this Code, the rules
and regulations thereunder, or the rules of the
association;

(vii) That a fair procedure for the disciplining of

members and persons associated with members,
the denial of membership to any person seeking
membership therein, the barring of any person
from becoming associated with a member
thereof, and the prohibition or limitation by the
association of any person with respect to access
to services offered by the association or a
member thereof.

39.4. (a) A registered securities association shall

deny membership to any person who is not a
registered broker or dealer.

(b) A registered securities association may deny

membership to, or condition the membership of,
a registered broker or dealer if such broker or
dealer:

(i) Does not meet the standards of financial

responsibility, operational capability, training,

(c) A registered securities association may deny

membership to a registered broker or dealer not
engage in a type of business in which the rules of
the association require members to be engaged:
Provided, however, That no registered securities
association may deny membership to a registered
broker or dealer by reason of the amount of
business done by the broker or dealer.

A registered securities association may examine

and verify the qualifications of an applicant to
become a member in accordance with procedure
established by the rules of the association.

(d) A registered securities association may bar a

salesman or person associated with a broker or
dealer from being employed by a member or set
conditions for the employment of a salesman or
associated if such person:

(i) Does not meet the standards of training,

experience, or competence that are prescribe by
the rules of the association; or

(ii) Has engage, and there is a reasonable

likelihood he will again engage, in acts or
practices inconsistent with just and equitable
principles of fair trade.
112

A registered securities association may examine

and verify the qualifications of an applicant to
become a salesman or associated person
employed by a member in accordance with the
procedures establish by the rules of the
association. A registered association also may
require a salesman or associated person
employed by a member to be registered with the
association in accordance with the procedures
prescribed in the rules of the association.

39.5. In any proceeding by a registered securities

association to determine whether a person shall
be denied membership, or barred from
association with a member, the association shall
provide notice to the person under review of the
specific grounds being considered for denial,
afford him an opportunity to defend against the
allegations, and keep a record of the proceedings.
A determination by the association to deny
membership shall be supported by a statement
setting forth the specific grounds on which the
denial is based.

Section 40. Powers with Respect to SelfRegulatory Organizations. - 40.1. Upon the filing
of an application for registration as an Exchange
under Section 33, a registered securities
association under Section 39, a registered
clearing agency under Section 42, or other selfregulatory organization under this Section, the
Commission shall have ninety (90) days within
which to either grant registration should be
denied. In the event proceedings are instituted,
the Commission shall have two hundred seventy
(270) days within which to conclude such
proceedings at which time it shall, by order, grant
or deny such registration.

40.2. Every self-regulatory organization shall

comply with the provision of this Code, the rules
and regulations thereunder, and its own rules,
and
enforce
compliance
therewith,
notwithstanding any provisions of the
Corporation Code to the contrary, by its
members, persons associated with its members
of its participants.

40.3. (a) Each self-regulatory organization shall

submit to the Commission for prior approval any
proposed rule or amendment thereto, together
with a concise statement of the reason and effect
of the proposed amendment

(b) Within sixty (60) days after submission of a

proposed amendment, the Commission shall, by
order, approve the proposed amendment.
Otherwise, the same may be made effective by
the self-regulatory organization.

(c) In the event of an emergency requiring action

for the protection of investors, the maintenance
of fair and orderly markets, or the safeguarding
of securities and funds, a self-regulatory
organization may put a proposed amendment
into effect summarily; Provided however, That
the copy of the same shall be immediately
submitted to the Commission.

40.4. The Commission is further authorized, if

after making appropriate request in writing to a
self-regulatory
organization
that
such
organization effect on its own behalf specified
changes in its rules and practices and, after due
to notice and hearing it determines that such
changes have not been effected, and that such
changes are not necessary, by the rule or
regulation or by order, may alter, abrogate or
113

supplement the rules of such self-regulatory

organization in so far as necessary or appropriate
to effect such changes in respect of such matters
as:

(j) Minimum units of trading;

(k) Odd-lot purchases and sales;

(a) Safeguards in respect of the financial
responsibility of members and adequate
provision against the evasion of financial
responsibility through the use of corporate forms
or special partnerships;

(l) Minimum deposits on margin accounts; and

(m) The supervision, auditing and disciplining of

members or participants.
(b) The supervision of trading practices;

(c) The listing or striking from listing of any

security;

(d) Hours of trading;

(e) The manner, methods, and place of soliciting

business;

(f) Fictitious accounts;

(g) The time and method of making settlements,

payments, and deliveries, and of closing
accounts;

(h) The transparency of securities transactions

and prices;

(i) The fixing of reasonable rates of fees, interest,

listing and other charges, but not rates of
commission;

40.5. The Commission, after due notice and

hearing, is authorized, in the public interest and
to protect investors:

(a) To suspend for a period not exceeding twelve

(12) months or to revoke the registration of a
self-regulatory organization, or to censure or
impose limitations on the activities, functions,
and operations of such self-organization, if the
Commission finds that such a self-regulatory
organization has willfully violated or is unable to
comply with any provision of this Code or of the
rules and regulations thereunder, or its own or
has failed to enforce compliance therewith by a
member of, person associated with a member, or
a participant in such self-regulatory organization;

(b) To expel from a self-regulatory organization

any member thereof or any participant therein
who is subject to an order of the Commission
under Section 29 of this Code or is found to have
willfully violated any provision of this Code or
suspend for a period not exceeding twelve (12)
months for violation of any provision of this Code
or any other laws administered by the
Commission, or rules and regulations thereunder,
114

or effected, directly or indirectly, any transaction

for any person who, such member or participant
had reason to believe, was violating in respect of
such transaction any of such provisions; and

(c) To remove from the office or censure any

officer or director of a self-regulatory
organization if it finds that such officer or director
has violated any provision of this Code, any other
law administered by the Commission, the rules or
regulations thereunder, or the rules of such selfregulatory organization, abused his authority,
without reasonable justification or excuse has
failed to enforce compliance with any of such
provisions.

40.6. (a) A self-regulatory organization is

authorized to discipline a member of or
participant in such self-regulatory organization, or
any person associated with a member, including
the suspension or expulsion of such member or
participant, and the suspension or bar from being
associated with a member, if such person has
engage in acts or practices inconsistent with just
and equitable principles of fair trade or in willful
violation of any provision of the Code, any other
law administered by the Commission, the rules or
regulations thereunder, or the rules of the selfregulatory organization. In any disciplinary
proceeding by a self-regulatory organization
(other than a summary proceeding pursuant to
paragraph (b) of this subsection) the selfregulatory organization shall bring specific
charges, provide notice to the person charged,
afford the person charged with an opportunity to
defend against the charges, and keep a record of
the proceedings. A determination to impose a
disciplinary sanction shall be supported by a
written statement of the offenses, a summary of
the evidence presented and a statement of the
sanction imposed.

(b) A self-regulatory organization may summarily:

(I) Suspend a member, participant or person
associated with a member who has been or is
expelled or suspended from any other selfregulatory organization; or (ii) Suspend a member
who the self-regulatory organization finds to be
in such financial or operating difficulty that the
member or participant cannot be permitted to
continue to do business as a member with safety
to investors, creditors, other members,
participants or the self-regulatory organization:
Provided, That the self-regulatory organization
immediately notifies the Commission of the
action taken. Any person aggrieved by a summary
action pursuant to this paragraph shall be
promptly afforded an opportunity for a hearing
by the association in accordance with the
provisions of paragraph (a) of this subsection. The
Commission, by order, may stay a summary
action on its own motion or upon application by
any person aggrieved thereby, if the Commission
determines summarily or after due notice and
hearing (which hearing may consist solely of the
submission of affidavits or presentation of oral
arguments) that a stay is consistent with the
public interest and the protection of investors.

40.7. A self-regulatory organization shall

promptly notify the Commission of any
disciplinary sanction on any member thereof or
participant therein, any denial of membership or
participation in such organization, or the
imposition of any disciplinary sanction on a
person associated with a member or a bar of such
person from becoming so associated. Within
thirty (30) days after such notice, any aggrieved
person may appeal to the Commission from, or
the Commission from, or the Commission on its
own motion within such period, may institute
review of, the decision of the self-regulatory
organization, at the conclusion of which, after
115

due notice and hearing (which may consist solely

of review of the record before the self-regulatory
organization), the Commission shall affirm,
modify or set aside the sanction. In such
proceeding the Commission shall determine
whether the aggrieved person has engaged or
omitted to engage in the acts and practices as
found by the self-regulatory organization,
whether such acts and practices constitute willful
violations of this Code, any other law
administered by the Commission, the rules or
regulations thereunder, or the rules of the selfregulatory organization as specified by such
organization, whether such provisions were
applied in a manner consistent with the purposes
of this Code, and whether, with due regard for
the public interest and the protection of investors
the sanction is excessive or oppressive.

40.8. The powers of the Commission under this

Section shall apply to organized exchanges and
registered clearing agencies.

CHAPTER XI
ACQUISITION AND TRANSFER OF SECURITIES AND
SETTLEMENT OF TRANSACTION IN SECURITIES

Section 41. Prohibition on Use of Unregistered

Clearing Agency. It shall be unlawful for any
broker, dealer, salesman, associated person of a
broker or dealer, or clearing agency, directly or
indirectly, to make use of any facility of a clearing
agency in Philippines to make deliveries in
connection with transaction in securities or to
reduce the number of settlements of securities
transactions or to allocate securities settlement
responsibilities or to provide for the central
handling of securities so that transfers, loans and
pledges and similar transaction can be made by
bookkeeping entry or otherwise to facilitate the

settlement of securities transactions without

physical delivery of securities certificates, unless
such clearing agency is registered as such under
Section 42 of this Code or is exempted from such
registration upon application by the clearing
agency because, in the opinion of the
Commission, by reason of the limited volume of
transactions which are settled using the clearing
agency, it is not practicable and not necessary or
appropriate in the public interest or for the
protection of investors to require such
registration.

Section 42. Registration of Clearing Agencies. 42.1. Any clearing agency may be registered as
such with the Commission under the terms and
conditions hereinafter provided in this Section, by
filing an application for registration in such form
and containing such information and supporting
documents as the Commission by rule shall
prescribe, including the following:

(a) An undertaking to comply and enforce

compliance by its participants with the provisions
of this Code, and any amendments thereto, and
the implementing rules or regulations made or to
be made thereunder, and the clearing agencys
rules;

(b) The organizational charts of the Exchange, its

rules of procedure, and list of its officers and
participants;

(c) Copies of the clearing agencys rules.

42.2. No registration of a clearing agency shall be

granted unless the rules of the clearing agency
include provision for:
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(a) The expulsions, suspension, or disciplining of a

participant for violations of this Code, or any
other Act administered by the Commission, the
rules, regulations, and orders thereunder, or the
clearing agencys rules;

(b) A fair procedure for the disciplining of

participants, the denial of participation rights to
any person seeking to be a participant, and the
prohibition or limitation of any person from
access to services offered by the clearing agency;

(c) The equitable allocation of reasonable dues,

fees, and other charges among participants;

(d) Prevention of fraudulent and manipulative

acts and practices, promotion of just and
equitable principles of trade, and, in general,
protection of investors and the public interest;

(e) The transparent, prompt and accurate

clearance and settlement of transactions in
securities handled by the clearing agency; and

(f) The establishment and oversight of a fund to

guarantee the prompt and accurate clearance
and settlement of transaction executed on an
exchange, including a requirement that members
each contribute an amount based on their and a
relevant percentage of the daily exposure of the
(4) largest trading brokers which adequately
reflects trading risks undertaken or pursuant to
another formula set forth in Commission rules or
regulations or order, upon application: Provided,
however, That a clearing agency engaged in the

business of securities depository shall be exempt

from this requirement.

42.3. In the case of an application filed pursuant

to this section, the Commission shall grant
registration if it is finds That the requirements of
this code and the rules and regulations
thereunder with respect to the applicant have
been satisfied, and shall deny registration if it
does not make such finding.

42.4. Upon appropriate application in accordance

with the rules and regulations of the Commission
and upon such terms as the Commission may
deem necessary for the protection of investors, a
clearing agency may withdraw its registration or
suspend its operation or resume the same.

Section 43. Uncertificated Securities.

Notwithstanding Section 63 of the Corporation
Code of the Philippines: 43.1. A corporation
whose securities are registered pursuant to this
Code or listed on securities exchange may:

(a) If so resolved by its Board of Directors and

agreed by a shareholder, investor or securities
intermediary, issue shares to, or record the
transfer of some or all its shares into the name of
said shareholders, investors or, securities
intermediary in the form of uncertified securities.
The use of uncertified securities in these
circumstances shall be without prejudice to the
rights of the securities intermediary subsequently
to require the corporation to issue a certificate in
respect of any shares recorded in its name; and

(b) If so provided in its articles of incorporation

and by-laws, issue all of the shares of a particular
117

class in the form of Uncertificated securities and

subject to a condition that investors may not
require the corporation to issue a certificate in
respect of any shares recorded in their name.

43.2. The Commission by rule may allow other

corporations to provide in their articles of
incorporation and by-laws for the use of
uncertificated securities.

43.3. Transfers of securities, including an

uncertificated securities, may be validly made
and consummated by appropriate book-entries in
the securities intermediaries, or in the stock and
transfer book held by the corporation or the
stock transfer agent and such bookkeeping
entries shall be binding on the parties to the
transfer. A transfer under this subsection has the
effect of the delivery of a security in bearer form
or duly indorsed in blank representing the
quantity or amount of security or right
transferred,
including
the
unrestricted
negotiability of that security by reason of such
delivery. However, transfer of uncertificated
shares shall only be valid, so far as the
corporation is concerned, when a transfer is
recorded in the books of the corporation so as to
show the names of the parties to the transfer and
the number of shares transferred.

However, nothing in this Code shall compliance

by banking and other institutions under the
supervision of the Bangko Sentral ng Pilipinas and
their stockholders with the applicable ceilings on
shareholding prescribed under pertinent banking
laws and regulations.

Section 44. Evidentiary Value of Clearing Agency

Record. The official records and book entries of

a clearing agency shall constitute the best

evidence of such transactions between clearing
agency shall constitute the best between clearing
agency and its participants or members clients
to prove their rights, title and entitlement with
respect to the book-entry security holdings of the
participants or members held on behalf of the
clients. However, the corporation shall not be
bound by the foregoing transactions unless the
corporate secretary is duly notified in such
manner as the Commission may provide.

Section 45. Pledging a Security or Interest

Therein. In addition to other methods
recognized by law, a pledge of, including an
uncertificated security, is properly constituted
and the instrument proving the right pledged
shall be considered delivered to the creditor
under Articles 2093 and 2095 of the Civil Code if a
securities intermediary indicates by book entry
that such security has been credited to a specially
designated pledge account in favor of the
pledgee. A pledge under this subsection has the
effect of the delivery of a security in bearer form
or duly indorsed in blank representing the
quantity or amount of such security or right
pledged. In the case of a registered clearing
agency, the procedures by which, and the exact
time at which, such book-entries are created shall
be governed by the registered clearing agencys
rules. However, the corporation shall not be
bound by the foregoing transactions unless the
corporate secretary is duly notified in such
manner as the Commission may provide.

Section 46. Issuers Responsibility for Wrongful

Transfer to Registered Clearing Agency. - The
registration of a transfer of a security into the
name of and by a registered clearing agency or its
name of or by a registered clearing agency or its
nominee shall be final and conclusive unless the
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clearing agency had notice of an adverse claim

before the registration was made. The above
provisions which the claimant may have against
the issuer for wrongful registration in such
circumstances.

Section 47. Power of the Commission With

Respect to Securities Ownership. The
Commission is authorize, having due regard to
the public interest and the protection of
investors, to promulgate rules and regulations
which:

47.6 Give first priority to any claims of a

registered clearing agency against a participant
arising from a failure by the participant to meet
its obligations under the clearing agencys rules in
respect of the clearing and settlement of
transactions in securities, in a dissolution of the
participant, and any such rules and regulation
shall bind the issuers of the securities, investors
in the securities, any third parties with interests
in the securities, and the creditors of a participant
of a registered clearing agency.

CHAPTER XII
47.1. Validate the transfer of securities by bookentries rather than the delivery of physical
certificates;

47.2. Establish when a person acquires a security

or an interest therein and when delivery of a
security to a purchaser occurs;

47.3. Establish which records constitute the best

evidence of a persons interests in a security and
the effect of any errors in electronic records of
ownership;

47.4. Codify the rights of investors who choose to

hold their securities indirectly through a
registered clearing agency and/ or other
securities intermediaries;

47.5. Codify the duties of securities

intermediaries (including clearing agencies) who
hold securities on behalf of investors; and

MARGIN AND CREDIT

Section 48. Margin Requirements. 48.1. For the

purpose of preventing the excessive use of credit
for the purchase or carrying of securities, the
Commission, in accordance with the credit and
monetary policies that may be promulgated from
time to time by the Monetary Board of the
Bangko Sentral ng Pilipinas, shall prescribed rules
and regulations with respect to the amount of
credit that may be extended on any security. For
the extension of credit, such rules and regulations
shall be based upon the following standard:

An amount not greater than the whichever is the

higher of

(a) Sixty-five per centum (65%) of the current

market price of the security, or

(b) One hundred per centum (100%) of the lowest

market price of the security during the preceding
thirty-six (36) calendar months, but not more

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than seventy-five per centum (75%) of the

current market price.

However, the Monetary Board may increase or

decrease the above percentages, in order to
achieve the objectives of the Government with
due regard for promotion of the economy and
prevention of the use of excessive credit.

Such rules and regulations may make appropriate

provision with respect to the carrying of
undermargined accounts for limited periods and
under specified conditions; the withdrawal of
funds or securities; the transfer of accounts from
one lender to another; special or different margin
requirements for delayed deliveries, short sales,
arbitrage transactions, and securities to which
letter (b) of the second paragraph of this
subsection does not apply; the methods to be
used in calculating loans, and margins and market
prices; and similar administrative adjustments
and details.

48.2. No member of an Exchange or broker or

dealer shall, directly or indirectly, extend or
maintain credit is extended and maintain credit
or arrange for the extension or maintenance of
credit to or for any customer:

(a) On any security unless such credit is extended

and maintained in accordance with the rules and
regulations which the Commission shall prescribe
under this Section including rules setting credit in
relation to net capital of such member, broker or
dealer; and

extended in conformity with rules and regulations

of the Commission and (ii) in cases where the
extension or maintenance of credit is not for the
purpose of purchasing or carrying securities or of
evading or circumventing the provisions of
paragraph (a) of this subsection.

48.3 Any person not subject to Subsection 48.2

hereof shall extend or maintain credit or arrange
for the extension or maintenance of credit for the
purpose of purchasing or carrying any security,
only in accordance with such rules and
regulations as the Commission shall prescribe to
prevent the excessive use of credit for the
purchasing or carrying of or trading in securities
in circumvention of the other provisions of this
Section.. Such rules and regulations may impose
upon all loans made for the purpose of
purchasing or carrying securities limitations
similar to those imposed upon members, brokers,
or dealers by Subsection 48.2 and the rules and
regulations thereunder. This subsection and the
rules and regulations thereunder shall not apply:

(a) To a credit extension made by a person not in

the ordinary course of business; (b) to a loan to a
dealer to aid in the financing of the distribution of
securities to customers not through the medium
of an Exchange; or (c) To such other credit
extension as the Commission shall exempt from
the operation of this subsection and the rules and
regulations thereunder upon specified terms and
conditions for stated period.

Section 49. Restrictions on Borrowings by

Members, Brokers, and Dealers. It shall be
unlawful for any registered broker or dealer, or
member of an Exchange, directly or indirectly;

(b) Without collateral or any collateral other than

securities, except (I) to maintain a credit initially
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49.1. To permit in the ordinary course of business

as a broker or dealer his aggregate indebtedness
including customers credit balances, to exceed
such percentage of the net capital (exclusive of
fixed assets and value of Exchange membership)
employed in the business, but not exceeding in
any case to thousand percentum (2,000%), as the
Commission may be rules and regulations
prescribe as necessary or appropriate in the
public interest or for the protection of investors.

49.2. To pledge, mortgage, or otherwise

encumber or arrange for the pledge, mortgage,
or encumbrance of any security carried for the
account of any customer under circumstances: (a)
That will permit the commingling of his securities,
without his written consent, with the securities of
any customer; (b) That will permit such securities
to be commingled with the securities of any
person other than a bona fide customer; or (c)
that will permit such securities to be pledged,
mortgaged or encumbered, or subjected to any
lien or claim of the pledgee, for a sum in excess of
the aggregate indebtedness of such customers in
respect of such securities. However, the
Commission, having due regard to the protection
of investors, may, by rules and regulations, allow
certain transactions that may otherwise be
prohibited under this subsection.

49.3. To lend or arrange for the lending of any

security carried for the account of any customer
without the written consent of such customer or
in contravention of such rules and regulations as
the Commission shall prescribe.

Section 50. Enforcement of Margin Requirement

and Restrictions on Borrowing. To prevent
indirect violations of the margin requirements
under Section 48, the broker or dealer shall

require the customer in non-margin transactions

to pay the price of the security purchased for his
account within such period as the Commission
may prescribe, which shall in no case exceed the
prescribed settlement date. Otherwise, the
broker shall sell the security purchased starting
on the next trading day but not beyond ten (10)
trading days following the last day for the
customer to pay such purchase price, unless such
sale cannot be effected within said period for
justifiable reasons. The sale shall be without
prejudice to the right of the broker or dealer to
recover any deficiency from the customer. To
prevent indirect violation of the restrictions on
borrowing under Section 49, the broker shall,
unless otherwise directed by the customer, pay
the net sales price of the securities sold for a
customer within the same period as above
prescribed by the Commission: Provided, That the
customer shall be required to deliver the
instruments evidencing the securities as a
condition for such payment upon demand by the
broker.

CHAPTER XIII
GENERAL PROVISIONS

Section 51. Liabilities of Controlling Persons,

Aider and Abettor and Other Secondary Liability.
51.1. Every person who, by or through stock
ownership, agency, or otherwise, or in
connection with an agreement or understanding
with one or more other persons, controls any
person liable under this Code or the rules or
regulations of the Commission thereunder, shall
also be liable jointly and severally with and to the
same extent as such controlled persons to any
person to whom such controlled person is liable,
unless the controlling person proves that, despite
the exercise of due diligence on his part, he has
no knowledge of the existence of the facts by
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reason of which the liability of the controlled

person is alleged to exist.

51.2. It shall be unlawful for any person, directly,

or indirectly, to do any act or thing which it would
be unlawful for such person to do under the
provisions of this Code or any rule or regulation
thereunder.

51.2. It shall be unlawful for any director or

officer of, or any owner of any securities issued
by, any issuer required to file any document,
report or other information under this Code or
any rule or regulation of the Commission
thereunder, without just cause, to hinder, delay
or obstruct the making or filing of any such
document, report, or information.

51.3. It shall be unlawful for any person to aid,

abet, counsel, command, induce or procure any
violation of this Code, or any rule, regulation or
order of the Commission thereunder.

52.4. Every person who substantially assists the

act or omission of any person primarily liable
under Sections 57, 58, 59 and 60 of this Code,
with knowledge or in reckless disregard that such
act or omission is wrongful, shall be jointly and
severally liable as an aider and abettor for
damages resulting from the conduct of the
person primarily liable: Provided, however, That
an aider and abettor shall be liable only to the
extent of his relative contribution in causing such
damages in comparison to that of the person
primarily liable, or the extent to which the aider
and abettor was unjustly enriched thereby,
whichever is greater.

Section 52. Accounts and Records, Reports,

Examination of Exchanges, members, and Others.
52.1. Every registered Exchange, broker or
dealer, transfer agent, clearing agency, securities
association,
and
other
self-regulatory
organization, and every other person required to
register under this Code, shall make, keep and
preserve for such periods, records, furnish such
copies thereof, and make such reports, as the
Commission by its rules and regulations may
prescribe. Such accounts, correspondence,
memoranda, papers, books, and other records
shall be subject at any time to such reasonable
periodic, special or other examinations by
representatives of the Commission as the
Commission may deem necessary or appropriate
in the public interest of for the protection of
investors.

52.2. Any brother, dealer or other person

extending credit, who is subject to the rules and
regulations prescribed by the Commission
pursuant to this Code, shall make such reports to
the Commission as may be necessary or
appropriate to enable it to perform the functions
conferred upon it by this Code.

52.3. For purposes of this Section, the term

"records refers to accounts, correspondence,
memoranda, tapes, discs, papers, books and
other documents or transcribed information of
any type, whether written or electronic in
character.

Section 53. Investigations, Injunctions and

Prosecution of Offenses. 53.1. The Commission
may, in its discretion, make such investigations as
it deems necessary to determine whether any
person has violated or is about to violate any
provision of this Code, any rule, regulation or
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order thereunder, or any rule of an Exchange,

registered securities association, clearing agency,
other self-regulatory organization, and may
require or permit any person to file with it a
statement in writing, under oath or otherwise, as
the Commission shall determine, as to all facts
and circumstances concerning the matter to be
investigated. The Commission may publish
information concerning any such violations, and
to investigate any fact, condition, practice or
matter which it may deem necessary or proper to
aid in the enforcement of the provisions of this
Code, in the prescribing of rules and regulations
thereunder, or in securing information to serve as
a basis for recommending further legislation
concerning the matters to which this Code
relates: Provided, however, That any person
requested or subpoenaed to produce documents
or testify in any investigation shall simultaneously
be notified in writing of the purpose of such
investigation: Provided, further, That all criminal
complaints for violations of this Code, and the
implementing rules and regulations enforced or
administered by the Commission shall be referred
to the Department of Justice for preliminary
investigation and prosecution before the proper
court: Provided, furthermore, That in instances
where the law allows independent civil or
criminal proceedings of violations arising from
the same act, the Commission shall take
appropriate action to implement the same:
provided, finally, That the investigation,
prosecution, and trial of such cases shall be given
priority.

material to the inquiry, and to perform such

other acts necessary in the conduct of such
investigation or proceedings.

53.2. For the purpose of any such investigation,

or any other proceeding under this Code, the
Commission or any officer designated by it is
empowered to administer oaths and affirmations,
subpoena witnesses, compel attendance, take
evidence, require the production of any book,
paper, correspondence, memorandum, or other
record which the Commission deems relevant or

53.4. Any person who, within his power but

without cause, fails or refuses to comply with any
lawful order, decision or subpoena issued by the
Commission under Subsection 53.2 or Subsection
53.3 or Section 64 of this Code, shall after due
notice and hearing, be guilty of contempt of the
Commission. Such person shall be fined in such

53.3. Whenever it shall appear to the Commission

that any person has engaged or is about to
engage in any act or practice constituting a
violation of any provision of this Code, any rule,
regulation or order thereunder, or any rule of an
Exchange, registered securities association,
clearing agency or other self-regulatory
organization, it may issue an order to such person
to desist from committing such act or practice:
Provided, however, That the Commission shall
not charge any person with violation of the rules
of an Exchange or other self-regulatory
organization unless it appears to the Commission
that such Exchange or other self-regulatory
organization is unable or unwilling to take action
against such person. After finding that such
person has engaged in any such act or practice
and that there is a reasonable likelihood of
continuing, further or future violations by such
person, the Commission may issue ex-parte a
cease and desist order for a maximum period of
ten (10) days, enjoining the violation and
compelling compliance with such provision. The
Commission may transmit such evidence as may
be available concerning any violation of any
provision of this Code, or any rule, regulation or
order thereunder, to the Department of Justice,
which may institute the appropriate criminal
proceedings under this Code.

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reasonable amount as the Commission may

determine, or when such failure or refusal is a
clear and open defiance of the Commissions
order, decision or subpoena, shall be detained
under an arrest order issued by the Commission,
until such order, decision or subpoena is
complied with.

Section 54. Administrative Sanctions. 54.1. If,

after due notice and hearing, the Commission
finds that: (a) There is a violation of this Code, its
rule, or its orders; (b) Any registered broker or
dealer, associated person thereof has failed
reasonably to supervise, with a view to
preventing violations, another person subject to
supervision who commits any such violation; (c)
Any registrant or other person has, in a
registration statement or in other reports,
applications, accounts, records or documents
required by law or rules to be filed with the
Commission, made any untrue statement of a
material fact, or omitted to state any material
fact required to be stated their or necessary to
make the statements therein not misleading; or,
in the case of an underwriter, has failed to
conduct an inquiry with reasonable diligence to
insure that a registration statement is accurate
and complete in all material respects; or (d) Any
person has refused to permit any lawful
examinations into its affairs, it shall, in its
discretion, and subject only to the limitations
hereinafter prescribed, impose any or all of the
following sanctions as may be appropriate in light
of the facts and circumstances:

(i) Suspension, or revocation of any registration

for the offering of securities;

(ii) A fine of no less than Ten thousand pesos

(P10,000.00) nor more than One million pesos

(P1,000,000.00) plus not more than Two

thousand pesos (P2,000.00) for each day of
continuing violation;

(iii) In the case of a violation of Sections 19.2, 20,

24, 26 and 27, disqualification from being an
officer, member of the Board of Directors, or
person performing similar functions, of an issuer
required to file reports under Section 17 of this
Code or any other act, rule or regulation
administered by the Commission;

(iv) In the case of a violation of Section 34, a fine

of no more than three (3) times the profit gained
or loss avoided as result of the purchase, sale or
communication proscribed by such Section, and

(v) Other penalties within the power of the

Commission to impose.

54.2. The imposition of the foregoing

administrative sanctions shall be without
prejudice to the filing of criminal charges against
the individuals responsible for the violation.

54.3. The Commission shall have the power to

issue writs of execution to enforce the provisions
of the Section and to enforce payment of the fees
and other dues collectible under this Code.

Section 55. Settlement Offers. 55.1. At any

time, during an investigation or proceeding under
this Code, parties being investigated and/or
charged may propose in writing an offer of
settlement with the Commission.

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55.2. Upon receipt of such offer of settlement,

the Commission may consider the offer based on
timing, the nature of the investigation or
proceeding, and the public interest.

55.3. The Commission may only agree to a

settlement offer based on its findings that such
settlement is in the public interest. Any
agreement to settle shall have no legal effect
until publicly disclosed. Such decision may be
made without a determination of guilt on the
part of the person making the offer.

55.4. The Commission shall adopt rules and

procedures governing the filing, review,
withdrawal, form of rejection and acceptance of
such offers.

Section 56. Civil Liabilities on Account of False

Registration Statement. 56.1. Any person
acquiring a security, the registration statement of
which or any part thereof contains on its
effectivity an untrue statement of a material fact
or omits to state a material fact required to be
stated therein or necessary to make such
statements not misleading, and who suffers
damage, may sue and recover damages from the
following enumerated persons, unless it is proved
that at the time of such acquisition he knew of
such untrue statement or omission:

(a) The issuer and every person who signed the

registration statement:

(b) Every person who was a director of, or any

other person performing similar functions, or a
partner in, the issuer at the time of the filing of
the registration statement or any part,

supplement or amendment thereof with respect

to which his liability is asserted;

(c) Every person who is named in the registration

statement as being or about to become a director
of, or a person performing similar functions, or a
partner in, the issuer and whose written consent
thereto is filed with the registration statement;

(d) Every auditor or auditing firm named as

having certified any financial statements used in
connection with the registration statement or
prospectus.

(e) Every person who, with his written consent,

which shall be filed with the registration
statement, has been named as having prepared
or certified any part of the registration
statement, or as having prepared or certified any
report or valuation which is used in connection
with the registration statement, with respect to
the statement, report, or valuation, which
purports to have been prepared or certified by
him.

(f) Every selling shareholder who contributed to

and certified as to the accuracy of a portion of
the registration statement, with respect to that
portion of the registration statement which
purports to have been contributed by him.

(g) Every underwriter with respect to such

security.

56.2. If the person who acquired the security did

so after the issuer has made generally available to
its security holders an income statement covering
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a period of at least twelve (12) months beginning

from the effective date of the registration
statement, then the right of recovery under this
subsection shall be conditioned on proof that
such person acquired the security relying upon
such untrue statement in the registration
statement or relying upon the registration
statement and not knowing of such income
statement, but such reliance may be established
without proof of the reading of the registration
statement by such person.

Section 57. Civil Liabilities Arising in Connection

With Prospectus, Communications and Reports.
57.1. Any person who:

(a) Offers to sell or sells a security in violation of

Chapter III, or

(b) Offers to sell or sells a security, whether or

not exempted by the provisions of this Code, by
the use of any means or instruments of
transportation or communication, by means of a
prospectus or other written or oral
communication, which includes an untrue
statement of a material fact or omits to state a
material fact necessary in order to make the
statements, in the light of the circumstances
under which they were made, not misleading (the
purchaser not knowing of such untruth or
omission), and who shall fail in the burden of
proof that he did not know, and in the exercise of
reasonable care could not have known, of such
untruth or omission, shall be liable to the person
purchasing such security from him, who may sue
to recover the consideration paid for such
security with interest thereon, less the amount of
any income received thereon, upon the tender of
such security, or for damages if he no longer
owns the security.

57.2. Any person who shall make or cause to be

made any statement in any report, or document
filed pursuant to this Code or any rule or
regulation thereunder, which statement as at the
time and in the light of the circumstances under
which it was made false or misleading with
respect to any material fact, shall be liable to any
person who, not knowing that such statement
was false or misleading, and relying upon such
statement shall have purchased or sold a security
at a price which was affected by such statement,
for damages caused by such reliance, unless the
person sued shall prove that he acted in good
faith and had no knowledge that such statement
was false or misleading.

Section 58. Civil Liability of Fraud in Connection

with Securities Transactions. Any person who
engages in any act or transaction in violation of
Sections 19.2, 20 or 26, or any rule or regulation
of the Commission thereunder, shall be liable to
any other person who purchases or sells any
security, grants or refuses to grant any proxy,
consent or authorization, or accepts or declines
an invitation for tender of a security, as the case
may be, for the damages sustained by such other
person as a result of such act or transaction.

Section 59. Civil Liability for Manipulation of

Security Prices. Any person who willfully
participates in any act or transaction in violation
of Section 24 shall be liable to any person who
shall purchase or sell any security at a price which
was affected by such act or transaction, and the
person so injured may sue to recover the
damages sustained as a result of such act or
transaction.

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Section 60. Civil Liability with Respect to

Commodity Futures Contracts and Pre-need
Plans. 60.1. Any person who engages in any act
or transactions in willful violation of any rule or
regulation promulgated by the Commission under
Section 11 or 16, which the Commission
denominates at the time of issuance as intended
to prohibit fraud in the offer and sale of pre-need
plans or to prohibit fraud, manipulation, fictitious
transactions, undue speculation, or other unfair
or abusive practices with respect to commodity
future contracts, shall be liable to any other
person sustaining damages as a result of such act
or transaction.

60.2. As to each such rule or regulation so

denominated, the Commission by rule shall
prescribe the elements of proof required for
recovery and any limitations on the amount of
damages that may be imposed.

Section 61. Civil Liability on Account of Insider

Trading. 61.1. Any insider who violates
Subsection 27.1 and any person in the case of a
tender offer who violates Subsection 27.4 (a)(I),
or any rule or regulation thereunder, by
purchasing or selling a security while in
possession of material information not generally
available to the public, shall be liable in a suit
brought by any investor who, contemporaneously
with the purchase or sale of securities that is the
subject of the violation, purchased or sold
securities of the same class unless such insider, or
such person in the case of a tender offer, proves
that such investor knew the information or would
have purchased or sold at the same price
regardless of disclosure of the information to
him.

61.2. An insider who violates Subsection 27.3 or

any person in the case of a tender offer who
violates Subsection 27.4 (a), or any rule or
regulation thereunder, by communicating
material nonpublic information, shall be jointly
and severally liable under Subsection 61.1 with,
and to the same extent as, the insider, or person
in the case of a tender offer, to whom the
communication was directed and who is liable
under Subsection 61.1 by reason of his purchase
or sale of a security.

Section 62. Limitation of Actions. 62.1. No

action shall be maintained to enforce any liability
created under Section 56 or 57 of this Code
unless brought within two (2) years after the
discovery of the untrue statement or the
omission, or, if the action is to enforce a liability
created under Subsection 57.1 (a), unless,
brought within two (2) yeas after the violation
upon which it is based. In no event shall an such
action be brought to enforce a liability created
under Section 56 or Subsection 57.1 (a) more
than five (5) years after the security was bona
fide offered to the public, or under Subsection
57.1 (b0 more than five (5) years after the sale.

62.2. No action shall be maintained to enforce

any liability created under any other provision of
this Code unless brought within two (20 years
after the discovery of the facts constituting the
cause of action and within five (5) years after
such cause of action accrued.

Section 63. Amount of Damages to be Awarded.

63.1. All suits to recover damages pursuant to
Sections 56, 57, 58, 59, 60 and 61 shall be
brought before the Regional Trial Court, which
shall have exclusive jurisdiction to hear and
decide such suits. The Court is hereby authorized
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to award damages in an amount not exceeding

triple the amount of the transaction plus actual
damages.

Exemplary damages may also be awarded in

cases of bad faith, fraud, malevolence or
wantonness in the violation of this Code or the
rules and regulations promulgated thereunder.

The Court is also authorized to award attorneys

fees not exceeding thirty percentum (30%) of the
award.

63.2. The persons specified in Sections 56, 57, 58,

59, 60 and 61 hereof shall be jointly and severally
liable for the payment of damages. However, any
person who becomes liable for the payment of
such damages may recover contribution from any
other person who, if sued separately, would have
been liable to make the same payment, unless
the former was guilty of fraudulent
representation and the latter was not.

63.3. Notwithstanding any provision of law to the

contrary, all persons, including the issuer, held
liable under the provisions of Sections 56, 57, 58,
59, 60 and 61 shall contribute equally to the total
liability adjudged herein. In no case shall the
principal stockholders, directors and other
officers of the issuer or persons occupying similar
positions therein, recover their contribution to
the liability from the issuer. However, the right of
the issuer to recover from the guilty parties the
amount it has contributed under this Section shall
not be prejudiced.

Section 64. Cease and Desist Order. 64.1. The

Commission, after proper investigation or

verification, motu proprio or upon verified

complaint by any aggrieved party, may issue a
cease and desist order without the necessity of a
prior hearing if in its judgment the act or practice,
unless restrained, will operate as a fraud on
investors or is otherwise likely to cause grave or
irreparable injury or prejudice to the investing
public.

64.2. Until the Commission issue a cease and

desist order, the fact that an investigation has
been initiated or that a complaint has been filed,
including the contents of the complaint, shall be
confidential. Upon issuance of a cease and desist
order, the Commission shall make public such
order and a copy thereof shall be immediately
furnished to each person subject to the order.

64.3. Any person against whom a cease and

desist order was issued may, within five (5) days
from receipt of the order, file a formal request for
a lifting thereof. Said request shall be set for
hearing by the Commission not later than fifteen
(15) days from its filing and the resolution thereof
shall be made not later than ten (10) days from
the termination of the hearing. If the Commission
fails to resolve the request within the time herein
prescribed, the cease and desist order shall
automatically be lifted.

Section 65. Substituted Service Upon the

Commission. Service of summons or other
process shall be made upon the Commission in
actions or legal proceedings against an issuer or
any person liable under this Code who is not
domiciled in the Philippines. Upon receipt by the
Commission of such summons, the Commission
shall within ten (10) days thereafter, transmit by
registered mail a copy of such summons and the
complaint or other legal process to such issuer or
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person at his last known address or principal

office. The sending thereof by the Commission,
the expenses for which shall be advanced by the
party at whose instance it is made, shall complete
such service.

Section 66. Revelation of Information Filed with

the Commission. 66.1. All information filed with
the commission in compliance with the
requirements of this Code shall be made available
to any member of the general public, upon
request, in the premises and during regular office
hours of the Commission, except as set forth in
this Section.

66.2. Nothing in this Code shall be construed to

require, or to authorize the Commission to
require, the revealing of trade secrets or
processes in any application, report, or document
filed with the Commission.

66.3. Any person filing any such application,

report or document may make written objection
to the public disclosure of information contained
therein, stating the grounds for such objection,
and the Commission may hear objections as it
deems necessary. The Commission may, in such
cases, make available to the public the
information contained in any such application,
report, or document only when a disclosure of
such information is required in the public interest
or for the protection of investors; and copies of
information so made available may be furnished
to any person having a legitimate interest therein
at such reasonable charge and under such
reasonable limitations as the Commission may
prescribe.

66.4. It shall be unlawful for any member, officer,

or employee of the Commission to disclose to any
person other than a member, officer or employee
of the Commission or to use for personal benefit,
any information contained in any application,
report, or document filed with the Commission
which is not made available to the public
pursuant to Subsection 66.3.

66.5. Notwithstanding anything in Subsection

66.4 to the contrary, on request from a foreign
enforcement authority of any country whose laws
grant reciprocal assistance as herein provided,
the Commission may provide assistance in
accordance with this subsection, including the
disclosure of any information filed with or
transmitted to the Commission. If the requesting
authority states that it is conducting an
investigation which it deems necessary to
determine whether any person has violated, is
violating, or is about to violate any laws relating
to securities or commodities matters that the
requesting authority administers or enforces.
Such assistance may be provided without regard
to whether the facts stated in the request would
also constitute a violation of law of the
Philippines.

Section 67. Effect of action of Commission and

Unlawful Representations with Respect Thereto.
67.1. No action or failure to act by the
Commission in the administration of this Code
shall be construed to mean that the Commission
has in any way passed upon the merits of or given
approval to any security or any transactions or
transactions therein, nor shall such action or
failure to act with regard to any statement or
report filed with or examined by the Commission
pursuant to this Code or the rules and regulations
thereunder to be deemed a finding by the
Commission that such statements or report is
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true and accurate on its face or that it is not false

or misleading. It shall be unlawful to make, or
cause to be made, to any prospective purchaser
or seller or a security any representation that any
such action or failure to act by the Commission is
to be so construed or has such effect.

67.2. Nothing contained in Subsection 67.1 shall,

however, be construed as an exemption from
liability of an employee or officer of the
Commission for any nonfeasance, misfeasance or
malfeasance in the discharge of his official duties.

Section 68. Special Accounting Rules. The

Commission shall have the authority to make,
amend, and rescind such accounting rules and
regulations as may be necessary to carry out the
provisions of this Code, including rules and
regulations as may be necessary to carry out the
provisions of this Code, including rules and
regulations governing registration statements
and prospectuses for various classes of securities
and issuers, and defining accounting, technical
and trade terms used in this Code. Among other
things, the Commission may prescribe the form
or forms in which required information shall be
set forth, the items or details to be shown in the
balance sheet and income statement, and the
methods to be followed in the preparation of
accounts, appraisal or valuation of assets and
liabilities, determination of depreciation and
depletion, differentiation of recurring and nonrecurring income, differentiation of investment
and operating income, and in the preparation,
where the Commission deems it necessary or
desirable of consolidated balance sheets or
income accounts of any person directly or
indirectly controlling or controlled by the issuer,
or any person under direct or indirect common
control with the issuer.

Section 69. Effect on Existing Law. The rights

and remedies provided by this Code shall be in
addition to any and all order rights and remedies
that may now exist. However, except as provided
in Section 56 and 63 hereof, no person permitted
to maintain a suit for damages under the
provisions of this Code shall recover, through
satisfaction of judgment in one or more actions, a
total amount in excess of his actual damages on
account of the act complained of: Provided, That
exemplary damages may be awarded in cases of
bad faith, fraud, malevolence or wantonness in
the violation of this Code or the rules and
regulations promulgated thereunder.

Section 70. Judicial Review of Commission Orders.

Any person aggrieved by an order of the
Commission may appeal the order to the Court of
Appeals by petition for review in accordance with
the pertinent provisions of the Rules of Court.

Section 71. Validity of Contracts. 71.1. Any

condition, stipulation, provision binding any
person to waive compliance with any provision of
this Code or of any rule or regulation thereunder,
or of any rule of an Exchange required thereby, as
well as the waiver itself, shall be void.

71.2. Every contract made in violation of any

provision of this Code or of any rule or regulation
thereunder, and every contract, including any
contract for listing a security or an Exchange
heretofore or hereafter made, the performance
of which involves the violation of, or the
continuance of any relationship or practice in
violation of, any provision of this Code, or any
rule or regulation thereunder, shall be void:

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(a) As regards the rights of any person who, in

violation of any such provision, rule or regulation,
shall have made or engaged in the performance
of any such contract, and

(b) As regards the rights of any person who, not

being a party to such contract, shall have
acquired any right thereunder with actual
knowledge of the facts by reason of which the
making or performance of such contract was in
violation of any such provision, rule or regulation.

71.3. Nothing in this Code shall be construed:

(a) To affect the validity of any loan or extension

of credit made or of any lien created prior or
subsequent to the effectivity of this Code, unless
at the time of the making of such loan or
extension of credit or the creating of such lien,
the person making such loan or extension of
credit or acquiring such lien shall have actual
knowledge of the facts by reason of which the
making of such loan or extension of credit or the
acquisition of such lien is a violation of the
provisions of this Code or any rules or regulations
thereunder, or

(b) To afford a defense to the collection of any

debt, obligation or the enforcement of any lien by
any person who shall have acquired such debt,
obligation or lien in good faith for value and
without actual knowledge of the violation of any
provision of this Code or any rule or regulation
thereunder affecting the legality of such debt,
obligation or lien.

Section 72. Rules and Regulations; Effectivity.

72.1. This Code shall be self-executory. To effect

the provisions and purposes of this Code, the

Commission may issue, amend, and rescind such
rules and regulations and orders necessary or
appropriate, including rules and regulations
defining accounting, technical, and trade terms
used in this Code, and prescribing the form or
forms in which information required in
registration statements, applications, and reports
to the Commission shall be set forth. For
purposes of its rules or regulations, the
Commission may classify persons, securities, and
other matters within its jurisdiction, prescribe
different requirements for different classes of
persons, securities, or matters, and by rule or
order, conditionally or unconditionally exempt
any person, security, or transaction, or class or
classes of persons, securities or transactions,
from any or all provisions of this Code.

Failure on the part of the Commission to issue

rules and regulations shall not in any manner
affect the self-executory nature of this Code.

72.2. The Commission shall promulgate rules and

regulations providing for reporting, disclosure
and the prevention of fraudulent, deceptive or
manipulative practices in connection with the
purchase by an issuer, by tender offer or
otherwise, of and equity security of a class issued
by it that satisfies the requirements of Subsection
17.2. such rules and regulations may require such
issuer to provide holders of equity securities of
such dates with such information relating to the
reasons for such purchase, the source of funds,
the number of shares to be purchased, the price
to be paid for such securities, the method of
purchase and such additional information as the
Commission deems necessary or appropriate in
the public interest or for the protection of
investors, or which the Commission deems to be

131

material to a determination by holders whether

such security should be sold.

72.3. For the purpose of Subsection 72.2, a

purchase by or for the issuer or any person
controlling, controlled by, or under common
control with the issuer, or a purchase subject to
the control of the issuer or any such person, shall
be deemed to be a purchased by the issuer. The
commission shall have the power to make rules
and regulations implementing this subsection,
including exemptive rules and regulations
covering situations in which the Commission
deems it unnecessary or inappropriate that a
purchase of the type described in this subsection
shall be deemed to be a purchase by the issuer
for the purpose of some or all of the provisions of
Subsection 72.2.

72.4. The rules and regulations promulgated by

the Commission shall be published in two (20
newspapers or general circulation in the
Philippines, and unless otherwise prescribed by
the Commission, the same shall be effective
fifteen (15) days after the date of the last
publication.

Section 73. Penalties. Any person who violates

any of the provisions of this Code, or the rules
and regulations promulgated by the Commission
under authority thereof, or any person who, in a
registration statement filed under this Code,
makes any untrue statement of a material fact or
omits to state any material fact required to be
stated therein or necessary to make the
statements therein not misleading, shall, upon
conviction, suffer a fine of not less than Fifty
thousand pesos (P50,000.00) nor more than Five
million pesos (P5,000,000.00) or imprisonment of
not less than seven (7) years nor more than

twenty-one (21) years, or both in the discretion

of the court. If the offender is a corporation,
partnership or association or other juridical
entity, the penalty may in the discretion of the
court be imposed upon such juridical entity and
upon the officer or officers of the corporation,
partnership, association or entity responsible for
the violation, and if such officer is an alien, he
shall in addition to the penalties prescribed, be
deported without further proceedings after
service of sentence.

Section 74. Transitory Provisions. The

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

All further requirements herein shall be complied

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

All unexpended funds for the calendar year,

properties, equipment and records of the
Securities and Exchange Commission are hereby
retained by the Commission as reorganized under
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this Code and the amount of Two hundred million

pesos (P200,000,000.00) or such amount
necessary to carry out the reorganization
provided in this Code is hereby appropriated.

Section 78. Effectivity. This Code shall take

effect fifteen (15) days after its publication in the
Official Gazette or in two (2) newspapers of
general circulation.
________________________________________

All employees of the Commission who voluntarily

retire or are separated from the service with the
Commission and whose retirement or separation
has been approved by the Commission, shall be
paid retirement or separation benefits and other
entitlement granted under existing laws.

BATAS PAMBANSA BILANG 178

THE REVISED SECURITIES ACT

CHAPTER I

Section 75. Partial Use of Income. To carry out

the purposes of this Code, the Commission is
hereby authorized, in addition to its annual
budget, to retain and utilize an amount equal to
One hundred million pesos (P100,000,000.00)
from its income.

Title and Definitions

The use of such additional amount shall be

subject to the auditing requirements, standards
and procedures under existing laws.

(a) "Securities" shall include bonds, debentures,

notes, evidences of indebtedness, shares in a
company, pre-organization certificates or
subscriptions, investment contracts, certificates
of interest or participation in a profit sharing
agreement,
collateral
trust
certificates,
equipment
trust
certificates
(including
conditional sale contracts or similar interests or
instruments serving the same purpose), voting
trust certificates, certificates of deposit for a
security, or fractional undivided interest in oil,
gas, or other mineral rights, or, in general,
interests or instruments commonly considered to
be "securities", or certificates of interests or
participation in, temporary or interim certificates
for, receipts for, guarantees of, or warrants or
rights to subscribe to or buy or sell any of the
foregoing; or commercial papers evidencing
indebtedness of any person, financial or nonfinancial entity, irrespective of maturity, issued,
endorsed, sold, transferred or in any manner

Section 76. Repealing Clause. The Revised

Securities Act (Batas Pambansa Blg. 178), as
amended, are hereby repealed. All other laws,
orders, rules and regulations, or parts thereof,
inconsistent with any provision of this Code are
hereby repealed or modified accordingly.

Section 77. Separability Clause. if any portion or

provision of this Code is declared unconstitutional
or invalid, the other portions or provisions
hereof, which are not affected thereby shall
continue in full force and effect.

chanrobles virtual law library

Section 1. Title. This Act shall be known as the
"Revised Securities Act."
Sec. 2. Definitions. For purposes of this Act:
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conveyed to another, with or without recourse,

such as promissory notes, repurchase
agreements,
certificates
of
assignments,
certificates of participation, trust certificates or
similar instruments; or proprietary or nonproprietary membership certificates, commodity
futures contracts, transferable stock options, preneed plans, pension plans, life plans, joint
venture contracts, and similar contracts and
investments where there is no tangible return on
investments plus profits but an appreciation of
capital as well as enjoyment of particular
privileges and services.
(b) "Person" means an individual, a corporation, a
partnership, an association, a joint-stock
company, a trust, any business organization, or a
government or political subdivision thereof. As
used in this paragraph, the term "trust" shall
include only a trust where the interest or
interests of the beneficiary or beneficiaries are
evidenced by a security. chanrobles virtual law
library
(c) "Sale" or "sell" shall include every contract of
sale or disposition of a security or interest in a
security, for value. The terms "offer to sell" "offer
for sale", or "offer" shall include every attempt or
offer to dispose of, or solicitation of an offer to
buy, a security or interest in a security, for value.
chanrobles virtual law library
(d) "Buy" and "purchase" shall include any
contract to buy, purchase, or otherwise acquire.
chanrobles virtual law library
(e) "Issuer" means every person who issues or
proposes to issue any security; except that with
respect to certificates of deposit, voting trust
certificates, or certificates of interest or shares in
an unincorporated investment trust, not having a
board of directors or persons performing similar
functions or of the fixed restricted management,
or unit type, the term "issuer" means any person
or persons performing the acts and assuming the

duties of depositor or manager pursuant to the

provisions of the trust or other agreement or
instrument under which such securities are
issued; and except that with respect to fractional
undivided rights in oil, gas, or other mineral
rights, claims or properties, the term "issuer"
means the owner of any such right or property or
of any interest therein, whether whole or
fractional, who creates fractional interests
therein for the purpose of public offering.
(f) "Dealer" means any person engaged in the
business of buying and selling securities for his
own account, through a broker or otherwise, but
does not include any person insofar as he buys or
sells securities for his own account, either
individually or in some fiduciary capacity, but not
as a part of a regular business.
(g) "Salesman" shall include every natural person,
other than a dealer, employed or appointed or
authorized by a dealer, issuer or broker to sell
securities in any manner. The partners in a
partnership and the executive officers of a
corporation or other association registered as a
dealer shall not be salesmen within the meaning
of this definition.
(h) "Broker" means any person engaged in the
business of effecting transactions in securities for
the account of others but does not include a
bank. chanrobles virtual law library
(i) "Exchange" means any organization,
association, or group of persons, whether
incorporated
or
unincorporated
which
constitutes, maintains, or provides a market place
or facilities for bringing together purchasers and
sellers of securities or for otherwise performing
with respect to securities the functions
commonly performed by a stock exchange as that
term is generally understood, and includes the
market place and the market facilities maintained
by such exchange.

134

(j) "Facility", when used with respect to an

exchange, includes its premises, tangible or
intangible property, whether on the premises or
not, any right to the use of such premises or
property or any service thereof for the purpose of
effecting or reporting a transaction on an
exchange including, among other things, any
system of communication to or from the
exchange, by ticker or otherwise, maintained by
or with the consent of the exchange, and any
right of the exchange to the use of any property
or service.
(k) "Member", when used with respect to an
exchange, means (1) any natural person
permitted to effect transactions on the floor of
the exchange without the services of another
person acting as broker, (2) any registered broker
or dealer with which such a natural person is
associated, (3) any registered broker or dealer
permitted to designate as a representative such a
natural person, and (4) any other registered
broker or dealer which agrees to be regulated by
such exchange and with respect to which the
exchange undertakes to enforce compliance with
the provisions of this Act, the rules and
regulations thereunder, and its own rules.
(l) "Bank" means an institution authorized to
operate as such by the Central Bank of the
Philippines.
(m) "Director" means any director of a
corporation or any person performing similar
functions with respect to any organization,
whether incorporated or unincorporated.
chanrobles virtual law library
(n) "Commission" means the Securities and
Exchange Commission.
(o) "Clearing agency" means any person who acts
as an intermediary in making payments or
deliveries or both in connection with transactions
in securities or who provides facilities for
comparison of data respecting the terms of

settlement of securities transactions, to reduce

the number of settlements of securities
transactions, or for the allocation of securities
settlement responsibilities. Such term also means
any person, such as a securities depository, who
(1) acts as a custodian of securities in connection
with a system for the central handling of
securities whereby all securities of a particular
class or series of any issuer deposited within the
system are treated as fungible and may be
transferred, loaned, or pledged by bookkeeping
entry without physical delivery of securities
certificates, or (2) otherwise permits or facilitates
the settlement of securities transactions without
physical delivery of securities certificates.
(p) "Transfer agent" means any person who
engages on behalf of an issuer of securities or on
behalf of itself as an issuer of securities in (1)
countersigning such securities upon issuance; (2)
monitoring the issuance of such securities with a
view to preventing unauthorized issuance, a
function commonly performed by a person called
a registrar; (3) registering the transfer of such
securities; (4) exchanging or converting such
securities; or (5) transferring record ownership of
securities by bookkeeping entry without physical
issuance of securities certificates. chanrobles
virtual law library
(q) "Underwriter" means any person who has
purchased from an issuer with a view to, or offers
or sells for an issuer in connection with, the
distribution of any security, or participates or has
a direct or indirect participation in any such
undertaking, or participates or has a participation
in the direct or indirect underwriting of any such
undertaking; but such term shall not include a
person whose interest is limited to a commission
from an underwriter or dealer not in excess of
the usual and customary distributors' or sellers'
commission. As used in this paragraph, the term
"issuer" shall include, in addition to an issuer, any
person directly or indirectly controlling or
135

controlled by the issuer, or any person under

direct or indirect common control with the issuer.
(r) "Promoter" includes (1) any person who,
acting alone or in conjunction with one or more
other persons, directly or indirectly, takes
initiative in founding and organizing the business
or enterprise of an issuer; or (2) any person who,
in connection with the founding and organizing of
the business of an issuer, directly or indirectly,
receives in consideration of services or property
or both services or property ten (10%) per
centum or more of any class of securities of the
issuer or ten (10%) per centum or more of the
proceeds from the sale of any class of such
securities. However, a person who receives such
securities or proceeds either solely as
underwriting commissions or solely as
consideration of property shall not be deemed a
promoter within the meaning of this paragraph if
such person does not otherwise take part in
founding and organizing the enterprise.
chanrobles virtual law library

Sec. 3. Administrative agency. This Act shall be

administered by the Commission which shall
continue to have the organization, powers, and
functions provided by Presidential Decrees
Numbered 902-A, 1653, 1758 and 1799 and
Executive Order No. 708. The Commission shall,
except as otherwise expressly provided, have the
power to promulgate such rules and regulations
as it may consider appropriate in the public
interest for the enforcement of the provisions
hereof. chanrobles virtual law library

CHAPTER II
Registration of Securities
Sec. 4. Requirement of registration of securities.
(a) No securities, except of a class exempt
under any of the provisions of Section five hereof

or unless sold in any transaction exempt under

any of the provisions of Section six hereof, shall
be sold or offered for sale or distribution to the
public within the Philippine unless such securities
shall have been registered and permitted to be
sold as hereinafter provided.
(b) Notwithstanding the provisions of paragraph
(a) of this Section and the succeeding Sections
regarding exemptions, no commercial paper as
defined in Section two hereof shall be issued,
endorsed, sold, transferred or in any other
manner conveyed to the public, unless registered
in accordance with the rules and regulations that
shall be promulgated in the public interest and
for the protection of investors by the
Commission. The Commission, however, with due
regard to the public interest and the protection of
investors, may, by rules and regulations, exempt
from registration any commercial paper that may
otherwise be covered by this paragraph. In either
case, the rules and regulations promulgated by
the Commission shall be subject to the approval
of the Monetary Board of the Central Bank of the
Philippines. The Monetary Board shall, however,
have the power to promulgate its own rules on
the monetary and credit aspects of commercial
paper issues, which may include the imposition of
ceilings on issues by any single borrower, and the
authority to supervise the enforcement of such
rules and to require issues of commercial papers
to submit their financial statements and such
periodic reports as may be necessary for such
enforcement. As far as practicable, such financial
statements and periodic reports, when required
by both the Commission and the Monetary
Board, shall be uniform. chanrobles virtual law
library
(c) A record of the registration of securities shall
be kept in a Register of Securities in which shall
be recorded orders entered by the Commission
with respect to such securities. Such register and
all documents or information with respect to the
securities registered therein shall be open to the
136

public inspection at reasonable hours on business

days. chanrobles virtual law library
Sec. 5. Exempt securities. (a) Except as
expressly provided, the requirement of
registration under subsection (a) of Section four
of this Act shall not apply to any of the following
classes of securities: chanrobles virtual law
library
(1) Any security issued or guaranteed by the
Government of the Philippines, or by any political
subdivision or agency thereof or by any of its
public instrumentalities, or by any person
controlled or supervised by, and acting as an
instrumentality of said Government, or any
certificate of deposit for any of the foregoing.
chanrobles virtual law library
(2) Any security issued or guaranteed by the
government of any country with which the
Philippines is, at the time of the sale or offer of
sale thereof, maintaining diplomatic relations, or
by any state, province or political subdivision
thereof having the power of taxation or
assessment, which security is recognized at the
time of the sale or the offer to sell in the
Philippines as a valid obligation by such foreign
government or by such state, province or political
subdivision thereof using the same.
(3) Any security issued or guaranteed by any
banking institution authorized to do business in
the Philippines, the business of which is
substantially confined to banking or a financial
institution licensed to engage in quasi-banking,
and is supervised by the Central Bank.
chanrobles virtual law library
(4) Any security issued by a building and loan
association, non-stock savings and loan
association, or similar institution, substantially all
the business of which is confined to the making of
loans to members but does not include any such
security where the issuer takes from the total
amount paid or deposited by the purchaser, by

way of any fee, cash value or other device

whatsoever, either upon termination of the
investment at maturity or before maturity an
aggregate amount in excess of three per centum
of the face value of such security; or any security
issued by rural credit associations or by
cooperative marketing associations which are
subject to regulation and supervision by the
proper government agency. chanrobles virtual
law library
(5) Certificates issued by a receiver or by a
trustee in bankruptcy duly approved by the court.
(6) Any insurance or endowment policy or
annuity contract, or optional annuity contract,
issued by a corporation subject to the supervision
of the Insurance Commission.
(7) Any security covering any right or interest in
real property, including a subdivision lot or a
condominium unit, where the sale or transfer of
such security is subject to the supervision and
regulation of the Ministry of Human Settlements
or any of its authorized constituent or attached
agencies. chanrobles virtual law library
(8) Pension plans subject to regulation and
supervision by the Bureau of Internal Revenue
and/or the Insurance Commission.

(b) The Commission may, from time to time and

subject to such terms and conditions as may be
prescribed after public hearing, add to the
foregoing any class of securities similar to these
above-enumerated if it finds that the
enforcement of this Act with respect to such
securities is not necessary in the public interest
and for the protection of investors. chanrobles
virtual law library
Sec.
6.
Exempt transactions. (a) The
requirement of registration under subsection (a)
of Section four of this Act shall not apply to the
137

sale of any security in any of the following

transactions:
(1) At any judicial sale, or sale by an executor,
administrator, guardian or receiver or trustee in
insolvency or bankruptcy.
(2) By or for the account of a pledge holder, or
mortgagee, or any other similar lienholder selling
or offering for sale or delivery in the ordinary
course of business and not for the purpose of
avoiding the provisions of this Act, to liquidate a
bona fide debt, a security pledged in good faith as
security for such debt. chanrobles virtual law
library
(3) An isolated transaction in which any security
is sold, offered for sale, subscription or delivery
by the owner thereof, or by his representative for
the owner's account, such sale or offer for sale,
subscription or delivery not being made in the
course of repeated and successive transactions of
a like character by such owner, or on his account
by such representative and such owner or
representative not being the underwriter of such
security.
(4) 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; or the issuance
of securities to the security holder or other
creditors of a corporation in the process of a
bona fide reorganization of such corporation
made in good faith and not for the purpose of
avoiding the provisions of this Act, either in
exchange for the securities of such security
holders or claims of such creditors or partly for
cash and partly in exchange for the securities or
claims of such security holders or creditors; or the
issuance of additional capital stock of a
corporation sold or distributed by it among its
own stockholders exclusively, where no
commission or other remuneration is paid or

given directly or indirectly in connection with the

sale or distribution of such increased capital
stock. chanrobles virtual law library
(5) The transfer or exchange by one corporation
to another corporation of their own securities in
connection with a consolidation or merger of
such corporations.
(6) The issuance of bonds or notes secured by
mortgage upon real estate or tangible personal
property, where the entire mortgage together
with all the bonds or notes secured thereby are
sold to a single purchaser at a single sale.
(7) 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
and permitted to be sold under this Act or was,
when sold, exempt from the provisions of this
Act, 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
Act. 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.
(8)
Broker's transactions, executed upon
customer's orders on any exchange or in the
over-the-counter market but not those made
upon the solicitation by brokers of such orders.
chanrobles virtual law library
(9) Subscriptions for shares of the capital stock of
a corporation prior to the incorporation thereof
under the Corporation Code, when no expense is
incurred, or no commission, compensation or
remuneration is paid or given in connection with
the sale or disposition of such securities, and only
when the purpose for soliciting, giving or taking,
of such subscriptions is to comply with the
138

requirements of such law as to the percentage of

the capital stock of a proposed corporation which
should be subscribed before it can be registered
and duly incorporated.
(10) The exchange of securities by the issuer with
its existing security holders exclusively, where no
commission or other remuneration is paid or
given directly or indirectly for soliciting such
exchange. chanrobles virtual law library
(11) Any issuance of any security by a public
utility or service corporation which, in compliance
with or pursuant to law, regulation or decree, is
intended to broaden its equity base as well as to
finance a part of the capital investment thereof
through the issuance and sale of stocks.

(b) The Commission may, from time to time and

subject to such terms and conditions as it may
prescribe, exempt transactions other than those
provided in the preceding paragraph, if it finds
that the enforcement of the requirements of
registration under this Act with respect to such
transactions is not necessary in the public interest
and for the protection of the investors by reason
of the small amount involved or the limited
character of the public offering. chanrobles
virtual law library
(c) A fee equivalent to one-tenth of one per
centum of the maximum aggregate price or
issued value of the securities shall be collected by
the Commission for granting a general or
particular exemption from the registration
requirements of this Act. (6a)
Sec.
7.
Commodity futures contracts.
Notwithstanding the provisions of paragraph (a)
of Section 4 and of Section 5 and 6 regarding
exemptions, commodity futures contracts may be
registered or otherwise regulated, and futures
commission merchants, futures brokers, floor
brokers, pool operators and advisors licensed and

supervised in accordance with the rules and

regulations that shall be promulgated in the
public interest and for the protection of investors
by the Commission, with the approval of the
Monetary Board of the Central Bank of the
Philippines. Such rules and regulations may,
among other things, provide for the
establishment and maintenance by futures
commission merchants, futures brokers, floor
brokers, pool operators and advisors of bank
accounts exclusively for margin deposit of and/or
other receipts from customers, the monitoring of
withdrawals from such account through periodic
reports and/or examination, the requirement
that at least one of the signatories to fund
withdrawals from such account must be a Filipino
citizen and a resident of the Philippines, the
posting by futures commission merchants,
futures brokers, floor brokers, poll operators and
advisors of a bond in an amount sufficient to
meet possible claims against them, taking into
account the volume of margin deposits held by
them, the establishment of a common
compensation fund to be contributed by all
futures commission merchants, futures brokers,
floor brokers, pool operators and advisors and
subject to the control and supervision of the
Commission, and the registration and use by
futures commission merchants, futures brokers,
floor brokers, pool operators and advisors of
official receipts to evidence commissions received
by them from customers. However, the
Commission shall, after proper notice and
opportunity for hearing, prohibit transactions
with respect to all or specified commodity futures
contracts it shall find that such transactions will
be inimical to the economic interest of the
country or may cause grave or irreparable injury
or prejudice to the investing public. chanrobles
virtual law library
Sec. 8. Procedure for registration. (a) All
securities required to be registered under
subsection (a) of Section four of this Act shall be
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registered through the filing by the issuer or by

any dealer or underwriter interested in the sale
thereof, in the office of the Commission, of a
sworn registration statement with respect to such
securities, containing or having attached thereto,
the following:

twenty days prior to the filing of the registration

statement, and, if possible, as of one year prior
thereto, and the amount of the securities, for
which the registration statement is filed, to which
such persons have indicated their intention to
subscribe.

(1) Name of issuer and, if incorporated, place of

incorporation. chanrobles virtual law library

(8) A statement of the capitalization of the issuer

and of all companies controlling, controlled by or
commonly controlled with the issuer, including
the authorized and outstanding amounts of its
capital stock and the proportion thereof paid up;
the number and classes of shares in which such
capital stock is divided; par value thereof, or if it
has no par value, the stated or assigned value
thereof; a description of the respective voting
rights, preferences, conversion and exchange
rights, rights to dividends, profits, or capital of
each class, with respect to each other class,
including the retirement and liquidation rights or
values thereof.

(2) The location of the issuer's principal business

office, and if such issuer is a non-resident or its
place of office is outside of the Philippines, the
name and address of its agent in the Philippines
authorized to receive notice. chanrobles virtual
law library
(3) The names and addresses of the directors or
persons performing similar functions, and the
chief executive, financial and accounting officers,
chosen or to be chosen, if the issuer be a
corporation, association, trust, or other entity; of
all the partners, if the issuer be a partnership;
and of the issuer, if the issuer be an individual;
and of the promoters in the case of a business to
be formed.
(4)
The names and addresses of
underwriters. chanrobles virtual law library

the

(5) The general character of the business actually

transacted or to be transacted by, and the
organization and financial structure of, the issuer
including identities of all companies controlling,
controlled by or commonly controlled with the
issuer.
(6) The names and addresses of all persons, if
any, owning of record or beneficially, if known,
more than ten (10%) per centum in the aggregate
of the outstanding stock of the issuer as of a date
within twenty days prior to the filing of the
registration statement.
(7) The amount of securities of the issuer held by
any person specified in subparagraphs (3), (4),
and (6) of this subsection, as of a date within

(9) A copy of the security for the registration of

which application is made.
(10)
A copy of any circular, prospectus,
advertisement, letter, or communication to be
used for the public offering of the security.
chanrobles virtual law library
(11) A statement of the securities, if any, covered
by options outstanding or to be created in
connection with the security to be offered,
together with the names and addresses of all
persons, if any, to be allotted more than ten
(10%) per centum in the aggregate of such
options.
(12) The amount of capital stock of each class
issued or included in the shares of stock to be
offered.
(13) The amount of the funded indebtedness
outstanding and to be created by the security to
be offered, with a brief statement of the date,
maturity, and character of such debt, rate of
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interest, character or amortization provisions,

other terms and conditions thereof and the
security, if any, therefor. If substitution of any
security is permissible, a summarized statement
of the conditions under which such substitution is
permitted. If substitution is permissible without
notice, a specific statement to that effect.
chanrobles virtual law library
(14) The specific purposes in detail and the
approximate amounts to be devoted to such
purposes, so far as determinable, for which the
security to be offered is to supply funds, and if
the funds are to be raised in part from other
sources, the amounts and the sources thereof.
(15) The remuneration, paid or estimated to be
paid, by the issuer or its predecessor, directly or
indirectly, during the past year and the ensuing
year to (a) the directors or persons performing
similar functions, and (b) its officers and other
persons, naming them whenever such
remuneration
exceeded
sixty
thousand
(P60,000.00) pesos during any such year.
(16) The amount of issue of the security to be
offered. chanrobles virtual law library
(17) The estimated net proceeds to be derived
from the security to be offered.
(18) The price at which the security is proposed
to be offered to the public or the method by
which such price is computed and any variation
therefrom at which any portion of such security is
proposed to be offered to persons or classes of
persons, other than the underwriters, naming
them or specifying the class. A variation in price
may be proposed prior to the date of the public
offering of the security by filing an amended
registration statement. chanrobles virtual law
library
(19) All commissions or discounts paid or to be
paid, directly or indirectly, by the issuer to the
underwriters in respect of the sale of the security

to be offered. Commissions shall include all cash,

securities, contracts, or anything of value, paid, to
be set aside, or disposed of, or understanding
with or for the benefit of any other person in
which any underwriter is interested, made in
connection with the sale of such security. A
commission paid or to be paid in connection with
the sale of such security by a person in which the
issuer has an interest or which is controlled by, or
under common control with, the issuer shall be
deemed to have been paid by the issuer. Where
any such commission is paid, the amount of such
commission paid to each underwriter shall be
stated.
(20) The amount or estimated amounts, itemized
in reasonable detail, of expenses, other than
commission specified in the next preceding
paragraph, incurred or to be incurred by or for
the account of the issuer in connection with the
sale of the security to be offered or properly
chargeable thereto, including legal, engineering,
certification, authentication, and other charges.
(21) The net proceeds derived from any security
sold by the issuer during the two years preceding
the filing of the registration statement, the price
at which such security was offered to the public,
and the names of the principal underwriters of
such security.
(22) Any amount paid within two years preceding
the filing of the registration statement or
intended to be paid to any promoter and the
consideration for any such payment. chanrobles
virtual law library
(23) The names and addresses of the vendors
and the purchase price of any property or
goodwill, acquired or to be acquired, not in the
ordinary course of business, which is to be
defrayed in whole or in part from the proceeds of
the security to be offered, the amount of any
commission payable to any person in connection
with such acquisition, and the name or names of
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such person or persons, together with any

expense incurred or to be incurred in connection
with such acquisition, including the cost of
borrowing money to finance such acquisition.
(24) Full particulars of the nature and extent of
the interest, if any, of every director, principal
executive officer, and of every stockholder
holding more than ten (10%) per centum in the
aggregate of the stock of the issuer, in any
property acquired, not in the ordinary course of
business of the issuer, within two years preceding
the filing of the registration statement or
proposed to be acquired at such date.
chanrobles virtual law library
(25) The names and addresses of independent
counsel who have passed on the legality of the
issue.
(26) Dates of and parties to, and the general
effect concisely stated of every material contract
made, not in the ordinary course of business,
which contract is to be executed in whole or in
part at or after the filing of the registration
statement or which has been executed not more
than two years before such filing. Any
management contract or contract providing for
special bonuses or profit-sharing arrangements,
and every material patent or contract for a
material patent right, and every contract by or
with a public utility company or an affiliate
thereof, providing for the giving or receiving of
technical or financial advice or service shall be
deemed a material contract.
Any contract, whether or not made in the
ordinary course of business with any stockholder,
whether a natural or juridical person, owning
more than ten (10%) per centum of the shares of
the issuer shall be deemed a material contract for
the purpose of this Act.
(27) A balance sheet as of a date not more than
ninety days prior to the date of the filing of the
registration statement showing all of the assets of

the issuer, the nature and cost thereof, whenever

determinable with intangible items segregated,
including any loan to or from any officer, director,
stockholder or person directly or indirectly
controlling or controlled by the issuer, or person
under direct or indirect common control with the
issuer. In the event any such assets consist of
shares of stock in other companies, the balance
sheet and profit and loss statements of such
companies for the past three years shall likewise
be enclosed. All the liabilities of the issuer,
including surplus of the issuer, showing how and
from what sources such surplus was created, all
as of a date not more than ninety days prior to
the filing of the registration statement. If such
statement is not certified by an independent
certified public accountant, in addition to the
balance sheet required to be submitted under
this schedule, a similar detailed balance sheet of
the assets and liabilities of the issuer, certified by
an independent certified public accountant, of a
date not more than one year prior to the filing of
the registration statement, shall be submitted.
chanrobles virtual law library
(28) A profit and loss statement of the issuer
showing earnings and income, the nature and
source thereof, and the expenses and fixed
charges in such detail and such form as the
Commission shall prescribe for the latest fiscal
year for which such statement is available and for
the two preceding fiscal years, year by year, or, if
such issuer has been in actual business for less
than three years, then for such time as the issuer
has been in actual business, year by year. If the
date of the filing of the registration statement is
more than six months after the close of the last
fiscal year, a statement from such closing date to
the latest practicable date. Such statement shall
show what the practice of the issuer has been
during the three years or lesser period as to the
character of the charges, dividends or other
distributions made against its various surplus
accounts, and as to depreciation, depletion, and
142

maintenance charges, and if stock dividends or

avails from the sale of rights have been credited
to income, they shall be shown separately with
statement of the basis upon which credit is
computed. Such statement shall also differentiate
between recurring and nonrecurring income and
between any investment and operating income.
Such statement shall be certified by an
independent certified public accountant.
chanrobles virtual law library
(29) Any liabilities of the issuer to companies
controlling or controlled by the issuer shall be
disclosed in full detail as to use of the proceeds
thereof, the maturity and repayment schedule,
nature of security thereof, the rate of interest
and other terms and conditions thereof. If the
proceeds, or any part of the proceeds, of the
security to be issued is to be applied directly or
indirectly to the purchase of any business, a profit
and loss statement of such business, certified by
an independent certified public accountant,
meeting the requirements of subparagraph (28)
of this subsection, for the three preceding fiscal
years, together with a balance sheet, similarly
certified, of such business, meeting the
requirements of subparagraph (27) hereof of a
date not more than ninety days prior to the filing
of the registration statement or at the date such
business was acquired by the issuer more than
ninety days prior to the filing of the registration
statement. chanrobles virtual law library
(30) A copy of any agreement or agreements or,
if identical agreements are used, the forms
thereof made with any underwriter, including all
contracts and agreements referred to in
subparagraph (19) hereof.
(31) A copy of the opinion or opinions of
independent counsel in respect to the legality of
the issue.
(32) A copy of all material contracts referred to in
subparagraph (26) hereof, but no disclosure shall

be required by the Commission of any portion of

any such contract if the disclosure of such portion
would impair the value of the contract and would
not be necessary for the protection of the
investors.
(33) A detailed statement showing the items of
cash, property, services, patents, goodwill, and
any other consideration for which securities have
been or are to be issued in payment. chanrobles
virtual law library
(34) The amount of cash to be paid as promotion
fees, or of capital stock which is to be set aside
and disposed of as promotion stock, and a
statement of all stock issued from time to time as
promotion stock.
(35) In connection with securities issued by a
person engaged in the business of developing,
exploiting or operating mineral claims, a sworn
statement of a mining engineer stating the ore
possibilities of the mine and such other
information in connection therewith as will show
the quality of the ore in such claims, and the unit
cost of extracting it.
(36) Unless previously filed and registered with
the Commission and brought up to date:
(a) A copy of its articles of incorporation with all
amendments thereof and its existing by-laws or
instruments corresponding thereto, whatever the
name, if the issuer be a corporation;
(b) A copy of all instruments by which the trust is
created or declared and in which it is accepted
and acknowledged, if the issuer is a trust;
(c) A copy of its articles of partnership or
association and all the papers pertaining to its
organization, if the issuer is a partnership,
unincorporated association, joint-stock company,
syndicate, or any other form of organization.
(37) A copy of the underlying agreements or
indentures affecting any stock, bonds, or
143

debentures offered or to be offered by the issuer

and outstanding on the part of companies
controlling or controlled by the issuer.
(38) Where the issuer or registrant is not formed,
organized and existing under the laws of the
Philippines or is not domiciled in the Philippines,
a written power of attorney, certified and
authenticated in accordance with law,
designating some individual person, who must be
a resident of the Philippines, on whom any
summons and other legal processes may be
served in all actions or other legal proceedings
against him, and consenting that service upon
such resident agent shall be admitted as valid and
proper service upon the issuer or registrant, and
if at any time that service cannot be made upon
such resident agent, service shall be made upon
the Commission.

Additional information or documents, including

written information from an expert, may be
required, or anyone of the above requirements
may be dispensed with, depending on the
necessity thereof for the protection of the public
investors, or their applicability to the class of
securities sought to be registered, as the case
may be. chanrobles virtual law library
The registration statement shall be signed by the
issuer, its principal executive officer, its principal
operating officer, its principal financial officer, its
comptroller or principal accounting officer or
persons performing similar functions. 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.
Upon filing of the registration statement, the
registrant shall pay to the Commission a fee of
not more than one-tenth of one per centum of
the maximum aggregate price at which such
securities are proposed to be offered and the fact

of such filing shall be immediately published by

the Commission, at the expense of the registrant,
in two newspapers of general circulation in the
Philippines, once a week for two consecutive
weeks, reciting that a registration statement for
the sale of such security has been filed with it,
and that the aforesaid registration statement, as
well as the papers attached thereto, are open to
inspection during business hours, by interested
parties, and copies thereof, photostatic or
otherwise, shall be furnished to every applicant at
such reasonable charge as the Commission may
prescribe.
Any interested party may file an opposition to the
registration within ten days from the publication.
chanrobles virtual law library
If after the completion of the aforesaid
publication, the Commission finds that the
registration statement together with all the other
papers and documents attached thereto, is on its
face complete and that the requirements and
conditions for the protection of the investors
have been complied with, and unless there are
grounds to reject a registration statement as
herein provided, it shall as soon as feasible enter
an order making the registration effective, and
issue to the registrant a permit reciting that such
person, its brokers or agents, are entitled to offer
the securities named in said certificate, with such
terms and conditions as it may impose in the
public interest and for the protection of investors.
The Commission shall, however, advise the public
that the issuance of such permit shall not be
deemed a finding by the Commission that the
registration statement is true and accurate on its
face or that it does not contain an untrue
statement of fact or omit to state a material fact,
or be held to mean that the Commission has in
any way given approval to the security included in
the registration statement. Every permit and any
other statement, printed or otherwise, for public
consumption, that makes reference to such
144

permit shall clearly and distinctively state that the

issuance thereof is only permissive and does not
constitute a recommendation or endorsement of
the securities permitted to be offered for sale. It
shall be unlawful to make, or cause to be made,
to any prospective purchaser any representation
contrary to the foregoing.
Notwithstanding the foregoing, the Commission,
for the guidance of investors, may require issuers
to submit their securities to rating by securities
rating agencies accredited by the Commission, to
provide all information necessary therefor, and to
report such rating in the registration statement
and prospectus, if any, offering the securities.
chanrobles virtual law library
If any change occurs in the facts set forth in the
registration statement, it shall be the obligation
of the issuer, dealer or underwriter who filed the
original registration statement to submit to the
Commission for approval an amended
registration statement.
The Commission, in its order, may fix the
maximum amount of commission or other form
of remuneration to be paid in cash or otherwise,
directly or indirectly, for or in connection with the
sale or offering for sale of such securities in the
Philippines and the maximum amount of
compensation which the issuer shall pay for
mining claims and mineral rights for which
provision is made by the issuer for payment in
cash or securities. The amount of compensation
which shall be paid the owner or holder of such
mining claims or mineral rights shall be a fair
valuation thereof, as may be fixed by the
Commission, after consultation with the Bureau
of Mines, and after receiving such technical
information as the issuer or dealer or the owner
or owners of such claims may care to submit in
the premises.
A copy of the order of the Commission making
the registration effective, together with the

registration statement, shall be transmitted to

the exchange wherein the security may be listed
and shall be available for inspection by any
interested party during reasonable hours on any
business day.
The order shall likewise be published, at the
expense of the registrant, once in a newspaper of
general circulation within ten days from its
promulgation.
The same rules shall apply to any amendment to
the registration statement. chanrobles virtual
law library
Sec. 9. Grounds for the rejection of registration.
The Commission may reject a registration
statement and refuse to issue a permit to sell the
securities included in such registration statement
if it finds that:chanroblesvirtuallawlibrary
chanrobles virtual law library
(1) The registration statement is on its face
incomplete or inaccurate in any material respect
or includes any untrue statement of a material
fact or omits to state a material fact required to
be stated therein or necessary to make the
statements therein not misleading; or
(2) The issuer or registrant:
(i) is not solvent or not in sound financial
condition;
(ii) has violated or has not complied with the
provisions of this Act, or the rules promulgated
pursuant thereto, or any order of the
Commission;
(iii) has failed to comply with any of the
applicable requirements and conditions that the
Commission may, in the public interest and for
the protection of investors, impose before the
security can be registered;
(iv) has been engaged or is engaged or is about
to engage in fraudulent transactions;
145

(v) is in any other way dishonest or is not of good

repute; or chanrobles virtual law library
(vi) does not conduct its business in accordance
with law or is engaged in a business that is illegal
or contrary to government rules and regulations.
chanrobles virtual law library
(3) The enterprise or the business of the issuer is
not shown to be sound or to be based on sound
business principles;
(4) An officer, member of the board of directors,
or principal stockholder of the issuer is
disqualified to be such officer, director, or
principal stockholder; or
(5) The issuer or registrant has not shown to the
satisfaction of the Commission that the sale of its
security would not work to the prejudice of the
public interest or as a fraud upon the purchasers
or investors. chanrobles virtual law library

Sec. 10. Amendments to the registration

statement. (a) If a registration statement is
on its face incomplete or inaccurate in any
material respect, the Commission may, after
notice by personal service or the sending of
confirmed telegraphic notice to the registrant,
issue an order denying action on the registration
statement until it has been amended in
accordance with such order. When such
statement has been amended in accordance with
such order the Commission shall act on the
amended registration in accordance with the
procedure mentioned in Section eight hereof.
chanrobles virtual law library
(b) An amendment filed after the effective date
of the registration statement, shall become
effective upon its approval by the Commission.
(c) If the registration statement includes any
untrue statement of a material fact or omits to
state any material fact required to be stated

therein or necessary to make the statements

therein not misleading, the Commission may,
after notice by personal service or by sending a
confirmed telegraphic notice by personal service
or by sending a confirmed telegraphic notice and
after opportunity for hearing has been granted,
issue an order suspending the effectivity of the
registration statement. If the statement is
amended in accordance with requirements, the
suspension order shall be lifted. chanrobles
virtual law library
(d) The Commission may conduct an examination
in any case in order to determine whether an
order should issue under subsection (c) hereof. In
making such examination the Commission or any
officer or officers designated by it shall have
access to, and may demand the production of,
any books and records of, and may administer
oaths and affirmations to and examine, the
issuer, underwriter, or any other person, in
respect of any matter relevant to the
examination, and may in its discretion, require
the production of the corporate books and
records, showing, among others, its assets and
liabilities and income statement of the issuer,
certified to by a certified public accountant.
Failure of the issuer or underwriter to cooperate,
or his obstruction or refusal to undergo an
examination, shall be a ground for the issuance of
a suspension order. chanrobles virtual law library
Sec. 11. Periodic and other reports. (a) Every
issuer of a security registered pursuant to this Act
shall file with the Commission:
(1) Such information and documents as shall
keep reasonably current the information and
documents required to be included in or filed
with an application or registration statement
filed; chanrobles virtual law library
(2) Such annual reports and such periodicals and
other reports as may be necessary to update
information on the operation of the business of
146

the issuer or registrant; and chanrobles virtual

law library
(3) Such copies of all circulars, prospectuses, and
other advertising matter, before or at the time of
their issuance for publication, as the issuer or any
person acting for him may issue from time to
time, which shall in all cases fully set forth the
amount and nature of the fees or expenses,
payable in cash or securities, for goodwill,
organization or promotion and such other
matters as may be necessary for the protection of
investors. chanrobles virtual law library
Every issuer of a security registered with an
exchange shall file a duplicate original of such
information, documents, and reports with the
exchange. chanrobles virtual law library

(b) The Commission may prescribed, in regard to

reports made pursuant to this Act, the form or
forms in which the required information shall be
set forth, and the items or details to be shown
therein.
(c) If any report required under subsection (a) is
inapplicable to any specified class or classes of
issuers such reports of comparable character as
may be applicable to such class or classes of
issuers shall be submitted in lieu thereof.
chanrobles virtual law library

such acquisition he knew of such untrue

statement or omission, may sue in a court of
competent jurisdiction:

(1) Every person who signed the registration

statement; chanrobles virtual law library
(2) Every person who was a director of, or any
other person performing similar functions, or a
partner in, the issuer at the time of the filing of
the registration statement or any part,
supplement or amendment thereof with respect
to which his liability is asserted; chanrobles
virtual law library
(3) Every person who is named in the registration
statement as being or about to become a director
of, or a person performing similar functions, or a
partner in, the issuer and whose written consent
thereto is filed with the registration statement;
(4)
Every person whose profession gives
authority to a statement made by him, who with
his written consent, which shall be filed with the
registration statement, has been named as
having prepared or certified any part of the
registration statement, or as having prepared or
certified any report or valuation which is used in
connection with the registration statement, with
respect to the statement in such registration
statement, report, or valuation, which purports
to have been prepared or certified by him.
(5) Every underwriter with respect to such
security. chanrobles virtual law library

Sec. 12. Civil liabilities on account of false

registration statement. (a) Any person
acquiring a security, the registration statement of
which or any part thereof contains on its
effectivity an untrue statement of a material fact
or omits to state a material fact required to be
stated therein or necessary to make such
statements not misleading, and who suffers
damage, unless it is proved that at the time of

(b) Notwithstanding the provisions of subsection

(a) no person, other than the issuer, shall be
liable as provided therein if he proves

(1) That before the effective date of the part of

the registration statement with respect to which
147

his liability is asserted (A) he had resigned from or

had taken such steps as are permitted by law to
resign from, or ceased or refused to act in, every
office, capacity, or relationship in which he was
described in the registration statement as acting
or agreeing to act, and (B) he had advised the
Commission and the issuer in writing that he had
taken such action and that he would not be
responsible for such part of the registration
statement; or chanrobles virtual law library
(2)
That (A) as regards any part of the
registration statement not purporting to be a
copy of or extract from a report or valuation of an
expert, and not purporting to be made on the
authority of a public official document or
statement, he had, after reasonable investigation,
reasonable ground to believe and did believe, at
the time such part of the registration statement
became effective, that the statements therein
were true and that there was no omission to
state a material fact required to be stated therein
or necessary to make the statements therein not
misleading; and (B) as regards any part of the
registration statement purporting to be made
upon his authority as an expert or purporting to
be a copy of or extract from a report or valuation
of himself as an expert, (i) he had, after
reasonable investigation, reasonable ground to
believe and did believe, at the time such part of
the registration statement became effective, that
the statements therein were true and that there
was no omission to state a material fact required
to be stated therein or necessary to make the
statements therein not misleading, or (ii) such
part of the registration statement did not fairly
represent his statement as an expert or was not a
fair copy of or extract from his report or valuation
as an expert; and (C) as regards any part of the
registration statement purporting to be made on
the authority of an expert (other than himself) or
purporting to be a copy of or extract from a
report or valuation of an expert (other than
himself), he had no reasonable ground to believe

and did not believe, at the time such part of the

registration statement became effective, that the
statements therein were untrue or that there was
an omission to state a material fact required to
be stated therein or necessary to make the
statements therein not misleading, or that such
part of the registration statement did not fairly
represent the statement of the expert or was not
a fair copy of or extract from the report or
valuation of the expert; and (D) as regards any
part of the registration statement purporting to
be a statement made by a public official or
purporting to be a copy of or extract from a
public official document, he had no reasonable
ground to believe and did not believe, at the time
such part of the registration statement became
effective, that the statements therein were
untrue, or that there was an omission to state a
material fact required to be stated therein or
necessary to make the statements therein not
misleading, or that such part of the registration
statement did not fairly represent the statement
made by the public official or was not a fair copy
of or extract from the public official document.

(c) In determining, for the purpose of paragraph

(2) of subsection (b) of this Section, what
constitutes
reasonable
investigation
and
reasonable ground for belief, the standard of
reasonableness shall be that required of a
prudent man in the management of his own
property.

(d) The suit authorized under subsection (a) may

be filed to recover such damages as shall
represent double the difference between the
amount paid and committed to be paid for the
security, not exceeding the price at which the
148

security was offered to the public, and (1) the

value thereof as of the time such suit was
brought, or in case the security has been
disposed of, (2) the price at which such security
shall have been disposed of in the market before
the suit, or (3) the price at which such security
shall have been disposed of after the filing of the
suit but before judgment. No underwriter shall be
liable in any suit or as a consequence of suits
authorized under subsection (a) hereof for
damages in excess of the total price at which the
securities underwritten by him and distributed to
the public were offered to the public.

In any suit under this or any other section of this

Act, the court may, in its discretion, require an
undertaking for the payment of the costs of such
suit, including reasonable attorney's fees. Costs
may be allowed by the Court to the prevailing
party litigant in accordance with Rule 142 of the
Rules of Court.
Exemplary damages may also be awarded in
cases of bad faith, fraud, malevolence or
wantonness in the violation of this Act or the
rules and regulations promulgated thereunder.
chanrobles virtual law library
(e) The persons specified in subsection (a) hereof
shall be jointly and severally liable for the
payment of damages. However, any person who
becomes liable for the payment of such damages
may recover contribution from any other person
who, if sued separately, would have been liable
to make the same payment, unless the former
was guilty of fraudulent representation and the
latter was not.
(f) In no case shall the amount recoverable under
this Section exceed double the price at which the
security was offered to the public and such

exemplary damages as may be awarded by the

court. chanrobles virtual law library
(g) Notwithstanding any provision of law to the
contrary, all persons, including the issuer, held
liable under this Section, shall contribute equally
to the total liability adjudged herein. In no case
shall the principal stockholders, directors and
other officers of the issuer or persons occupying
similar positions therein, recover their
contribution to the liability from the issuer.
However, the right of the issuer to recover from
the guilty parties the amount it has contributed
under this Section shall not be prejudiced. (n)

Sec. 13. Civil liabilities arising in connection with

prospectuses, communications and reports. (a)
Any person who:

(1) offers to sell or sells a security in violation of

Chapter II, or chanrobles virtual law library
(2) offers to sell or sells a security, whether or
not exempted by the provisions of this Act, by the
use of any means or instruments of
transportation or communication, by means of a
prospectus or oral communication, which
includes an untrue statement of a material fact or
omits to state a material fact necessary in order
to make the statements, in the light of the
circumstances under which they were made, not
misleading, the purchaser not knowing of such
untruth or omission, and who shall fail in the
burden of proof that he did not known, and in the
exercise of reasonable care could not have
known, of such untruth or omission, shall be
liable to the person purchasing such security from
him, who may sue, in any court of competent
jurisdiction, to recover the consideration paid for
such security with interest thereon, less the
amount of any income received thereon, upon
149

the tender of such security, or for damages if he

no longer owns the security.
Exemplary damages may likewise be awarded in
cases of bad faith, fraud, malevolence or
wantonness.

(b) Any person who shall make or cause to be

made any statement in any report, or document
filed pursuant to this Chapter or any rule or
regulation thereunder, which statement was at
the time and in the light of the circumstances
under which it was made false or misleading with
respect to any material fact, shall be liable to any
person who, not knowing that such statement
was false or misleading, and relying upon such
statement, shall have purchased or sold a security
at a price which was affected by such statement,
for damages caused by such reliance, unless the
person sued shall prove that he acted in good
faith and had no knowledge that such statement
was false or misleading. In any such suit the court
may, in its discretion, require an undertaking for
the payment of the costs of such suit, and assess
reasonable costs, including reasonable attorney's
fees against either party litigant. chanrobles
virtual law library
Every person who becomes liable to make
payment under this subsection may recover
contribution as in cases of contract from any
person who, if joined in the original suit, would
have been liable to make the same payment. (n)
Sec. 14. Limitation of actions. (a) No action
shall be maintained to enforce any liability
created under Section 12 or Section 13 of this Act
unless brought within two years after the
discovery of the untrue statement or the
omission, or, if the action is to enforce a liability
created under Section 13(a) (1), unless brought
within two years after the violation upon which it
is based. In no event shall any such action be
brought to enforce a liability created under

Section 12 of 13(a) (1) more than five years after

the security was bona fide offered to the public,
or under Section 13(a) (2) more than five years
after the sale.
(b) No action shall be maintained to enforce any
liability created under Section 13(b) or any other
provision of this Act unless brought within two
years after the discovery of the facts constituting
the cause of action and within five years after
such cause of action and within five years after
such cause of action accrued. chanrobles virtual
law library
Sec. 15. Suspension of registration. If, at any
time, the information contained in the statement
filed is or has become misleading, incorrect,
inadequate or incomplete, or the sale or offering
for sale of the security may work or tend to work
a fraud, the Commission may require from the
person filing such statement such further
information as may in its judgment be necessary
to enable the Commission to ascertain whether
the registration of such security should be
revoked on any ground specified in this Act, and
the Commission may also suspend the right to
sell such security pending further investigation,
by entering an order specifying the grounds for
such action, and by notifying by mail or
personally or by telephone confirmed in writing,
or by telegraph, the person filing such statement
and every dealer and broker who shall have
notified the Commission of an intention to sell
such security. The refusal to furnish information
required by the Commission, within a reasonable
time to be fixed by the Commission, may be a
proper ground for the entry of such order of
suspension. Upon the entry of any such order of
suspension, no further sales of such security shall
be made until the Commission orders otherwise.
Any such sale shall be void. chanrobles virtual
law library
In the event of the entry of such order of
suspension, the Commission shall give a prompt
150

hearing to the parties interested. If upon such

hearing, the Commission shall determine that the
sale of any such security should be revoked on
any ground specified in this Act, it shall make the
necessary findings and enter a final order
prohibiting sales of such security. Until the entry
of such final order, the suspension of the right to
sell, though binding upon the persons notified
thereof, shall be deemed confidential, and shall
not be published, unless it shall appear that the
order of suspension has been violated after
notice. If however, upon such hearing the
Commission finds that the sale of the security will
neither be fraudulent nor result in fraud, it shall
forthwith enter an order revoking such order of
suspension, and such security shall be restored to
its status as a security registered under this Act,
as of the date of such order of suspension.
chanrobles virtual law library
Sec. 16. Revocation of registration of securities.
(a) The Commission may, after due notice and
hearing, revoke the registration of any security
and the permit to sell such security by issuing an
order to this effect, setting forth its findings in
respect thereto, if upon examination it shall
appear that the issuer: chanrobles virtual law
library
(1) Is insolvent;
(2) Has violated any of the provisions of this Act,
or the rules promulgated pursuant thereto, or
any order of the Commission of which the issuer
has notice;
(3) Has been or is engaged or is about to engage
in fraudulent transactions;
(4) Is in any other way dishonest or has made any
fraudulent representation in any prospectus or in
any circular or other literature that has been
distributed concerning the issuer of its securities;
or

(5) Does not conduct its business in accordance

with law. chanrobles virtual law library

The Commission may compel the production of

all the books and papers of such issuer, and may
administer oaths to, and examine the officers of
such issuer or any other person connected
therewith as to its business and affairs, and may
also require a balance sheet exhibiting the assets
and liabilities of any such issuer or his income
statement or both to be certified to by an
independent certified public accountant.
Whenever the Commission may deem it
necessary, it may also require the submission of
such balance sheet or income or profit statement,
or both, with such particulars as the Commission
shall point out or brought down to the latest
practicable date.
If any issuer shall refuse to permit an examination
to be made by the Commission, its refusal shall
be proper ground for the revocation of the
registration of and permission to sell its
securities. chanrobles virtual law library
If the Commission deems it necessary, it may
issue an order suspending the right to sell
securities pending any investigation. The order
shall state the grounds for taking such action, but
such order of suspension, although binding upon
the persons notified thereof, shall be deemed
confidential, and shall not be published. Upon the
issuance of the suspension order, no further sale
of such security shall be made until the same is
lifted or set aside by the Commission. Any such
sale shall be void. chanrobles virtual law library
Notice of issuance of such order shall be given by
mail, or personally, or by telephone, confirmed in
writing, or by telegram, to the issuer and every
dealer and broker who shall have notified the
Commission of an intention to sell such security.

151

(b) A registration statement may be revoked by

the Commission upon petition made for its
withdrawal by the issuer only with the consent of
the Commission and in accordance with such
rules and regulations which the Commission may
prescribe: Provided, That no party stands to
suffer damage thereby. chanrobles virtual law
library
Sec. 17. Promotion fees. If the statement
containing information as to securities to be
registered, as provided for in Section eight of this
Act, shall disclose that any such securities or any
securities senior thereto shall have been or shall
be intended to be issued for goodwill, or for
organization or promotion fees or expenses, or
that payment in cash shall have been or will be
made for organization or promotion fees or
expenses or for goodwill, the amount and nature
thereof shall be fully set forth in the notification
published by the Commission as required in
Section 8 of this Act, and in all prospectuses,
circulars, or other advertisements of the issuer,
and should also appear upon the face or on the
back of the security itself. chanrobles virtual law
library
Sec.
18.
Substituted service upon the
Commission. Whenever service of summons or
other process shall be made upon the
Commission in actions or legal proceedings
against an issuer or any person liable under this
Act who is not domiciled in the Philippines or is
not formed, organized and existing under the
laws of the Philippines, the Commission shall
within ten (10) days thereafter, transmit by
registered mail a copy of such summons and the
complaint or other legal process to such issuer or
person at his last known address or principal
office. The sending thereof by the Commission,
the expenses for which shall be advanced by the
party at whose instance it is made, shall complete
such service. chanrobles virtual law library

CHAPTER III
Brokers, Dealers and Salesmen

Sec. 19. Registration of brokers, dealers and

salesmen. No broker, dealer or salesman shall
engage in business in the Philippines as such
broker, dealer or salesman or sell any securities,
including securities exempted under this Act,
except in exempt transactions, unless he has
been registered as a broker, dealer, or salesman
pursuant to the provisions of this Section.
chanrobles virtual law library
An application for registration in writing shall be
filed in the office of the Commission in such form
as the Commission may prescribe, duly verified
under oath, which shall state the principal office
of the applicant, wherever situated and its
principal office and all branch offices in the
Philippines, if any; the name or style of doing
business; the corporate or business names;
residences and business addresses of all persons
interested in the business as principals, copartners, officers and directors, specifying as to
each his capacity and title; and the character of
the business and the length of time the applicant
has been engaged in said business. The
Commission may also require such additional
information, under oath, as to applicant's
previous history, record and connection with
other companies, as it may deem necessary to
establish the good repute in business of the
applicant.
There shall be filed with such application an
irrevocable written consent to the service of
process upon the Commission in actions against
such broker or dealer in the manner and form as
herein provided. chanrobles virtual law library
If the Commission finds that the applicant is of
good repute and has complied with the
152

provisions of this Act, including the payment of

the fee herein provided, it shall register such
applicant as a broker or dealer upon his filing a
bond, or other security in lieu thereof, in such
sum as may be fixed by the Commission which it
may deem adequate for the protection of the
public, running to the Government of the
Philippines, and conditioned upon the faithful
compliance with the provisions of this Act by said
broker or dealer and by all salesmen registered
by the latter while acting for him. Such bond shall
be executed by a surety company authorized to
do business in the Philippines. In lieu of such
bond, he may file bonds of the Government of
the Philippines. If a bond is filed, any person
damaged by the failure of such broker or dealer
or of any salesman registered by the latter while
acting for him, to comply with the provisions of
this Act, shall be entitled to sue the sureties
under such bond and to recover the damages so
suffered thereunder. If other securities are filed
in lieu thereof, such person may subject such
securities to the payment of such damage.
chanrobles virtual law library
Upon the written application of a registered
dealer or broker and general satisfactory showing
as to good character and the payment of the fee
prescribed in this Act, the Commission shall
register as salesman of such dealer or broker such
natural person as the dealer or broker may
request. Such registration shall cease upon the
termination of employment of such salesman by
such dealer or broker.
The names and addresses of all persons approved
for registration as brokers, dealers or salesmen
and all orders with respect thereto shall be
recorded in a Register of Brokers, Dealers and
Salesmen kept in the office of the Commission
which shall be open to public inspection. Every
registration under this Section shall expire on the
thirty-first day of December in each year, but new
registration for the succeeding year shall be
issued upon written application and upon

payment of the fee as hereinafter provided,

without filing of further statements or furnishing
any further information unless specifically
required by the Commission. Application for
renewals must be made not less than thirty nor
more than sixty days before the first day of the
ensuing year, otherwise they shall be treated as
original applications. The fee for such registration
and for each annual renewal shall be in such
reasonable amount as may be determined by the
Commission.
Changes in registration occasioned by changes in
the personnel of a partnership or in the
principals, co-partners, officers or directors of any
broker or dealer may be made from time to time
by written application setting forth the facts with
respect to such change.
Every registered broker or dealer who intends to
offer any security for sale shall notify the
Commission in writing of his intention to do so.
The notice shall contain the name of the broker
or dealer and shall state the name of the security
to be offered for sale. Whenever a broker or
dealer shall have prepared such notice and shall
have forwarded the same by registered mail,
postage prepaid and properly addressed to the
Commission, such dealer or broker, as to the
contents of such notice and the filing thereof,
shall be deemed to have complied with the
requirements of this paragraph. Any issuer of a
security required to be registered under the
provisions of this Act, selling such securities
except in exempt transactions as defined in this
Act, shall be deemed a dealer within the meaning
of this Section and required to comply with all the
provisions hereof.
Sec. 20. Revocation of broker's, dealer's and
salesman's registration. Registration under this
Act may be refused, or any registration granted
may be revoked, by the Commission if, after
reasonable notice and hearing, the Commission
153

determines that such applicant or registrant so

registered:
(1) Has violated any provision of this Act or any
regulation made hereunder; or
(2) Has made a material false statement in the
application for registration; or
(3) Has been guilty of a fraudulent act in
connection with any sale of securities, or has
been or is engaged or is about to engage in
making fictitious or pretended sales or purchases
of any of such securities or has been or is
engaged or is about to engage in any practice or
sale of securities which is fraudulent or in
violation of the law; or
(4) Has demonstrated his unworthiness to
transact the business of broker, dealer or
salesman.

In cases of charges against a salesman, notice

thereof shall also be given the broker or dealer
employing such salesman.
Pending the hearing, the Commission shall have
the power to order the suspension of such
broker's, dealer's or salesman's registration:
Provided, That such order shall state the cause
for such suspension. chanrobles virtual law
library
Until the entry of a final order, the suspension of
such broker's or dealer's registration, though
binding upon the persons notified thereof, shall
be deemed confidential, and shall not be
published, unless it shall appear that the order of
suspension has been violated after notice.
The order of the Commission refusing or revoking
a registration as hereinabove provided, together
with its findings, shall be entered in the Register
of Brokers, Dealers and Salesmen. The suspension
or revocation of the registration of a dealer or

broker shall also automatically suspend or revoke

the registration of all his salesmen. chanrobles
virtual law library
It shall be sufficient cause for refusal or
cancellation of registration in case of a
partnership or corporation, if any member of a
partnership or any officer or director of the
corporation or association has been guilty of any
act or omission which would be cause for refusing
or revoking the registration of an individual
dealer, broker or salesman. chanrobles virtual
law library

CHAPTER IV
Trading in Securities

Sec. 21. Use of facilities of unregistered

exchange prohibited. It shall be unlawful for
any broker, dealer, salesman or exchange,
directly or indirectly, to make use of any facility of
an exchange in the Philippines to effect any
transaction in a security or to report such
transaction, unless a registration is effective as to
such security or such security is exempted from
registration under the provisions of this Act and
such exchange is registered as a securities
exchange under this Act, or is exempted from
such registration upon application by the
exchange because, in the opinion of the
Commission, by reason of the limited volume of
transactions effected on the exchange, it is not
practicable and not necessary or appropriate in
the public interest or for the protection of
investors to require such registration.

154

Sec. 22. Registration of exchange. (a) Any

exchange may be registered with the Commission
as an exchange under the terms and conditions
hereinafter provided in this Section, by filing a
registration statement in such form as the
Commission may prescribe, setting forth the
information and accompanied by the following
supporting documents below specified:
(1) An undertaking to comply and enforce
compliance by its members with the provisions of
this Act, and any amendment thereto, and the
implementing rules or regulations made or to be
made thereunder;
(2) Such data as to its organization, rules of
procedure, and membership, and such other
information as the Commission may, by rules and
regulations, require as being necessary or
appropriate for the public interest or for the
protection of investors;
(3)
Copies of its constitution, articles of
incorporation with all amendments thereto, and
of its existing by-laws or rules or instruments
corresponding thereto whatever be the name,
which are hereinafter collectively referred to as
the "rules of the exchange"; chanrobles virtual
law library
(4) An undertaking to furnish to the Commission
copies of any amendments to the rules of the
exchange forthwith upon their adoption; and
chanrobles virtual law library
(5) An undertaking that in the event a member
firm becomes insolvent or when the exchange
shall have found that the financial condition of its
member firm has so deteriorated that it cannot
readily meet the demands of its customers for
the delivery of securities and/or payment of sales
proceeds, the exchange shall, upon order of the
Commission, take over the operation of the
insolvent member firm and immediately proceed
to settle the member firm's liabilities to its
customers: Provided, That stock exchanges in

operation upon the effectivity of this Act shall

have one year within which to submit the
undertaking.

(b) No registration of an exchange shall be

granted or remain in force unless the rules
thereof include provision for the expulsion,
suspension, or disciplining of a member for
conduct or proceeding inconsistent with just and
equitable principles of fair trade.
(c) Nothing in this Act shall be construed to
prevent any exchange from adopting and
enforcing any rule not inconsistent with this Act
and with the rules and regulations thereunder, or
with any other law. chanrobles virtual law library
(d) If it appears to the Commission that the
exchange applying for registration is so organized
as to be able to comply with the provisions of this
Act and the rules and regulations thereunder, and
the rules of the exchange are just and adequate
to insure fair dealing and to protect investors, the
Commission shall cause such exchange to be
registered as a securities exchange. chanrobles
virtual law library
(e) Within ninety days after the filing of the
application the Commission may issue an order
either granting or, after appropriate notice and
opportunity for hearing, denying registration as a
securities exchange, unless the exchange applying
for registration shall withdraw its application or
shall consent to the Commission's deferring
action on its application for a stated longer period
after the date of filing. The filing with the
Commission of an application for registration by
an exchange shall be deemed to have taken place
upon the receipt thereof. Amendments to an
application may be made upon such terms as the
Commission may prescribe.
(f) Upon the registration of a securities exchange
pursuant to the provisions of this Act, it shall pay
155

within twelve (12) months such reasonable fee as

the Commission may fix.
(g) Upon appropriate application in accordance
with the rules and regulations of the Commission
and upon such terms as the Commission may
deem necessary for the protection of investors,
an exchange may withdraw its registration or
suspend its operations or resume the same.

Sec. 23. Margin Requirements. (a) For the

purpose of preventing the excessive use of credit
for the purchase or carrying of securities, the
Commission, in accordance with the credit and
monetary policies that may be promulgated from
time to time by the Monetary Board, shall
prescribe rules and regulations with respect to
the amount of credit that may be extended on
any security other than an exempted security. For
the extension of credit, such rules and regulations
shall be based upon the following standard:
chanrobles virtual law library
An amount not greater than whichever is the
higher of:
(1) Sixty-five (65%) per centum of the current
market price of the security, or
(2) One hundred (100%) per centum of
lowest market price of the security during
preceding thirty-six calendar months, but
more than seventy-five (75%) per centum of
current market price.

the
the
not
the

However, the Monetary Board, by an affirmative

vote of five (5) of its members, may increase or
decrease the above percentages, in order to
achieve the objectives of the Central Bank during
an economic crisis or national emergency.
chanrobles virtual law library

Such rules and regulations may make appropriate

provision with respect to the carrying of
undermargined accounts for limited periods and
under specified conditions; the withdrawal of
funds or securities; the transfer of accounts from
one lender to another; special or different margin
requirements for delayed deliveries, short sales,
arbitrage transactions, and securities to which
number 2 of the second paragraph of this
subsection does not apply; the bases and the
methods to be used in calculating loans, and
margins and market prices; and similar
administrative
adjustments
and
details.
chanrobles virtual law library
(b) It shall be unlawful for any member of an
exchange or any broker or dealer, directly or
indirectly, to extend or maintain credit or arrange
for the extension or maintenance of credit to or
for any customer:
(1) On any security other than an exempted
security, in contravention of the rules and
regulations which the Commission shall prescribe
under subsection (a) of this Section; chanrobles
virtual law library
(2) Without collateral or on any collateral other
than securities, except (i) to maintain a credit
initially extended in conformity with the rules and
regulations of the Commission and (ii) in cases
where the extension or maintenance of credit is
not for the purpose of purchasing or carrying
securities or of evading or circumventing the
provisions of subparagraph (1) of this subsection.

(c) It shall be unlawful for any person not subject

to subsection (b) hereof to extend or maintain
credit or to arrange for the extension or
maintenance of credit for the purpose of
purchasing or carrying any security, in
contravention of such rules and regulations as the
Commission shall prescribe to prevent the
excessive use of credit for the purchasing or
156

carrying of or trading in securities in

circumvention of the other provisions of this
Section. Such rules and regulations may impose
upon all loans made for the purpose or
purchasing or carrying securities limitations
similar to those imposed upon members, brokers,
or dealers by subsection (b) of this Section and
the rules and regulations thereunder. This
subsection and the rules and regulations
thereunder shall not apply (i) to a credit
extension made by a person not in the ordinary
course of business, (ii) to a credit extension on an
exempted security, (iii) to a loan to a dealer to aid
in the financing of the distribution of securities to
customers not through the medium of a
securities exchange, (iv) to a credit extension by a
bank on a collateral other than an equity security,
or (v) to such other credit extension as the
Commission shall, by such rules and regulations
as it may deem necessary or appropriate in the
public interest or for the protection of investors,
exempt, either unconditionally or upon specified
terms and conditions or for stated periods, from
the operation of this subsection and the rules and
regulations thereunder. chanrobles virtual law
library
Sec. 24. Restrictions on borrowings by members,
brokers, and dealers. It shall be unlawful for
any registered broker or dealer, member of a
securities exchange, or any broker or dealer who
transacts a business in securities through the
medium of any member of a securities exchange,
directly or indirectly: chanrobles virtual law
library
(a) To permit in the ordinary course of business
as a broker his aggregate indebtedness to all
persons including customers' credit balances (but
excluding indebtedness secured by exempted
securities), to exceed such percentage of the net
capital (exclusive of fixed assets and value of
exchange membership) employed in the business,
but not exceeding in any case two thousand
(2,000%) per centum, as the Commission may by

rules and regulations prescribe as necessary or

appropriate in the public interest or for the
protection of investors.
(b) To pledge, mortgage or otherwise encumber
or arrange for the pledge, mortgage or
encumbrance of any security carried for the
account of any customer under circumstances
(1) that will permit the commingling of his
securities, without his written consent, with the
securities of any customer; (2) that will permit
such securities to be commingled with the
securities of any person other than a bona fide
customer; or (3) that will permit such securities to
be pledged, mortgaged or encumbered, or
subjected to any lien or claim of the pledgee, for
a sum in excess of the aggregate indebtedness of
such customers in respect of such securities.
However, the Commission, having due regard to
the protection of investors, may, by rules and
regulations, allow certain transactions that may
otherwise be prohibited under this subsection.
chanrobles virtual law library
(c) To lend or arrange for the lending of any
security carried for the account of any customer
without the written consent of such customer or
in contravention of such rules and regulations as
the Commission shall prescribe for the protection
of investors.

Sec. 25. Enforcement of margin requirements

and restrictions on borrowings. To prevent
indirect violations of the margin requirements
under Section 23 hereof, the broker or dealer
shall require the customer in non-margin
transactions to pay the price of the security
purchased for his account within such period as
the Commission may prescribe, which shall in no
case exceed three trading days; otherwise, the
broker shall sell the security purchased starting
on the next trading day but not beyond ten
trading days following the last day for the
157

customer to pay such purchase price, unless such

sale cannot be effected within said period for
justifiable reasons. The sale shall be without
prejudice to the right of the broker or dealer to
recover any deficiency from the customer. To
prevent indirect violation of the restrictions on
borrowings under Section 24 of this Act, the
broker shall, unless otherwise directed by the
customer, pay the net sales price of the securities
sold for a customer within the same period as
above prescribed by the Commission: Provided,
That the customer shall be required to deliver the
instruments evidencing the securities as a
condition for such payment upon demand by the
broker.
Sec. 26. Manipulation of security prices. (a) It
shall be unlawful for any person, directly or
indirectly
(1) For the purpose of creating a false or
misleading appearance of active trading in any
security registered on a securities exchange, or a
false or misleading appearance with respect to
the market for any such security:
(i) To effect any transaction in such security
which involves no change in the beneficial
ownership thereof, or
(ii) To enter an order or orders for the purchase
of such security with the knowledge that an order
or orders of substantially the same size, time and
price, for the sale of any such security, has or
have been or will be entered by or for the same
or different parties, or chanrobles virtual law
library
(iii) To enter an order or orders for the sale of
any such security with the knowledge that an
order or orders of substantially the same size,
time and price for the purchase of any such
security, has or have been or will be entered by
or for the same or different parties.

(2) To effect, alone or with one or more other

persons, a series of transactions in securities that
(i) raises their price for the purpose of inducing
the purchase of a security, whether of the same
or a different class, of the same issuer or of a
controlling, controlled, or commonly controlled
company by others, (ii) depresses their price for
the purpose of inducing the sale of a security,
whether of the same or a different class, of the
same issuer or of a controlling, controlled, or
commonly controlled company by others, or (iii)
creates active trading, actual or apparent, for the
purpose of inducing such a purchase or sale.
(3) If a dealer or broker, or other person selling
or offering for sale, or purchasing or offering to
purchase, the security, to induce the purchase or
sale of any security registered on a securities
exchange by the circulation or dissemination in
the ordinary course of business of information to
the effect that the price of any such security will
or is likely to rise or fall because of market
operations of anyone or more persons conducted
for the purpose of raising or depressing the price
of such security.
(4) If a dealer or broker or other person selling or
offering for sale or purchasing or offering to
purchase the security, to make, regarding any
such security registered on a securities exchange,
for the purpose of inducing the purchase or sale
of such security, any statement which was at the
time and in the light of the circumstances under
which it was made, false or misleading with
respect to any material fact, and which he knew
or had reasonable ground to believe was so false
or misleading.
(5) For a consideration received directly or
indirectly from a dealer or broker or other person
selling or offering for sale or purchasing or
offering to purchase the security, to induce the
purchase or sale of any security registered on a
securities exchange by the circulation or
dissemination of information to the effect that
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the price of any such security will or is likely to

rise or fall because of the market operations of
anyone or more persons conducted for the
purpose of raising or depressing the price of such
security. chanrobles virtual law library
(6) To effect, either alone or with one or more
other persons, any series of transactions for the
purchase and/or sale of any security registered in
a securities exchange for the purpose of pegging,
fixing or stabilizing the price of such security.

(b) It shall be unlawful for any person to effect,

by the use of any facility of a securities
exchange:chanroblesvirtuallawlibrary chanrobles
virtual law library

(1) Any transaction in connection with any

security whereby any party to such transaction
acquires any put, call, straddle, or other option or
privilege of buying the security from or selling the
security to another without being bound to do so;
or
(2) Any transaction in connection with any
security with relation to which he has, directly or
indirectly, any interest in any such put, call,
straddle, option or privilege; or chanrobles
virtual law library
(3) Any transaction in any security for the
account of any person who he has reason to
believe has, and who actually has, directly or
indirectly, any interest in any such put, call,
straddle, option, or privilege with relation to such
security.

(c) It shall be unlawful for any member of a

securities exchange, directly or indirectly, to
endorse or guarantee the performance of any
put, call, straddle, option or privilege in relation

to any security registered on a securities

exchange.
(d) The terms "put", "call", "straddle", "option"
or "privilege" as used in this Section shall not
include any registered warrant, right or
convertible security.
chanrobles virtual law
library
(e) Any person who willfully participates in any
act or transaction in violation of subsections (a),
(b) or (c) of this Section shall be liable to any
person who shall purchase or sell any security at
price which was affected by such act or
transaction, and the person so injured may sue in
any court of competent jurisdiction to recover
the damages sustained as a result of any such act
or transaction. The court may, in its discretion,
require an undertaking for the payment of the
costs of any such suit, and assess reasonable
costs, including reasonable attorney's fees,
against either party litigant. Every person who
becomes liable to make payment under this
subsection may recover contribution as in cases
of contract from any person who, if joined in the
original suit, would have been liable to make the
same payment. No action shall be maintained to
enforce any liability created under this Section,
unless brought within two (2) years after the
discovery of the facts constituting the violation
and within five (5) years after such violation.
chanrobles virtual law library
(f) The provisions of this Section shall apply to an
exempted security. chanrobles virtual law library
(g) The foregoing provisions notwithstanding, the
Commission, having due regard to the public
interest and the protection of investors, may, by
rules and regulations, allow certain acts or
transactions that may otherwise be prohibited
under this Section.
Sec. 27. Manipulative and deceptive devices.
It shall be unlawful for any person, directly or
159

indirectly, by the use of any facility of any

exchange:
(a) To effect a short sale, or to use or employ any
stop-loss order in connection with the purchase
or sale of any security registered on a securities
exchange, in contravention of such rules and
regulations as the Commission may prescribed as
necessary or appropriate in the public interest or
for the protection of investors. chanrobles virtual
law library
(b) To use or employ, in connection with the
purchase or sale of any security, any manipulative
or deceptive device or contrivance.

Sec. 28. Artificial measures of price control. It

shall be unlawful for any exchange to adopt and
enforce artificial measures of price control of any
nature whatsoever without the prior approval of
the Commission which may be given only if it
serves public interest and benefits the investors.
Sec. 29. Fraudulent transactions. (a) It shall be
unlawful for any person, directly or indirectly, in
connection with the purchase or sale of any
securities:chanroblesvirtuallawlibrary chanrobles
virtual law library
(1)To employ any device, scheme, or artifice to
defraud, or chanrobles virtual law library
(2)To obtain money or property by means of any
untrue statement of a material fact or any
omission to state a material fact necessary in
order to make the statements made, in the light
of the circumstances under which they were
made, not misleading, or
(3) To engage in any act, transaction, practice, or
course of business which operates or would
operate as a fraud or deceit upon any person.

(b) It shall be unlawful for any person to describe

a security to a second person, without purporting
to offer it, for a consideration received or to be
received directly or indirectly from the issuer, any
other person interested in buying or selling the
security, an underwriter, broker, dealer, or
investment adviser, or a controlling, controlled,
or commonly controlled person of any such
person, unless (1) he concurrently discloses the
source of the consideration or the nature of or
reason for his employment or (2) if the second
person or his agent in the transaction is
identified, that information is known to the
second person.
The above paragraph does not apply to the usual
remuneration received by (1) a newspaper,
periodical, or radio or television station for
publishing in good faith advertisement that
clearly appears to be the statement of another
person published at his expense, or (2) an
employee or other person who prepares an
advertisement or other description that appears
over the name of the person for whom it is
prepared rather than the person preparing it.
chanrobles virtual law library
The Commission shall promulgate rules that it
may deem necessary or appropriate in the public
interest or for the protection of investors to
implement this Section.
(c) This Section shall also apply to exempt
securities and exempt transactions. chanrobles
virtual law library
Sec. 30. Insider's duty to disclose when trading.
(a) It shall be unlawful for an insider to sell or
buy a security of the issuer, if he knows a fact of
special significance with respect to the issuer or
the security that is not generally available, unless
(1) the insider proves that the fact is generally
available or (2) if the other party to the
transaction (or his agent) is identified, (a) the
insider proves that the other party knows it, or
160

(b) that other party in fact knows it from the

insider or otherwise. chanrobles virtual law
library
(b) "Insider" means (1) the issuer, (2) a director
or officer of, or a person controlling, controlled
by, or under common control with, the issuer, (3)
a person whose relationship or former
relationship to the issuer gives or gave him access
to a fact of special significance about the issuer or
the security that is not generally available, or (4) a
person who learns such a fact from any of the
foregoing insiders as defined in this subsection,
with knowledge that the person from whom he
learns the fact is such an insider.
(c) A fact is "of special significance" if (a) in
addition to being material it would be likely, on
being made generally available, to affect the
market price of a security to a significant extent,
or (b) a reasonable person would consider it
especially important under the circumstances in
determining his course of action in the light of
such factors as the degree of its specificity, the
extent of its difference from information
generally available previously, and its nature and
reliability.
(d) This section shall apply to an insider as
defined in subsection (b) (3) hereof only to the
extent that he knows a fact of special significance
by virtue of his being an insider. chanrobles
virtual law library
Sec. 31. Segregation and limitation of functions
of members, brokers, and dealers. (a) The
Commission shall prescribe such rules and
regulations as it deems necessary or appropriate
in the public interest or for the protection of
investors (1) to regulate floor trading by members
of securities exchanges, directly or indirectly, for
their own account or for discretionary accounts,
(2) to prevent such excessive trading on the
exchange but off the floor by members, directly
or indirectly, for their own account, as the

Commission may deem detrimental to the

maintenance of a fair and orderly market, and (3)
to restrict a broker from directly or indirectly
dealing in securities or otherwise segregate and
limit the function of a broker and dealer. It shall
be unlawful for a member to effect any
transaction in a security in contravention of such
rules and regulations, but such rules and
regulations may make such exemptions for
arbitrage transactions, for transactions in
exempted securities, and, within the limitations
of subsection (b) of this Section, for transactions
by odd-lot dealers and specialists, as the
Commission may deem necessary or appropriate
in the public interest or for the protection of
investors. chanrobles virtual law library
(b) Unless otherwise prohibited by such rules ad
regulations as the Commission may prescribe as
necessary or appropriate in the public interest or
for the protection of investors, the rules of a
securities
exchange
may
permit:chanroblesvirtuallawlibrary
(1) a member to be registered as an odd-lot
dealer and as such to buy and sell for his own
account so far as may be reasonably necessary to
carry on such odd-lot transactions, or chanrobles
virtual law library
(2) a member to be registered as a specialist. If
under the rules and regulations of the
Commission, a specialist is permitted to act as a
dealer, or is limited to acting as a dealer, such
rules and regulations shall restrict his dealing so
far as practicable to those reasonably necessary
to permit him to maintain a fair and orderly
market, and/or to those necessary to permit him
to act as an odd-lot dealer. It shall be unlawful for
a specialist or an official of the exchange to
disclose information in regard to orders placed
with such specialist which is not available to all
members of the exchange, to any person other
than an official of the exchange, a representative
of the Commission, or a specialist who may be
161

acting for such specialist; but the Commission

shall have power to require disclosure to all
members of the exchange of all orders placed
with specialists, under such rules and regulations
as the Commission may prescribe as necessary or
appropriate in the public interest or for the
protection of investors. It shall also be unlawful
for a specialist acting as a broker to effect on the
exchange any transaction except upon a market
or limited price order.

(c)
If, because of the limited volume of
transactions effected on an exchange, it is
impracticable and not necessary or appropriate in
the public interest or for the protection of
investors to apply any of the foregoing provisions
of this Section or the rules and regulations
thereunder, the Commission shall have the
power, upon application of the exchange and on
a showing that the rules of such exchange are
otherwise adequate for the protection of
investors, to exempt such exchange and its
members from any such provision or rules and
regulations.
(d) It shall be unlawful for a member of a
securities exchange who is both a dealer and a
broker, or for any person who both as a broker
and a dealer transacts a business in securities
through the medium of a member or otherwise,
to effect through the use of any facility of a
securities exchange, or otherwise in the case of a
member:
(1) Any transaction in connection with which,
directly or indirectly, he extends or maintains or
arranges for the extension or maintenance of
credit to or for a customer on any security other
than an exempted security which was a part of a
new issue in the distribution of which he
participated as a member of a selling syndicate or
group within six months prior to such transaction:
Provided, That credit shall not be deemed

extended by reason of a bona fide delayed

delivery of any such security against full payment
of the entire purchase price thereof upon such
delivery within thirty-five days after such
purchase, or
(2) Any transaction with respect to any security
other than an exempted security unless, if the
transaction is with a customer, he discloses to
such customer in writing at or before the
completion of the transaction whether he is
acting as a dealer for his own account, as a broker
for such customer, or as a broker for some other
person. chanrobles virtual law library

Sec. 32. Reports. (a) (1) Any person who, after

acquiring directly or indirectly the beneficial
ownership of any equity security of a class which
is registered pursuant to this Act, is directly or
indirectly the beneficial owner of more than ten
(10%) per centum of such class shall, within ten
days after such acquisition or such reasonable
time as fixed by the Commission, submit to the
issuer of the security, to the stock exchanges
where the security is traded, and to the
Commission a sworn statement containing the
following
information
and
such
other
information, as the Commission may require in
the public interest or for the protection of
investors:

(i) The background, identity, residence, and

citizenship of, and the nature of such beneficial
ownership by, such person and all other persons
by whom or on whose behalf the purchases are
effected; in the event the beneficial owner is a
juridical person, the line of business of the
beneficial owner shall also be reported.
chanrobles virtual law library
(ii) If the purpose of the purchases or prospective
purchases is to acquire control of the business of
162

the issuer of the securities, any plans or proposals

which such persons may have that will effect a
major change in its business or corporate
structure; chanrobles virtual law library
(iii) The number of shares of such security which
are beneficially owned, and the number of shares
concerning which there is a right to acquire,
directly or indirectly, by (i) such person, and (ii) by
each associate of such person, giving the
background, identity, residence, and citizenship
of each such associate; and chanrobles virtual
law library
(iv)
Information as to any contracts,
arrangements, or understanding with any person
with respect to any securities of the issuer,
including but not limited to transfers, joint
ventures, loan or option arrangements, puts or
calls, guarantees or division of losses or profits, or
proxies naming the persons with whom such
contracts, arrangements, or understanding have
been entered into, and giving the details thereof.
chanrobles virtual law library

(2) If any material change occurs in the facts set

forth in the statements, an amendment shall be
transmitted to the issuer, the exchange and the
Commission in accordance with such rules and
regulations as the Commission may prescribed as
necessary or appropriate in the public interest or
for the protection of investors. chanrobles virtual
law library
(3) The Commission, by rule or regulation or by
order, may permit any person to file in lieu of the
statement required by paragraph (1) of this
subsection, a notice stating the name of such
person, the shares or any equity securities
subject to paragraph (1) which are owned by him,
the date of their acquisition and such other
information as the Commission may specify, if it
appears to the Commission that such securities
were acquired by such person in the ordinary

course of his business and were not acquired for

the purpose of and do not have the effect of
changing or influencing the control of the issuer
nor in connection with any transaction having
such purpose or effect.
(b) (1) It shall be unlawful for an issuer which has
a class of equity securities registered pursuant to
this Act, to purchase any equity security issued by
it if such purchase is in contravention of such
rules and regulations as the Commission, in the
public interest or for the protection of investors,
may adopt (a) to define acts and practices which
are fraudulent, deceptive, or manipulative, and
(b) to prescribe means reasonably designed to
prevent such acts and practices. Such rules and
regulations may require such issuer to provide
holders of equity securities of such class with
such information relating to the reasons for such
purchase, the source of funds, the number of
shares to be purchased, the price to be paid for
such securities, the method of purchase, and such
additional information as the Commission deems
necessary or appropriate in the public interest or
for the protection of investors, or which the
Commission deems to be material to a
determination whether such security should be
purchased. chanrobles virtual law library
(2) For the purpose of this subsection, a purchase
by or for the issuer or any person controlling,
controlled by, or under common control with the
issuer, or a purchase subject to the control of the
issuer or any such person, shall be deemed to be
a purchase by the issuer. The Commission shall
have the power to make rules and regulations
implementing this paragraph in the public
interest and for the protection of investors
including exemptive rules and regulations
covering situations in which the Commission
deems it unnecessary or inappropriate that a
purchase of the type described in this paragraph
shall be deemed to be a purchase by the issuer
for the purpose of some or all of the provisions of
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paragraph (1) of this subsection.

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chanrobles

Sec. 33. Tender offers. (a) (1) It shall be

unlawful for any person, directly or indirectly, to
make a tender offer for, or a request or invitation
for tenders of, any class of any equity security
which is registered pursuant to this Act if, after
consummation thereof, such person would,
directly or indirectly, be the beneficial owner of
more than ten (10%) per centum of such class, or
such reasonable percentage as fixed by the
Commission, unless, at the time copies of the
offer or request or invitation are first published or
sent or given to security holders, such person has
filed with the Commission and furnished the
issuer a statement containing such of the
information required in Section 32 of this Act as
the Commission may prescribe. All requests or
invitations for tender, or advertisements making
a tender offer or requesting or inviting tenders of
such a security, shall be filed as a part of such
statement and shall contain such of the
information contained in such statement as the
Commission may prescribe. Copies of any
additional material soliciting or requesting such
tender offers subsequent to the initial solicitation
or request shall contain such information as the
Commission may prescribe as necessary or
appropriate in the public interest or for the
protection of investors, and shall be filed with the
Commission and sent to the issuer not later than
the time copies of such materials are first
published or sent or given to security holders.
chanrobles virtual law library
(2) Any solicitation or recommendation to the
holders of such a security to accept or reject a
tender offer or request or invitation for tenders
shall be made in accordance with such rules and
regulations as the Commission may prescribe as
necessary or appropriate in the public interest or
for the protection of investors. chanrobles virtual
law library

(3) 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 until the expiration of seven days after the
time definitive copies of the offer or request or
invitation are first published or sent or given to
security holders, and at any time after sixty days
from the date of the original tender offer or
request or invitation, except as the Commission
may otherwise prescribed by rules, regulations,
or order as necessary or appropriate in the public
interest or for the protection of investors.
chanrobles virtual law library
(4) Where any person makes a tender offer, or
request or invitation for tenders, for less than all
the outstanding equity securities of a class, and
where a greater number of securities is deposited
pursuant thereto within ten days after copies of
the offer or request or invitation are first
published or sent or given to security holders
than such person is bound or willing to take up
and pay for, the securities taken up shall be taken
up as nearly as may be pro rata, disregarding
fractions, according to the number of securities
deposited by each depositor. The provisions of
this subsection shall also apply to securities
deposited within ten days after notice of an
increase in the consideration offered to security
holders, as described in subparagraph (5) of this
subsection, is first published or sent or given to
security holders.
(5) 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. chanrobles virtual law
library
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(b) The provisions of subsection (a) of Section 32

and subsection (a) of this Section shall not apply
to any offer for, or request or invitation for
tenders of, any security: chanrobles virtual law
library
(i) If the acquisition of such security, together
with all other acquisition by the same person of
securities of the same class during the preceding
twelve months, would not exceed two (2%) per
centum of that class; or
(ii)
Which the Commission, by rules or
regulations or by order, shall exempt as not
entered into for the purpose of, and not having
the effect of, changing or influencing the control
of the issuer or otherwise as not comprehended
within the purpose of said Sections.

(c) When two or more persons act as a

partnership, limited partnership, syndicate, or
other group for the purpose of acquiring, holding,
or disposing of securities of an issuer, such
syndicate or group shall be deemed a "person"
for the purposes of Section 32 and subsection (a)
of this Section.
(d) In determining, for purposes of Section 32
and subsection (a) of this Section, any percentage
of a class of any security, such class shall be
deemed to consist of the amount of the
outstanding securities of such class, exclusive of
any securities of such class held by or for the
account of the issuer or a subsidiary of the issuer.
(e) It shall be unlawful for any person to make
any untrue statement of a material fact or omit to
state any material fact necessary in order to
make the statements made, in the light of the
circumstances under which they are made, not
misleading, or to engage in any fraudulent,
deceptive, or manipulative acts or practices, in
connection with any tender offer or request or
invitation for tenders, or any solicitation of

security holders in opposition to or in favor of any

such offer, request or invitation. The Commission
shall, for the purposes of this subsection, by rules
and regulations define, and prescribe means
reasonably designed to prevent, such acts and
practices as are fraudulent, deceptive, or
manipulative. chanrobles virtual law library
Sec. 34. Proxies. (a) It shall be unlawful for
any person, in contravention of such rules and
regulations as the Commission may prescribe as
necessary or appropriate in the public interest or
for the protection of investors, to solicit or to
permit the use of his name to solicit any proxy or
consent or authorization in respect of any
security registered pursuant to this Act.
chanrobles virtual law library
(b) It shall be unlawful for any member of a
securities exchange, or any broker or dealer, in
contravention of such rules and regulations as the
Commission may prescribe as necessary or
appropriate in the public interest or for the
protection of investors, to give, or to refrain from
giving a proxy, consent, or authorization in
respect of any security registered pursuant to this
Act and carried for the account of a customer.
(c) Unless proxies, consents, or authorizations in
respect of a security registered pursuant to this
Act are solicited by or on behalf of the
management of the issuer from the holders of
record of such security in accordance with the
rules and regulations prescribed under subsection
(a) of this Section, such issuer shall, prior to any
annual or other meeting of the holders of such
security and in accordance with rules and
regulations prescribed by the Commission, file
with the Commission and transmit to all holders
of record of such security information
substantially equivalent to the information which
would be required to be transmitted if a
solicitation were made.

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Sec. 35. Over-the-counter markets. It shall be

unlawful, in the contravention of such rules and
regulations as the Commission may prescribe as
necessary and appropriate in the public interest
or to insure to investors protection comparable
to that provided by and under authority of this
Act in the case of securities exchanges:
chanrobles virtual law library
(1) For any broker or dealer, singly or with any
other person, to make or create, or enable
another to make or create, a market, otherwise
than on a securities exchange, for both the
purchase and sale of any security, other than an
exempted security or commercial paper, banker's
acceptances, or commercial bills, or securities
which have not previously been registered or
listed with an exchange, or
(2) For any broker or dealer to use any facility of
any such market. chanrobles virtual law library

Such rules and regulations may provide for the

regulation of all transactions by brokers and
dealers on any such market, for the registration
with the Commission of dealers or brokers
making or creating such a market, and for the
registration of the securities for which they make
or create a market, and may make special
provision with respect to securities or specified
classes thereof listed, or entitled to unlisted
trading privileges, upon any exchange on the
effective date of this Act, which securities are not
registered under the provisions hereof.
Sec.
36.
Directors, officers and principal
stockholders. (a) Every person who is directly
or indirectly the beneficial owner of more than
ten per centum of any of any equity security
which is registered pursuant to this Act, or who is
director or an officer of the issuer of such
security, shall file, at the time of the registration
of such security on a securities exchange or by
the effective date of a registration statement or

within ten days after he becomes such a

beneficial owner, director, or officer, a statement
with the Commission and, if such security is
registered on a securities exchange, also with the
exchange, of the amount of all equity securities of
such issuer of which he is the beneficial owner,
and within ten days after the close of each
calendar month thereafter, if there has been a
change in such ownership during such month,
shall file with the Commission, and if such
security is registered on a securities exchange,
shall also file with the exchange, a statement
indicating his ownership at the close of the
calendar month and such changes in his
ownership as have occurred during such calendar
month.
(b) For the purpose of preventing the unfair use
of information which may have been obtained by
such beneficial owner, director, or officer by
reason of his relationship to the issuer, any profit
realized by him from any purchase and sale, or
any sale and purchase, of any equity security of
such issuer within any period of less than six
months, unless such security was acquired in
good faith in connection with a debt previously
contracted, shall inure to and be recoverable by
the issuer, irrespective of any intention of holding
the security purchased or of not repurchasing the
security sold for a period exceeding six months.
Suit to recover such profit may be instituted in
any court of competent jurisdiction by the issuer,
or by the owner of any security of the issuer in
the name and in behalf of the issuer if the issuer
shall fail or refuse to bring such suit within sixty
days after request or shall fail diligently to
prosecute the same thereafter; but no such suit
shall be brought more than two years after the
date such profit was realized. This subsection
shall not be construed to cover any transaction
where such beneficial owner was not such both
at the time of the purchase and sale, or the sale
and purchase, of the security involved, or any
transaction or transactions which the Commission
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by rules and regulations may exempt as not

comprehended within the purpose of this
subsection.
(c) It shall be unlawful for any such beneficial
owner, director, or officer, directly or indirectly,
to sell any equity security of such issuer if the
person selling the security or his principal (1)
does not own the security sold, or (2) if owning
the security, does not deliver it against such sale
within twenty days thereafter, or does not within
five days after such sale deposit it in the mails or
other usual channels of transportation; but no
person shall be deemed to have violated this
subsection if he proves that notwithstanding the
exercise of good faith he was unable to make
such delivery or deposit within such time, or that
to do so would cause undue inconvenience or
expense. chanrobles virtual law library
(d) The provisions of subsection (b) of this
Section shall not apply to any purchase and sale,
or sale and purchase, and the provisions of
subsection (c) of this Section shall not apply to
any sale, of an equity security not then or
thereafter held by him in an investment account,
by a dealer in the ordinary course of his business
and incident to the establishment or
maintenance by him of a primary or secondary
market, otherwise than on an exchange, for such
security. The Commission may, by such rules and
regulations as it deems necessary or appropriate
in the public interest, define and prescribe terms
and conditions with respect to securities held in
an investment account and transactions made in
the ordinary course of business and incident to
the establishment or maintenance of a primary or
secondary market.
Sec.
37.
Account and records, reports,
examination of exchanges, members, and others.
(a) Every exchange, every member thereof,
every broker or dealer who transacts a business
in securities through the medium of any such
member, shall make, keep and preserve for such

periods, such accounts, correspondence,

memoranda, papers, books, and other records,
and make such reports, as the Commission by its
rules and regulations may prescribe as necessary
or appropriate in the public interest or for the
protection of investors. Such accounts,
correspondence, memoranda, papers, books, and
other records shall be subject at any time or from
time to time to such reasonable periodic, special,
or other examinations by examiners or other
representatives of the Commission as the
Commission may deem necessary or appropriate
in the public interest or for the protection of
investors, provided that the Commission give
notice of the purpose of such examination, and if
such examination is for the purpose of
investigating any complaint filed with the
Commission, or any information received by the
Commission, that a copy of such complaint or a
statement of such information be furnished by
the Commission to such exchange, member,
broker or dealer at least five days prior to the
commencement of such examination. chanrobles
virtual law library
(b) Any broker, dealer or other person extending
credit, who is subject to the rules and regulations
prescribed by the Commission pursuant to this
Act, shall make such reports to the Commission
as may be necessary or appropriate to enable it
to perform the functions conferred upon it by this
Act. chanrobles virtual law library
Sec. 38. Powers with respect to exchanges and
securities. (a) The Commission is authorized, if
in its opinion such action is necessary or
appropriate for the protection of investors:
(1) After appropriate notice and opportunity for
hearing, to suspend for a period not exceeding
twelve months or to withdraw the registration of
a securities exchange, if such exchange has
violated any provision of this Act or of the rules
and regulations thereunder, or has failed to
enforce compliance therewith by a member or by
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an issuer of a security registered thereon.

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(2) After appropriate notice and opportunity for
hearing, to suspend for a period not exceeding
twelve months or to expel from a securities
exchange any member or officer thereof who has
violated any provision of this Act or the rules and
regulations thereunder, or has effected, directly
or indirectly, any transaction for any person who
is violating in respect of such transaction any
provision of this Act or the rules and regulations
thereunder.
(3) And if the public interest so requires,
summarily to suspend trading in any registered
security on any securities exchange for a period
not exceeding thirty days or, with the approval of
the President of the Philippines, summarily to
suspend all trading on any securities exchange for
a period of more than thirty days but not
exceeding ninety days.

(b) The Commission is further authorized, if after

making appropriate request in writing to a
securities exchange that such exchange effect on
its own behalf specified changes in its rules and
practices and, after appropriate notice and
opportunity for hearing, it determines that such
exchange has not made the changes so
requested, and that such changes are necessary
or appropriate for the protection of investors or
to insure fair dealing in securities traded upon
such exchange or to insure fair administration of
such exchange, by rules or regulations or by
order, to alter or supplement the rules of such
exchange (insofar as necessary or appropriate to
effect such changes) in respect of such matters
as:chanroblesvirtuallawlibrary

(1)
Safeguards in respect of the financial
responsibility of members and adequate

provision against the evasion of financial

responsibility through the use of corporate forms
or special partnerships; chanrobles virtual law
library
(2)
The limitation
registration or trading
specified period after
distribution thereof;
library

or prohibition of the
in any security within a
the issuance or primary
chanrobles virtual law

(3) The listing or striking from listing of any

security;
(4) Hours or trading;
(5) The manner, method, and place of soliciting
business;
(6) Fictitious accounts;
(7) The time and method of making settlements,
payments, and deliveries, and of closing
accounts;
(8) The reporting of transactions on the exchange
upon tickets maintained by or with the consent of
the exchange, including the method of reporting
short sales, stopped sales, sales of securities of
issuers involving other special circumstances;
(9) The fixing of reasonable rates of commission,
interests, listing, and other charges; chanrobles
virtual law library
(10) Minimum units of trading;
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(11)
Odd-lot purchases
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and

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sales;

and

(12) Minimum deposits on margin accounts.

(c) Wherever two or more exchanges exist, the

Commission may require and enforce uniformity
of trading regulations in and/or between or
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among said exchanges. chanrobles virtual law

library

on a current and continuing basis, information

with respect to such transactions or quotations.

(d) The Commission shall have the authority to

determine the number, size and location of stock
exchanges and commodity exchanges and other
similar organizations in the light of national or
regional requirements for such activities with the
view to promote, enhance, protect, conserve or
rationalize investment. chanrobles virtual law
library

Sec. 41. Securities investors protection funds.

The Commission may establish or facilitate the
establishment of trust funds which shall be
contributed by exchanges, brokers, dealers,
underwriters, transfer agents, salesmen and
other persons transacting in securities, as the
Commission may require, for the purpose of
compensating investors for the extraordinary
losses or damage they may suffer due to business
failure or fraud or mismanagement of the
persons with whom they transact, under such
rules and regulations as the Commission may
from time to time prescribe or approve in the
public interest. The Commission may, having due
regard to the public interest or the protection of
investors, regulate, supervise, examine, suspend
or otherwise discontinue such other similar funds
under such rules and regulations which the
Commission may promulgate, and which may
include taking custody and management of the
fund itself as well as investments in and
disbursements from the fund under such forms of
control and supervision by the Commission as it
may from time to time require. The authority
granted to the Commission under this Section
shall also apply to all funds established for the
protection of investors, whether established by
the Commission or otherwise. chanrobles virtual
law library

Sec. 39. Clearance and settlement of securities

transactions. The Commission, having due
regard to the public interest, the protection of
investors, the safeguarding of securities and
funds, and maintenance of fair competition
among brokers, dealers, clearing agencies, and
transfer agents, shall promulgate rules and
regulations for the prompt and accurate
clearance and settlement of securities
transactions.
Sec. 40. Power of the Commission will respect to
securities related organizations. The
Commission shall have the power to grant license
as a condition for, and to regulate, supervise,
examine, suspend to otherwise discontinue, the
operation of organizations whose operations are
related to or connected with the securities
market such as but not limited to clearing houses,
securities depositories, transfer agents, registrars,
fiscal and paying agents, computer services, news
disseminating services, proxy solicitors, statistical
agencies, securities rating agencies, and securities
information processors which are engaged in the
business of: (1) collecting, processing, or
preparing for distribution of publication, or
assisting, participating in, or coordinating the
distribution or publication of, information with
respect to transaction in or quotations for any
security or (2) distributing or publishing, whether
by means of a ticker tape, a communications
network, a terminal display device, or otherwise,

Sec. 42. Association of securities brokers,

dealers, underwriters, transfer agents and
salesmen. The Commission may prescribe rules
and regulations which are necessary or
appropriate in the public interest or for the
protection of investors to govern associations of
brokers, dealers, underwriters, transfer agents
and/or salesmen. chanrobles virtual law library
Sec. 43. Certificates. The Commission may,
having regard to the public interest and the
protection of investors, require the printing by
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the Central Bank Security Printing Plant, at the

issuer's expense, of the instruments evidencing
securities, and regulate the issuance and release
thereof. chanrobles virtual law library

CHAPTER V
General Provisions

Sec. 44. Liabilities of controlling persons. (a)

Every person who, by or through stock
ownership, agency, or otherwise, or in
connection with an agreement or understanding
with one or more other persons by or through
stock ownership, agency or otherwise, controls
any person liable under this Act, shall also be
liable jointly and severally with and to the same
extent as such controlled persons to any person
to whom such controlled person is liable, unless
the controlling person proves that, despite the
exercise of due diligence on his part, he has no
knowledge of the existence of the facts by reason
of which the liability of the controlled person is
alleged to exist.
(b) It shall be unlawful for any person, directly or
indirectly, to do any act or thing which it would
be unlawful for such person to do under the
provisions of this Act or any rule or regulation
thereunder through or by means of any other
person. chanrobles virtual law library
(c) It shall be unlawful for any director or officer
of, or any owner of any securities issued by, any
issuer of any security registered in accordance
with this Act, without just cause, to hinder, delay
or obstruct the making or filing of any document,
report, or information required to be filed under
this Act or any rule or regulation thereunder.
chanrobles virtual law library

Sec.
45.
Investigations, injunctions and
prosecution of offenses. (a) The Commission
may, in its discretion, make such investigations as
it deems necessary to determine whether any
person has violated or is about to violate any
provision of this Act or any rule or regulation
thereunder, and may require or permit any
person to file with it a statement in writing, under
oath or otherwise, as the Commission shall
determine, as to all facts and circumstances
concerning the matter to be investigated. The
Commission is authorized, in its discretion, to
publish information concerning any such
violations, and to investigate any fact, condition,
practice or matter which it may deem necessary
or proper to aid in the enforcement of the
provisions of this Act, in the prescribing of rules
and regulations thereunder, or in securing
information to serve as a basis for recommending
further legislation concerning the matters to
which this Act relates: Provided, however, That
no such investigation shall be conducted unless
the person investigated is furnished with a copy
of any complaint which may have been the cause
of the initiation of the investigation or is notified
in writing of the purpose of such investigation:
Provided, further, That all criminal complaints for
violations of this Act, and the implementing rules
and regulations enforced or administered by the
Commission shall be referred to the National
Prosecution Service of the Ministry of Justice for
preliminary investigation and prosecution before
the proper court: and, Provided, finally, That the
investigation, prosecution, and trial of such cases
shall be given priority. chanrobles virtual law
library
(b) For the purpose of any such investigation, or
any other proceeding under this Act, the
Commission or any officer designated by it is
empowered to administer oaths and affirmations,
subpoena witnesses, compel attendance, take
evidence, require the production of any book,
paper, correspondence, memorandum, or other
170

record which the Commission deems relevant or

material to the inquiry, and to perform such
other acts necessary in the conduct of such
investigation or proceedings. chanrobles virtual
law library
(c) Any person who, without just cause, fails or
refuses to comply with any order, decision or
subpoena issued by the Commission, in the
proper exercise of its authority and jurisdiction
under subparagraph (b) or subparagraph (c) of
this Section or Section 47 of this Act, if in the
power of such person to do so, shall, after due
notice and hearing, be guilty of contempt of the
Commission and shall be subject to discipline by
the Commission as in the case of contempt of
court, either by a fine in such reasonable amount
as the Commission may determine, or when such
failure or refusal is a clear and open defiance of
the Commission's order, decision or subpoena, by
detention under an arrest order, as may be issued
by the Commission, at the discretion of the
Commission, until such order, decision or
subpoena is complied with.
(d) The powers of the Commission under this
Section shall be in addition to any other powers
granted under existing laws.
Sec. 46. Administrative sanctions. If, after
proper notice and hearing, the Commission finds
that there is a violation of this Act, its rules, or its
orders or that any registrant has, in a registration
statement and its supporting papers and other
reports required by law or rules to be filed with
the Commission, made any untrue statement of a
material fact, or omitted to state any material
fact required to be stated therein or necessary to
make the statements therein not misleading, or
refused to permit any lawful examination into its
affairs, it shall, in its discretion, impose any or all
of the following sanctions: chanrobles virtual law
library

(a) Suspension, or revocation of its certificate of

registration and permit to offer securities;
chanrobles virtual law library
(b) A fine of no less than two hundred (P200.00)
pesos nor more than fifty thousand (P50,000.00)
pesos plus not more than five hundred (P500.00)
pesos for each day of continuing violation;
chanrobles virtual law library
(c)
Disqualification from being an officer,
member of the board of directors or principal
stockholder of an issuer whose securities are or
are about to be registered pursuant to this Act;
and
(d) Other penalties within the power of the
Commission under existing laws. chanrobles
virtual law library

The imposition of the foregoing administrative

sanctions shall be without prejudice to the filing
of criminal charges against the individuals
responsible for the violation. chanrobles virtual
law library
The Commission shall have the power to issue
writs of execution to enforce the provisions of
this Section and to enforce payment of the fees
and other dues collectible under this Act.
chanrobles virtual law library
Sec. 47. Cease and desist order. The
Commission, after proper investigation or
verification, motu propriety, or upon verified
complaint by any aggrieved party, may issue a
cease and desist order without the necessity of a
prior hearing if in its judgment the act or practice,
unless restrained may cause grave or irreparable
injury or prejudice to the investing public or may
amount to fraud or violation of the disclosure
requirements of this Act and the rules and
regulations of the Commission.
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171

Such cease and desist order shall be confidential

until after the sanctions mentioned in the next
preceding Section shall have been imposed and
have become final and executory. chanrobles
virtual law library
Immediately upon the issuance of such order, the
Commission shall, with due notice to the parties
involved, schedule a hearing, on a date not later
than fifteen days after service of notice, on
whether to lift such order or to impose the
administrative sanctions provided for in the next
preceding Section. chanrobles virtual law library
Sec. 48. Special accounting rules. The
Commission shall have the authority, subject to
the approval of the Minister of Finance to make,
amend and rescind such accounting rules and
regulations as may be necessary to carry out the
provisions of this Act, including rules and
regulations governing registration statements
and prospectuses for various classes of securities
and issuers, and defining accounting, technical,
and trade terms used in this Act. Among other
things, the Commission shall have authority, for
the purpose of this Act, to prescribe, with the
approval of the Minister of Finance, the form or
forms in which required information shall be set
forth, the items or details to be shown in the
balance sheet and earning statement, and the
methods to be followed in the preparation of
accounts, appraisal or valuation of assets and
liabilities, determination of depreciation and
depletion, differentiations of recurring and
nonrecurring
income,
differentiation
of
investment and operating income, and in the
preparation, where the Commission deems it
necessary or desirable, of consolidated balance
sheets or income accounts of any person directly
or indirectly controlling or controlled by the
issuer, or any person under direct or indirect
common control with the issuer.
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Sec. 49. Revelation of information filed with the

Commission. (a) All information filed with the
Commission in compliance with the requirements
of this Act shall be made available to any member
of the general public, upon request, in the
premises and during regular office hours of the
Commission, except as set forth in this Section.
chanrobles virtual law library
(b) Nothing in this Act shall be construed to
require, or to authorize the Commission to
require, the revealing of trade secrets or
processes in any application, report, or document
filed with the Commission. chanrobles virtual law
library
(c) Any person filing any such application, report
or document may make written objection to the
public disclosure of information contained
therein, stating the grounds for such objection,
and the Commission is authorized to hear
objections in any such case as it deems advisable.
The Commission may, in such cases, make
available to the public the public the information
contained in any such application, report, or
document only when a disclosure of such
information is required in the public interest or
for the protection of investors; and copies of
information so made available may be furnished
to any person having a legitimate interest therein
at such reasonable charge and under such
reasonable limitations as the Commission may
prescribe. chanrobles virtual law library
(d) It shall be unlawful for any member, officer,
or employee of the Commission to disclose to any
person other than a member, officer or employee
of the Commission or to use for personal benefit,
any information contained in any application,
report, or document filed with the Commission
which is not made available to the public
pursuant to subsection (c) of this Section.
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Sec. 50. Effects of action of Commission and

unlawful representations with respect thereto.
No action or failure to act by the Commission in
the administration of this Act shall be construed
to mean that the Commission has in any way
passed upon the merits of or given approval to
any security or any transaction or transactions
therein, nor shall such action or failure to act with
regard to any statement or report filed with or
examined by the Commission pursuant to this Act
or the rules and regulations thereunder to be
deemed a finding by the Commission that such
statement or report is true and accurate on its
face or that it is not false or misleading. It shall be
unlawful to make, or to cause to be made, to any
prospective purchaser or seller of a security any
representation that any such action or failure to
act by the Commission is to be so construed or
has such effect. chanrobles virtual law library

regulations as may be necessary or appropriate in

the public interest or for the protection of
investors which will govern (1) class actions
involving any violation of this Act or the rules
promulgated by the Commission, (2) the
consolidation of actions brought pursuant to this
Act or rules promulgated by the Commission, and
(3) the compensation of counsel in class actions.
chanrobles virtual law library

Nothing herein contained shall, however, be

construed as an exemption from liability of any
employee or officer of the Commission for any
nonfeasance, misfeasance or malfeasance in the
discharge of his officials duties. chanrobles
virtual law library

(b) Every contract made in violation of any

provision of this Act or of any rule or regulation
thereunder, and every contract, including any
contract for listing a security on an exchange
heretofore or hereafter made, the performance
of which involves the violation of, or the
continuance of any relationship or practice in
violation of, any provision of this Act, or any rule
or regulation thereunder, shall be void:

Sec. 51. Effect on existing law. The rights and

remedies provided by this Act shall be in addition
to any and all other rights and remedies that may
now exist. However, except as provided in
Section twelve hereof, no person permitted to
maintain a suit for damages under the provisions
of this Act shall recover, through satisfaction of
judgment in one or more actions, a total amount
in excess of his actual damages on account of the
act complained of: Provided, That the court may
award exemplary damages in cases of bad faith,
fraud, malevolence or wantonness in the
violation of this Act or the rules and regulations
promulgated thereunder. chanrobles virtual law
library
Sec. 52. Class actions; consolidation of actions.
The Commission may promulgate rules and

Sec. 53. Validity of contracts. (a) Any

conditions, stipulation, provision binding any
person to waive compliance with any provision of
this Act or of any rule or regulation thereunder,
or of any rule of an exchange required thereby, as
well as the waiver itself, shall be void.

(1) As regards the rights of any person who, in

violation of any such provision, rule or regulation,
shall have made or engaged in the performance
of any such contract; and chanrobles virtual law
library
(2) As regards the rights of any person who, not
being a party to such contract, shall have
acquired any right thereunder with actual
knowledge of the facts by reason of which the
making or performance of such contract was in
violation of any such provision, rule or regulation.
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173

(c)Nothing in this Act shall be construed:

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(1) To effect the validity of any loan or extension

of credit made or of any lien created prior or
subsequent to the effectivity of this Act, unless at
the time of the making of such loan or extension
of credit or the creating of such lien, the person
making such loan or extension of credit or
acquiring such lien shall have actual knowledge of
the facts by reason of which the making of such
loan or extension of credit or the acquisition of
such lien is a violation of the provisions of this Act
or any rules or regulations thereunder, or
chanrobles virtual law library
(2) To afford a defense to the collection of any
debt, obligation or the enforcement of any lien by
any person who shall have acquired such debt,
obligation or lien in good faith, for value and
without actual knowledge of the violation of any
provision of this Act or any rule or regulation
thereunder affecting the legality of such debt,
obligation or lien. chanrobles virtual law library

Sec. 54. Additional fees of stock exchanges. In

addition to the registration fee prescribed in
Section 22 of this Act, every securities exchange
shall pay to the Commission, on or before March
fifteen of each calendar year, a fee in an amount
not more than one one-hundredth of one per
centum of the aggregate amount of the sales of
securities transacted on such securities exchange
during the preceding calendar year, for the
privilege of doing business as a securities
exchange, during the preceding calendar year or
any part thereof.
Sec. 55. Effectivity of rules and regulations.
The rules and regulations promulgated by the
Commission shall be published in two

newspapers of general circulation in the

Philippines or in the Official Gazette, at the
option of the Commission, and unless otherwise
prescribed by the Commission, the same shall be
effective fifteen (15) days after the date of last
publication. chanrobles virtual law library
Sec. 56. Penalties. Any person who violates
any of the provisions of this Act, or the rules and
regulations promulgated by the Commission
under authority thereof, or any person who, in a
registration statement filed under this Act, makes
any untrue statement of a material fact or omits
to state any material fact required to be stated
therein or necessary to make the statements
therein not misleading, shall, upon conviction,
suffer a fine of not less than five thousand
(P5,000.00) pesos nor more than five hundred
thousand (P500,000.00) pesos or imprisonment
of not less than seven (7) years nor more than
twenty one (21) years, or both in the discretion of
the court. If the offender is a corporation,
partnership or association or other juridical
entity, the penalty shall be imposed upon the
officer or officers of the corporation, partnership,
association or entity responsible for the violation,
and if such officer is an alien, he shall, in addition
to the penalties prescribed, be deported without
further proceedings after service of sentence.
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Sec.
57.
Transitory provisions. The
Commission, reorganized pursuant to Presidential
Decrees Numbered 902-A, 1653, 1758 and 1799,
shall continue to exist and exercise its powers,
functions and duties until otherwise provided by
law. chanrobles virtual law library
All securities which at the time of the effectivity
of this Act have been registered with the
Commission and have been permitted to be sold
under the provisions of Commonwealth Act No.
83, as amended, shall be considered as registered
and permitted to be sold under this Revised
Securities Act: Provided, however, That any
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further requirements of this Act shall be complied

with within such reasonable time as the
Commission may determine but not exceeding
one year from the approval of this Act.
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Violations committed prior to the effectivity of
this Act shall be punished in accordance with the
provisions of the laws then in force.
Sec. 58. Separability provisions. If any
provision of this Act shall be held invalid, the
remainder of the Act not otherwise affected shall
remain in full force and effect. chanrobles virtual
law library
Sec. 59. Repealing clause. Commonwealth Act
No. Eighty-three, as amended, is hereby repealed
in its entirely. All other laws, orders, rules and
regulations, or parts thereof, inconsistent with
any provision of this Act are hereby repealed or
modified accordingly.
Sec. 60. Effectivity date. This Act shall take
effect immediately upon its approval.
________________________________________
PRESIDENTIAL DECREE No. 902-A
1976

March

11,

REORGANIZATION OF THE SECURITIES AND

EXCHANGE COMMISSION WITH ADDITIONAL
POWER AND PLACING THE SAID AGENCY UNDER
THE ADMINISTRATIVE SUPERVISION OF THE
OFFICE OF THE PRESIDENT

WHEREAS, in line with the government's policy of

encouraging investments, both domestic and
foreign, and more active public participation in
the affairs of private corporations and enterprises
through which desirable activities may be
pursued for the promotion of economic
development; and, to promote a wider and more

meaningful equitable distribution of wealth,

there is a need for an agency of the government
to be invested with ample powers to protect such
investment and the public;

WHEREAS, to achieve these national objectives, it

is necessary to reorganize and restructure the
Securities and Exchange Commission to make it a
more potent, responsive and effective arm of the
government to help in the implementation of
these programs and to play a more active role in
national-building;

WHEREAS, it is necessary and desirable to

professionalize such agency by investing it with
adequate powers so that it could avail itself of
the services of highly technical and qualified men
in the government service;

NOW, THEREFORE, I, FERDINAND E. MARCOS,

President of the Republic of the Philippines, by
virtue of the powers vested in me by the
Constitution, do hereby order and decree that:

Section 1. The administrative supervision of the

Securities and Exchange Commission is hereby
transferred from the Department of Trade and
shall hereafter be under the direct general
supervision of the President.

Section 2. That the Commission shall be a

collegial body composed of a Chairman and two
(2) Associate Commissioners who shall be
appointed by the President and the tenure of the
office of each member shall be seven (7) years:
Provided, however, That the Chairman and the
Members of the Commission first appointed by
the President shall serve for a period of seven (7)
175

years, five (5) years and three (3) years, as fixed in

their respective appointments: Provided, further,
That upon the expiration of his term, a Member
shall serve as such until his successor shall have
been appointed and qualified: and Provided,
Finally, that no vacancy shall be filled except for
the unexpired portion of the term. The Chairman
shall receive an annual salary of Fifty Thousand
(P50,000.00) Pesos and a monthly allowance of
Two Thousand (P2,000.00) Pesos and each
Member shall receive an annual salary of FortyTwo Thousand Five Hundred (P42,500.00) Pesos
and a monthly commutable allowance of One
Thousand Five Hundred (P1,500.00) Pesos.

The Commission shall meet as often as may be

necessary on such day or days as the Chairman
may fix. The notice of the meeting shall be given
to all members of the Commission and the
presence of at least two (2) shall constitute a
quorum. In the absence of the Chairman, the
more senior associate commissioner shall act as
presiding officer of the meeting.

The Chairman shall have the general executive

control, direction and supervision of the work and
operation of the Commission and of its members,
bodies, boards, personnel and all of its
administrative business.

There shall be a Secretary of the Commission,

under the control and direction of the Chairman,
who shall be in charge of all the administrative
business of the Commission and shall perform
such other duties and functions as may be
assigned to him. He shall be the recorder and
official reporter of the proceedings of the
Commission and shall have authority to
administer oath in all matters coming under the
jurisdiction of the Commission. He shall be the

custodian of all records, profiles, reports, minutes

and other documents and papers filed with the
Commission or entrusted to his care and shall be
responsible therefor to the Commission.

There shall be an Executive Director of the

Commission who shall be responsible for the
effective implementation of the policies, rules
and standards promulgated by the Commission,
to coordinate and supervise the activities of the
different operating units; to report to the
Chairman the operations of such units; to report
to the Chairman the operations of such units; and
to perform such functions as may be assigned to
him by the Chairman and/or by Commission. The
position of the Executive Director is hereby
declared primarily confidential in nature.

Section 3. The Commission shall have absolute

jurisdiction, supervision and control over all
corporations, partnerships or associations, who
are the grantees of primary franchise and/or a
license or permit issued by the government to
operate in the Philippines; and in the exercise of
its authority, it shall have the power to enlist the
aid and support of any and all enforcement
agencies of the government, civil or military.

Section 4. The Commission shall reorganize and

restructure the present staff and personnel of the
agency. The proposed staffing pattern of the
Commission with the corresponding salary scale,
attached as Annex "A" is hereby approved:
Provided, That except as to the technical staff and
such other positions as the Commission, with the
approval of the President, may declare to be
highly technical, policy-determining or primarily
confidential, all positions in the Commission are
subject to the Civil Service Law and Rules.

176

Section 5. In addition to the regulatory and

adjudicative functions of the Securities and
Exchange Commission over corporations,
partnerships and other forms of associations
registered with it as expressly granted under
existing laws and decrees, it shall have original
and exclusive jurisdiction to hear and decide
cases involving.

a)
Devices or schemes employed by or any
acts, of the board of directors, business
associates, its officers or partnership, amounting
to fraud and misrepresentation which may be
detrimental to the interest of the public and/or of
the stockholder, partners, members of
associations or organizations registered with the
Commission.

b)
Controversies arising out of intracorporate or partnership relations, between and
among stockholders, members, or associates;
between any or all of them and the corporation,
partnership or association of which they are
stockholders,
members
or
associates,
respectively; and between such corporation,
partnership or association and the state insofar as
it concerns their individual franchise or right to
exist as such entity;

c)
Controversies in the election or
appointments of directors, trustees, officers or
managers of such corporations, partnerships or
associations.

Section 6. In order to effectively exercise such

jurisdiction, the Commission shall possess the
following powers:

a)
To issue preliminary or permanent
injunctions, whether prohibitory or mandatory, in
all cases in which it has jurisdiction, and in which
cases the pertinent provisions of the Rules of
Court shall apply;

b)
To punish for contempt of the
Commission, both direct and indirect, in
accordance with the pertinent provisions of, and
penalties prescribed by, the Rules of Court;

c)
To compel the officers of any corporation
or association registered by it to call meetings of
stockholders or members thereof under its
supervision;

d)
To pass upon the validity of the issuance
and use of proxies and voting trust agreements
for absent stockholders or members;

e)
To issue subpoena duces tecum and
summon witnesses to appear in any proceedings
of the Commission and in appropriate cases order
search and seizure or cause the search and
seizure of all documents, papers, files and records
as well as books of accounts of any entity or
person under investigation as may be necessary
for the proper disposition of the cases before it;

f)
To impose fines and/or penalties for
violation of this Decree or any other laws being
implemented by the Commission, the pertinent
rules and regulations, its orders, decisions and/or
rulings;

g)
To authorize the establishment and
operation of stock exchanges, commodity
177

exchanges and such other similar organization

and to supervise and regulate the same; including
the authority to determine their number, size and
location, in the light of national or regional
requirements for such activities with the view to
promote, conserve or rationalize investment;

4.
Continuous in operation for a period of at
least five (5) years;

h)
To pass upon, refuse or deny, after
consultation with the Board of Investments,
Department of Industry, National Economic and
Development Authority or any other appropriate
government agency, the application for
registration of any corporation, partnership or
association or any form of organization falling
within its jurisdiction, if their establishment,
organization or operation will not be consistent
with the declared national economic policies.

6.
Failure to file required reports in
appropriate forms as determined by the
Commission within the prescribed period;

i)
To suspend, or revoke, after proper notice
and hearing, the franchise or certificate of
registration of corporations, partnerships or
associations, upon any of the grounds provided
by law, including the following:

1.
Fraud in procuring its certificate of
registration;

2.
Serious misrepresentation as to what the
corporation can do or is doing to the great
prejudice of or damage to the general public;

3.
Refusal to comply or defiance of any
lawful order of the Commission restraining
commission of acts which would amount to a
grave violation of its franchise;

5.
Failure to file by-laws within the required
period;

j)
To exercise such other powers as implied,
necessary or incidental to the carrying out the
express powers granted to the Commission or to
achieve the objectives and purposes of this
Decree.

In the exercise of the foregoing authority and

jurisdiction of the Commission, hearings shall be
conducted by the Commission or by a
Commissioner or by such other bodies, boards,
committees and/or any officer as may be created
or designated by the Commission for the
purpose. The decision, ruling or order of any such
Commissioner, bodies, boards, committees
and/or officer may be appealed to the
Commission sitting en banc within thirty (30) days
after receipt by the appellant of notice of such
decision, ruling or order. The Commission shall
promulgate rules of procedures to govern the
proceedings, hearings and appeals of cases falling
within its jurisdiction.

The aggrieved party may appeal the order,

decision or ruling of the Commission sitting en
banc to the Supreme Court by petition for
petition for review in accordance with the
pertinent provisions of the Rules of Court.
178

Section 7. The Commission is authorized to

recommend to the President the revision,
alteration, amendment or adjustment of the
charges and fees, which by law, it is authorized to
collect.

Section 8. With the approval of the President, the

Commission is further authorized to create
additional positions as it may deem necessary to
carry out the provisions and intents of this
Decree.

are hereby repealed, amended or modified

accordingly.

This decree shall take effect immediately.

Done in the City of Manila, this 11th day of

March, in the year of Our Lord, nineteen hundred
and seventy-six.

ANNEX "A"
Section 9. So much amount as may be needed to
implement the provisions of this Decree taken
from the income of the Commission not to
exceed twenty-five (25%) per cent thereof and
any unexpended balance in the current
appropriation is hereby authorized to be
appropriated.

Section 10. When the exigency of the service so

requires and with the approval of the President,
funds may be set aside from the appropriation
provided for the Commission and/or from the
fees collected under existing laws, decrees, rules
and regulations to defray expenses to be incurred
by the Commission.

Section 11. The Commission shall submit an

annual report to the President of the Philippines
not later than January 31 of each year with such
recommendations as may be necessary.

Section 12. All laws, executive orders, decrees,

rules and regulations or parts thereof, contrary to
or inconsistent with the provision of this Decree

REVISED STAFFING PATTERN

SECURITIES AND EXCHANGE COMMISSION

One Chairman, Securities
Commission P50.000 p.a.

and

Exchange

Two members, Securities and Exchange

Commission @ P42,500 p.a. 85,000 p.a.
One

SEC executive
27,600 p.a.

One Auditor
One

director

(Confidential)

27,600 p.a.

director, corporate
24,000 p.a.

and

legal

Dept.

One director, brokers and exchanges Dept.

24,000 p.a.
One director, examiner and appraisers Dept.
24,000 p.a.
One director, investments and research Dept.
24,000 p.a.
One director, money market operations Dept.
24,000 p.a.
179

One chief administrative and finance Dept.

24,000 p.a.
One Secretary to the Commission

24,000 p.a.

One assistant SEC executive director 20,580 p.a.

One assistant auditor 19,800 p.a.

10,260 p.a.

One supply and property officer

10,260 p.a.

One administrative assistant 10,260 p.a.

One EDP programmer 9,756 p.a.
One audit examiner 9,600 p.a.

Seventeen supervising securities exchange special

@ P19,584 p.a.
332,928 p.a.
One special assistant on public information
16,860 p.a.
Seventeen senior securities exchange special @
P15,264 p.a. 259,488 p.a.
One budget and fiscal planner

One training officer

15,264 p.a.

Seventeen securities exchange researcher @

P7,236 p.a. 123,012 p.a.
One dentist

9,288 p.a.

One cashier

8,832 p.a.

One disbursing and collecting officer 7,236 p.a.

One personal assistant

7,236 p.a.

One chief accountant 15,264 p.a.

One records assistant 7,236 p.a.

One assistant secretary to the Commission

15,264 p.a.

One liaison officer

7,236 p.a.

One budget examiner 6,888 p.a.

One chief personnel officer 14,532 p.a.
One head data transcriber
One senior audit examiner

One bookkeeper
Twenty-five securities exchange specialist @
P13,824 p.a. 345,600 p.a.
One

private secretary
13,152 p.a.

II

Three stenographic reporter @ P6,888 p.a.

20,662 p.a.
Eight secretaries @ P6,888 p.a.

12,516 p.a.

One clinic physician

12,516 p.a.

One records officer

12,516 p.a.

Two private secretary I @ P10,776

(Confidential) 21,552 p.a.
10,260 p.a.

One audit clerk

55,104 p.a.

6,000 p.a.

Eight stenographers @ P5,928 p.a. 47,424 p.a.

Four supervising clerk @ P5,928 p.a. 23,712 p.a.
Eight senior clerk @ P5,640 p.a.

45,120 p.a.

Two personnel clerk @ P5,640 p.a. 11,280 p.a.

Thirty-four securities exchange analyst I @

P11,328 p.a. 385,152 p.a.

One budget officer

6,888 p.a.

(Confidential)

Thirty-four securities exchange analyst II @

P12,516 p.a. 425,544 p.a.
One administrative officer

6,888 p.a.

14,400 p.a.

p.a.

Two accounting clerk @ P5,640 p.a. 11,280 p.a.

One librarian 5,640 p.a.
One supply and property clerk

5,640.p.a.

Nine data transcriber @ P5,640 p.a. 50,760 p.a.

180

Two statistical aide @ P4,632 p.a.

9,264 p.a.

Three cash clerk @ P4,632 p.a.

13,896 p.a.

Forty clerk @ P4,632 p.a.

185,280 p.a.

One duplicating equipment operator 4,632 p.a.

Two security guard @ P4,632 p.a.
One driver

9,264 p.a.

4,632 p.a.

One photographer

4,404 p.a.

One illustrator 4,404 p.a.

Seven messenger @ P3,984 p.a.
Six janitor @ P3,984 p.a.

27,888 p.a.

23,904 p.a.

Seven laborer @ P3,984 p.a. 27,888 p.a.

Total 3,160,344 p.a.
Total number of positions

303 positions

mandate of ensuring strict compliance with the

requirements of just and humane demolition and
eviction under the Urban Development and
Housing Act of 1992;
WHEREAS, pursuant to the established policy of
local autonomy and decentralization, there is a
need to devolve the functions and mandate of the
Presidential Commission for the Urban Poor
(PCUP) to the respective Local Government Units
(LGUs) In whose territorial Jurisdiction the
proposed demolition and eviction activities of all
government agencies are to be undertaken.
NOW, THEREFORE, I, GLORIA-MACAPAGAL
ARROYO, President of the Republic of the
Philippines, by virtue of the powers vested in me
by law, do hereby order:
SECTION 1. Devolution of Clearinghouse
functions. The clearinghouse functions of the
PCUP stated in Section 1 of Executive Order No.
152, series of 2002, are hereby devolved to the
respective cities and municipalities in whose
territorial jurisdiction the proposed demolition and
eviction activities of government agencies are to
be undertaken.

________________________________________

EXECUTIVE ORDER NO. 708

AMENDING EXECUTIVE ORDER NO. 152,
SERIES OF 2002, AND DEVOLVING THE
FUNCTION OF THE PRESIDENTIAL
COMMISSION FOR THE URBAN POOR AS
THE CLEARING HOUSE FOR THE CONDUCT
OF DEMOLITION AND EVICTION ACTIVITIES
INVOLVING THE HOMELESS AND
UNDERPRIVILEGED CITIZENS TO THE
RESPECTIVE LOCAL GOVERNMENT UNITS
(LGUs) HAVING TERRITORIAL JURISDICTION
OVER THE PROPOSED DEMOLITION AND
EVICTION ACTIVITES OF GOVERNMENT
AGENCIES
WHEREAS, Executive Order No. 152, series of
2002, designated the Presidential Commission for
the Urban Poor (PCUP) as the sole clearing
house for the conduct of demolition and eviction
activities
involving
the
homeless
and
underprivileged citizens;
WHEREAS, Executive Order No 152, series of
2002, granted the Precedential Commission for
the Urban Poor (PCUP) such powers to fulfill Its

SECTION 2. Creation of Local Housing

Boards. The Local Government Units must
create their own Local Housing Boards or any
similar body through an appropriate ordinance
before conducting the clearinghouse functions
granted to them in this Executive Order.
SECTION 3. Guidelines in the enactment of
ordinance. The Department of Interior and Local
Government (DILG) is hereby ordered to issue
the necessary guidelines for the enactment of
ordinances creating Local Housing Boards or any
similar body to Local Government Units (LGUs)
within six (6) months from the effectivity of this
Executive Order. The PCUP shall assist the Local
Government Units in enacting the ordinances in
whatever capacity they can provide within the
same period.
SECTION 4 Residual Functions. The PCUP
shall continue with its monitoring and reporting
functions. However, all clearinghouse functions,
including issuance of notices and clearances to
affected families shall be the primary
responsibility of the Local Government Unit
concerned. Thepowers and functions mentioned
in subsections 4 to 11 of Section 1 and Section 9
of Executive Order No. 152, series of 2002, shall
remain with the PCUP.
181

SECTION 5. All other orders, issuances or

portions thereof, which are inconsistent with this
Executive Order are hereby revoked, amended or
modified accordingly.

(a) To develop and maintain a sound financial

sector for the country;

SECTION 6. This Executive Order shall take

effect immediately.

(b) To address the non-performing

problems of the financial sector;

DONE in the City of Manila, this 26th day of

February, in the year of Our Lord, Two Thousand
and Eight.

_______________________________________

Republic Act No. 9182

December 23, 2002

AN ACT GRANTING TAX EXEMPTIONS AND FEE

PRIVILEDGES TO SPECIAL PURPOSE VEHICLES
WHICH ACQUIRE OR INVEST IN NONPERFORMING ASSETS, SETTING THE REGULATORY
FRAMEWORK THEREFOR, AND FOR OTHER
PURPOSES

Be it enacted by the Senate and House of

Representatives of the Philippines in Congress
assembled:

asset

(c) To encourage private sector investments in

non-performing assets;

(d) To eliminate existing barriers in the

acquisition of non-performing assets

(e) To help in the rehabilitation of distressed

business with the end in view of contributing to
economic value added; and

(f) To improve the liquidity of the financial system

which can be harnessed to propel economic
growth.

Section 3. Definition of Terms. For Purpose of

this Act, the term:
ARTICLE 1

GENERAL PROVISIONS

SECTION 1. Title. This Act shall be known as

"The Special Purpose Vehicle (SPV) Act of 2002".

Section 2. Declaration of Policy. It is hereby

declared the policy of the state:

(a) "Approval Certificate" means the certificate of

approval or authority issued by the Commission
to an application by an SPV to issue Investment
Unit Instruments (IUIs), pursuant to the
provisions of this Act.

(b) "Approved Plan" means an SPV Plan for which

an Approval Certificate has been issued by the
Commission.

182

(c) "BSP" refers to the Banko Sentral ng Pilipinas.

(d) "Commission" refers to the Securities and

Exchange Commission

(e) "Financial Institutions or Ifs" means creditgranting institutions which shall be limited to the
following:

Security System (SSS), Government Service

Insurance System (GSIS), Trade and Investment
Development Corporation (TIDCORP), Small
Business Guarantee and Finance Corporation
(SBGFC), Technology and Livelihood Resource
Center (TLRC), Livelihood Corporation (LIVECOR),
National Development Corporation (NDC),
Quedan and Rural Credit Guarantee Corporation
(QUEDANCOR), National Housing Authority
(NHA), and Armed Forces of the PhilippinesRetirement and Separation Benefits System (AFP(RSBS); and

(1) the BSP;

(2) a bank as defined under Republic Act No.8791,

also known as "The General Banking Law";

(3) a financing company as defined under

Republic Act No. 8556, also known as "The
Financing Company Act of 1998";

(4) an investment house as defined in Presidential

Decree No. 129, also known as "The Investment
Houses Law";

(5) government financial institutions (GFIs), which

for purposes of this Act, shall be limited to the
Philippine Deposit Insurance Corporation (PDIC),
Land Bank of the Philippines (LBP), and
Development Bank of the Philippines (DBP);

(6)
government-owned-or-controlledcorporations (GOCCs),which for purposes of this
Act, shall be limited to the National Home
Mortgage Finance Corporation (NHMFC), Home
Guarantee
Corporation
(HGC),
Home
Development Mutual Fund (HDMF), Social

(7) other institutions licensed by the BSP to

perform quasi-banking functions.

(f) "Investment Unit Instruments or IUIs" refers to

participation certificates, debt instruments or
similar instruments issued by the SPV and
subscribed by Permitted Investors as provided in
Section 11 hereof, pursuant to an Approved Plan:
Provided, That these shall not include the
instruments to be issued by the SPV to the selling
FIs as full or partial settlement of the nonperforming assets transferred to the said SPV:
Provided, further, That such issuances of the SPV
shall not be considered as deposit substitutes:
Provided, finally, That these shall not form part of
the capital stock of the SPV.

(g) "Non-Performing Assets or NPAs" consist of

the Non-Performing Loans and Real and Other
Properties Owned or Acquired by FIs.

(h) "Non-Performing Loans or NPLs" refers to

loans and receivables such as mortgage loans,
unsecured loans, consumption loans, trade
receivables, lease receivables, credit card
receivables and all registered and unregistered
183

security and collateral instruments, including but

not limited to, real state mortgages, chattel
mortgages, pledges and antichresis, whose
principal and/or interest have remained unpaid
for at least one hundred and eighty (180) days
after they have become past due or any of the
events of default under the loan agreement has
occurred.

(i) "ROPOAs" refers to real and other properties

owned or acquired by an FI in settlement of loans
and receivables, including real properties, shares
of stocks, and chattels formerly constituting
collateral's for secured loans which have been
acquired by way of dation in payment (dacion en
pago) or judicial or extra-judicial foreclosure or
execution of judgement.

(j) "SPV" means the special Purpose Vehicle

created pursuant to the provisions of this Act.

(k) "SPV Plan" refers to the plan submitted to and

approved by the Commission as pre-requisite to
the issuance of an IUI.

(l) "True Sale" refers to a sale wherein the selling

FI transfers or sells its NPAs without recourse for
cash or property to an SPV with the following
results:

Provided, That the transferring FI shall not have

direct or indirect management of the transferee
SPV: Provided, further, That the selling FI does
not posses a claim of beneficial ownership of
more than five percent (5%) in the transferee
SPV.

ARTICLE II

Special Purpose Vehicle

Section 4. Special Purpose Vehicle. An SPV shall

be organized as stock corporation in accordance
with Batas Pambansa Blg. 68, otherwise known as
"The Corporation Code of the Philippines" and
the rules promulgated by the Commission for
purposes of registering the SPV: Provided, That if
the SPV will acquire land, at least sixty percent
(60%) of its outstanding capital stock shall be
owned by Philippines nationals pursuant to
Republic Act No7042, as amended, otherwise
known as "The Foreign Investment Act".

Section 5. Powers of an SPV. An SPV shall have

the following powers:

(a) To invest in, or acquire NPAs of FIs;

(1) The transferor relinquishes effective control
over the transferred NPAs; and

(2) The transferred NPAs are legally isolated and

put beyond the reach of the transferor and its
creditors"

(b) To engage third parties to manage, operate,

collect and dispose of NPAs acquired from an FI;

(c) To rent, lease, hire, pledge, mortgage,

transfer, sell, exchange, usufruct, secure,
securitize, collect rents and profits, and other
184

similar acts concerning its NPAs acquired from an

FI;

(d) In case of NPLs, to restructure debt, condone

debt and undertake other structuring debt, the
SPV may reduce the principal, interest, interest
rates, and the period for calculating the interest,
extend the time for debt repayment or relax the
conditions for debt repayment, agree to the
conversion of the borrowers debt to equity in the
borrower's business, agree to a transfer of assets
or claims from the borrower t repay the debtor
dispose of some of the borrower's property or
claims to third persons;

(e) To take, transfer shares or buy shares issued

by the borrower for the purpose of business
reorganization or rehabilitation of the borrower,
subject to the provisions of the Corporation Code
in respect of the rights of the shareholders of the
borrower company, and apply any other
measures or restructuring techniques with the
approval of the Commission;

(f) To enter into dation in payment (dation en

pago) arrangements, foreclose judicially or extrajudicially and other forms of debt settlement
involving NPLs;

(g) To spend funds to renovate, improve,

complete or alter its NPAs acquired from an FI;

(h) To issue equity or participation certificates or

other forms of IUIs for the purpose of acquiring,
managing, improving and disposing of its NPAs
acquired from an FI;

(i) To borrow money and issue other instruments

of indebtedness for the purpose of paying
operational administrative costs;

(j) To guarantee credit, accept or intervene for

honor the bills of borrowers;

(k) To advance funds to borrowers where

required by an acquired asset or any debt
restructuring agreement pursuant thereto, or
under any court order or rehabilitation plan; and

(l) To entrust to third parties asset servicing

company, the collection and receipt of the debt
payments for debts under debt restructuring
business reorganization, management and
disposition of assets of the SPV in accordance
with the rules, procedures and conditions
prescribed by the Commission or by the courts.
Except in the case of ROPOAs whose redemption
periods have already expired, the SPV shall notify
the borrower and all persons holding prior
encumbrances upon the properties or a part
thereof or are actually holding the same
adversely to the borrower within fifteen (15) days
from the date of the appointment of the said
collection agent.

Section 6. Period for Filing of Applications.

Applications for the establishment and
registration of an SPV shall be filed with the
Commission not beyond eighteen (18) months
from the date of approval of the Implementing
Rules and Regulations (IRR) by the Congressional
Oversight Committee (COC) created in Section 23
Hereof.

185

Section 7. Authorized, Subscribed and Paid-Up

Capital of the SPV. An SPV shall have a
minimum authorized capital stock of Five
hundred million pesos (P500, 000,000.00), with a
minimum subscribed capital stock of One
hundred twenty five million pesos (P125,
000.000.00), and a minimum paid-up capital of
Thirty-one million two hundred fifty thousand
pesos (P31, 250.00).

Section 8. Submission of SVP Plan. After the

establishment of an SPV pursuant to Section 4
hereof, an SPV Plan shall be submitted to the
Commission for approval, which shall include the
following:

(h) Draft form of financial reports of the SPV;

(i) Details of distribution policies;

(j) Methods for the increase and decrease of

future fund contribution;

(k) Methods for the alteration or modification of

the approved SPV Plan;

(l) Methods for the liquidation and distribution of

assets to the holders of IUIs;
(a) Investment policies of the SPV;

(b) Contribution plan including the amounts and

draft of subscription documents;

(m) Details of credit enhancements like

guarantees or standby letters of credit or
advances that may be extended to the SPV by an
entity which shall not be the selling FI, its parent,
subsidiaries or affiliates; and

(c) Features of the IUIs including the specific

amounts issued and/or to be issued;
(n) Such other documents or information as may
be required by the Commission.
(d) Rights of the holders of the IUIs;

(e) Draft agreements for the appointment of

trustees and agents with respect to the IUIs and
the NPLs acquired from an FI;

(f) Name of the external auditor of the SPV;

(g) Roles and responsibilities of the trustees,

advisors, loan servicers and property managers;

Section 9. Approval. Upon approval of the SPV

Plan, the Commission shall issue an Approval
certificate stating that the application has been
approved and that the IUIs may be issued.

Section 10. Issuances of IUIs. The SPV may be

allowed to issue IUIs subject to the rules and
regulations the Commission is herein mandated
to promulgate.

186

Section 11. Permitted Investors. Any person

may acquire or hold IUIs in an SPV in the
minimum amount of Ten million pesos (P10,
000.000.00); Provided, That an SPV shall not be
authorized to acquire the IUIs of another SPV:
Provided, further, That the parent, subsidiaries,
affiliates or stock-holders, directors, officers or
any related interest of the selling FI or the
parent's subsidiaries, affiliates or stock-holders,
directors, officers or any related interest shall not
acquire or hold, directly or indirectly, the IUIs of
the SPV that acquired the NPAs of the FI.

ARTICLE III

Transfer of Assets to SPV

Section 12. Notice and manner of Transfer of

Assets.

(a) No transfer of NPLs to an SPV shall take effect

unless the FI concerned shall give prior notice,
pursuant to the Rules of Court, thereof to the
borrowers of the NPLs and all persons holding
prior encumbrances upon the assets mortgaged
or pledged. Such notice shall be in writing to the
borrower by registered mail at their last known
address on file with the FI. The borrower and the
FI shall be given a period of at most ninety (90)
days upon receipt of notice, pursuant to the Rules
of Court, to restructure or renegotiate the loan
under such terms and conditions as may be
agreed upon by the borrower and the FIs
concerned.

(b) The transfer of NPAs from an FI to an SPV shall

be subject to prior certification of eligibility as
NPA by the appropriate regulatory authority

having jurisdiction over its operations, which shall

issue its ruling within forty-five (45) days from the
date of application by the FI for eligibility.

(c) After the sale or transfer of the NPLs, the

transferring FI shall inform the borrower in
writing at the last known address of the fact of
the sale or transfer of the NPLs.

Section 13. Nature of Transfer. All sales or

transfers of NPAs to an SPV shall be in the nature
of a true sale after proper notice in accordance
with the procedures as provided for in section 12:
Provided, That GFIs and GOCCs shall be subject to
existing law on the disposition of assets:
Provided, further, That in the transfer of the
NPLs, the provisions on subrogation and
assignment of credits under the New Civil Code
shall apply.

Section 14. Assumption of Rights and Obligations.

The SPV shall assume all rights and obligations
of the transferring FI.

ARTICLE IV

Incentives and Exemption Privileges

Section 15. Tax Exemptions and Fee Privileges.

Any existing law to the contrary notwithstanding
the transfer of NPAs from the FI to an SPV, and
from an SPV to a third party or dation in payment
(dacion en pago) by the borrower or by a third
party in favor of an FI or in favor of an SPV shall
be exempt from the following taxes:

187

(a) Documentary stamp tax on the above

mentioned transfer of NPAs and dation in
payment (dacion en pago) as may be imposed
under Title VII of the National Revenue Code of
1997;

(b) Capital gains tax on the transfer of lands

and/or other assets treated as capital assets as
defined under Section 39 (A)(1) of the National
Revenue Code of 1997;

(c) Creditable withholding income taxes imposed

on the transfer of land and/or buildings treated
as ordinary assets pursuant to Revenue
Regulation No. 2-98, as amended;

(d) Value-added tax on the transfer of NPAs as

may be imposed under Title IV of the National
Internal Revenue Code of 1997 or gross receipts
tax under Title V of the same Code, whichever is
applicable.

The abovementioned transfers shall also be

subject to the following in lieu of the applicable
fees:

(a) Fifty percent (50%) of the applicable mortgage

registration and transfer fees on the transfer of
real estate mortgage and chattel mortgage
registrations and to form the SPV, as imposed in
accordance with the existing circulars of the Land
Registration Authority (LRA);

(b) Fifty percent (50%) of the filing fees for any

foreclosure initiated by the SPV in relation to any
NPA acquired from an FI, as prescribed by the
Rules of Court; and

(c) Fifty percent (50%) of the land registration

fees prescribed under the existing circulars of the
LRA.

All sales or transfers of NPAs from the FIs to an

SPV or transfers by way of dation in payment
(dacion en pago) by the borrower or by a third
party to the FI shall be entitled to the privileges
enumerated herein for a period of not more than
two (2) years from the date of effectivity of the
IRR: Provided, That transfers from an SPV to a
third party of NPAs acquired by the SPV within
such two-year period or transfers by way of
dation in payment (dacion en pago) by a
borrower to the SPV shall enjoy the privileges
enumerated herein for a period of not more than
five (5) years from the date of acquisition by the
SPV: Provided, further, That properties acquired
by an SPV from GFIs or GOCCs which are devoted
to socialized or low-cost housing shall not be
converted to other uses.

The abovementioned tax exemptions, incentives,

and fee privileges given to FIs and SPV at the
various stages of the transactions under this
section shall likewise be extended to any
individual in accordance with the IRR: Provided,
That:

(i) The transaction is limited to a single family

residential unit ROPOA or NPL secured by real
estate mortgage on a residential unit;

(ii) There shall only be one transaction consisting

of one residential unit per individual; and

188

(iii) The two-year transfer and the five-year

entitlement period granted to NPA shall also
apply to said single family residential unit.

Section 16. Additional Tax Exemptions and Fee

Privileges. To encourage the infusion of capital
and/or financial assistance by the SPV for the
purpose of rehabilitating the borrower's business,
the following additional tax exemptions and
privileges shall be enjoyed:

NPAs within the two-year period from the

effectivity of the IRR may be carried over for a
period of five (5) consecutive taxable years
immediately following the year of such loss:
Provided, further, That for the purpose of
corporate gain or loss the carry-over shall be
subject to pertinent laws: Provided, finally, That
the tax savings derived by FIs from the NOLCO
shall not be made available for dividend
declaration but shall be retained as a form of
capital build-up.

(a) The SPV shall be exempt from income tax or

net interest income, documentary stamp tax and
mortgage registration fees on new loans in excess
of existing loans extended to borrowers with
NPLs which have been acquired by the SPV.

(b) The regulatory authority concerned shall

promulgate the necessary rules and regulations
governing the treatment of any loss of the FIs in
the books of account as a result of the transfer of
the NPAs.

(b) In case of capital infusion by the SPV to the

borrower with NPLs, the SPV shall also be exempt
from the documentary stamp tax.

(c) In the case of non-bank GFIs and GOCCs

enumerated in Section 3 hereof, the Department
of Finance (DOF), in consultation with the
Commission on Audit (COA), shall promulgate the
necessary rules and regulations governing the
treatment of any loss in their books of account as
a result of the transfer of their NPAs.

Provided, That the abovementioned tax

exemptions and fee privileges shall apply for a
period of not more than five (5) years from he
date of acquisition of NPLs by the SPV.

Section 17. Privileges of Participation FIs.

(a) Any loss that is incurred by the financial

institutions as a result of the transfer of NPAs
shall be treated as ordinary loss: Provided, That
the accrued interest and penalties shall not be
included as loss on said loss carry over from
operations subject to the provisions of the
National Internal Revenue Code of 1997 on net
operating loss carry-over (NOLCO), except that
the loss incurred by the FI from the transfer of

Section 18. Abuse of Tax Exemptions and

Privileges. Any person, natural or judicial, who
benefits from the tax exemptions and privileges
herein granted, when such person is not entitled
thereto, shall be subject to the penalties provided
in Section 25 hereof. In addition, the offender
shall refund to the government double the
amount of the tax exemptions and privileges
availed of under this Act, plus interest of twelve
percent (12%) per year from the date prescribed
for its payment until the full payment thereof.

ARTICLE V
189

Enforcement and Protection Provisions

Section 19. Redemption Periods. The

redemption periods allowed to borrowers under
Section 47 of Republic Act No. 8791, also known
as "The General Banking Law of 2000", the Rules
of Court and/or other laws shall be applicable.

BSP, the DOF, and the BIR shall draft and submit
to COC the IRR: Provided, That the Commission,
BSP, DOF and BIR may issue separate circulars
that will apply exclusively to the institutions
under respective jurisdiction, which shall not be
inconsistent with the IRR to be issued by the
Commission. Said IRR shall be submitted to the
COC which shall review, revise and approve the
same within a period of sixty (60) days from the
date of receipt thereof upon which the
Commission, in consultation with the BSP, DOF
and BIR shall promulgate the IRR.

ARTICLE VI

Reporting Provisions

Section 20. Books of Accounts and Records. - The

SPV shall set and keep accurate accounts and
internal financial controls and shall appoint an
external auditor acceptable to the Commissions
in this regard. The Commission, the BSP, and the
Bureau of Internal Revenue (BIR) may look into
the books of accounts and records of the SPV at
any time.

Section 21. Reports. The Commission, the

regulatory authorities, and the BIR shall prescribe
the submission of reports from the SPV and the
FIs for the proper implementation of this Act.

ARTICLE VII

Final Provisions

Section 22. Implementing Rules and Regulations.

Within sixty (60) days from the effectivity of this
Act, the Commission, in coordination with the

Section 23. Congressional Oversight Committee.

There is hereby created a COC composed of
seven (7) members from the Senate and seven (7)
members from the House of representatives. The
members from the Senate shall be appointed by
the Senate President based on the proportional
representation of the parties or coalitions therein
with at least two (2) Senators representing the
Minority. The COC shall have the power to
promulgate its own rules issued within sixty (60)
days from the promulgation of said Rules.

Section 24. Primary Implementing Agency. The

Commission shall be the primary implementing
agency of this Act and for its effective
implementation, it shall have the authority to
enlist the assistance of any branch, department,
bureau, office, agency or instrumentality of the
government, including GOCCs and GFIs which
may include the use and transfer of its personnel,
facilities and resources.

Section 25. Penalties. Any person who violates

any of the provisions of this Act, or any person
who, in a registration statement, notice,
certification or plan filed under this Act, makes
any untruthful statement of a material fact or
190

omits to state any material fact required to be

stated therein, shall, upon conviction, suffer a
fine of not less than Fifty thousand pesos (P50,
000.00) nor more than One million pesos (P1,
000,000.00) or imprisonment of not less than six
(6) years and one (1) day nor more than twelve
(12) years, or both, in the discretion of the court,
without prejudice to the penalties provided
under Section 18 hereof and other applicable
laws. If the offender is a corporation, association,
partnership or any judicial person, the penalty
shall be imposed upon the responsible officers, as
the case may be, who participated in the
commission of he crime or who shall have
knowingly permitted or failed to prevent its
commission. If the offender is a judicial person,
the court may order the suspension or revocation
of license. If the offender is an alien, he shall, in
addition to the penalties herein prescribed, be
deported without further proceedings after
serving the penalties herein prescribed. If the
offender is a public official or employee, he shall,
in addition to the penalties prescribed herein,
suffer absolute or temporary disqualification
from government or public office, as the case
may be.

establishment of an SPV in addition to its annual

budget and to what is provided for under Section
75 of the Securities Regulation Code.

Section 26. Applicability Clause. The provisions

of this Act shall be applicable to assets that have
become non-performing as of June 30, 2002.

Republic Act No. 9343

Section 27. Conscience Clause. - Nothing in this

Act shall be construed to condone or exempt
from any liability any person responsible for acts
or omissions constituting unsound business
practices or mismanagement.

Section 28. Use of Registration Fees. To carry

out the purpose of this Act, the Commission shall
retain and use all fees paid to it relative to the

Section 29. Separability Clause. If any provision

of this Act is held unconstitutional or invalid, all
other provisions not affected thereby shall
remain valid.

Section 30. Repealing Clause. All laws, decrees,

executive orders, rules and regulations or parts
thereof, which are inconsistent with this act, are
hereby repealed, amended or modified
accordingly.

Section 31. Effectivity. This Act shall take effect

fifteen (15) days following its publication in the
Official Gazette or in two (2) newspapers of
general circulation.

________________________________________

AN ACT AMENDING REPUBLIC ACT NO. 9182,

OTHERWISE KNOWN AS THE SPECIAL PURPOSE
VEHICLE ACT OF 2002 FOR THE PURPOSE OF
ALLOWING
THE
ESTABLISHMENT
AND
REGISTRATION OF NEW SPVs AND FOR OTHER
PUPOSES

Be it enacted by the Senate and House of

Representatives of the Philippines in Congress
assembled:

191

SECTION 1. Section 6 of Republic Act No. 9182 is

hereby amended to read as follows:

"SEC. 6. Period for filing of Applications. Applications for the establishment and
registration of an SPV shall be filed with the
Commission within eighteen (18) months from
the date of effectivity of this amendatory Act."

SECTION 2. Section 15 of the same Act is hereby

amended to read as follows:

"SEC. 15. Tax Exemptions and Fee Privileges.

Any existing law to the contrary notwithstanding
the transfer of NPAs from the FI to an SPV, and
from an SPV to a third party or dation in payment
(dacion en pago) by the borrower or by a third
party in favor of an FI or in favor of an SPV shall
be exempt from the following taxes:

"(a) Documentary stamp tax on the

abovementioned transfer of NPAs and dation in
payment (dacion en pago) as may be imposed
under Title VII of the National Internal Revenue
Code of 1997;

"(b) Capital gains tax imposed on the transfer of

lands and/or other assets treated as capital assets
as defined under Section 39 (A)(1) of the National
Internal Revenue Code of 1997;

"(c) Creditable withholding income taxes imposed

on the transfer of land and/or buildings treated
as ordinary assets pursuant to Revenue
Regulation No. 2-98, as amended;

"(d) Value-added tax on the transfer of NPAs as

may be imposed under Title IV of the National
Internal Revenue Code of 1997 or gross receipts
tax under Title V of the same Code, whichever is
applicable.

The abovementioned transfers shall also be

subject to the following in lieu of the applicable
fees:

"(a) Fifty percent (50%) of the applicable

mortgage registration and transfer fees on the
transfer of real estate mortgage and chattel
mortgage registrations to and form the SPV, as
imposed in accordance with the existing circulars
of the Land Registration Authority (LRA);

"(b) Fifty percent (50%) of the filing fees for any

foreclosure initiated by the SPV in relation to any
NPA acquired from an FI, as prescribed by the
Rules of Court; and

"(c) Fifty percent (50%) of the land registration

fees prescribed under the existing circulars of the
LRA.

All sales or transfers of NPAs from the FIs to an

SPV or transfers by way of dation in payment
(dacion en pago) by the borrower or by a third
party to the FI shall be entitled to the privileges
enumerated herein for a period of not more than
two (2) years from the date of effectivity of this
amendatory Act: Provided, That transfers from an
SPV to a third party of NPAs acquired by the SPV
within such two-year period or transfers by way
of dation in payment (dacion en pago) by a
borrower to the SPV shall enjoy the privileges
enumerated herein for a period of not more than
192

five (5) years from the date of acquisition by the

SPV: Provided, further, That properties acquired
by an SPV from GFIs or GOCCs which are devoted
to socialized or low-cost housing shall not be
converted to other uses.

The abovementioned tax exemptions, incentives,

and fee privileges given to FIs and SPV at the
various stages of the transactions under this
section shall likewise be extended to any
individual in accordance with the IRR: Provided,
That:

(i) The transaction is limited to a single family

residential unit ROPOA or NPL secured by real
estate mortgage on a residential unit;

SECTION 5. Effectivity. - This Act shall take effect

fifteen(150 days following its complete
publication in the Official Gazette or in at least
two newspapers of general circulation.
________________________________________

Republic Act No. 9267

March 19, 2004

AN ACT PROVIDING THE REGULATORY

FRAMEWORK
FOR
SECURITIZATION
AND
GRANTING FOR THE PURPOSE EXEMPTIONS
FROM THE OPERATION OF CERTAIN LAWS

Be it enacted by the Senate and House of

Representatives of the Philippines in Congress
assembled:

(ii) There shall only be one transaction consisting

of one residential unit per individual; and
ARTICLE 1
GENERAL PROVISIONS
(iii) The two-year transfer and the five-year
entitlement period granted to NPA shall also
apply to said single family residential unit.

SECTION 3. Separability Clause. - If any provision

of this Act is subsequently declared
unconstitutional, the validity of the remaining
provisions hereof shall remain in full force and
effect.

SECTION 4. Repealing Clause. - Any law,

presidential decree or issuance, executive order,
rule or regulation contrary to, or inconsistent
with the provisions of this Act is hereby repealed,
modified or amended accordingly.

SECTION 1. Short Title. - This Act shall be known

as "The Securitization Act of 2004".

SECTION 2. Declaration of Policy. - It is the policy

of the State to promote the development of the
capital market by supporting securitizaiton, by
providing a legal and regulatory framework for
securitization and by creating a favorable market
environment for a range of asset-backed
securities. For this purpose, the State shall
rationalize the rules, regulations, and laws that
impact upon the securitization process,
particularly on matters of taxation and sale of
real estate on installment. Furthermore, the State
shall pursue the development of a secondary
193

market, particularly for residential mortgagebacked securities and other housing-related

financial instruments, as essential to its goal of
generating investment and accelerating the
growth of the housing finance sector, especially
for socialized and low-income housing. The State
shall likewise pursue the development of a
secondary market for other types of asset-backed
securities (ABS).

SECTION 3. Definition of Terms. - For purpose of

this Act, the term:

(a) "Securitization" means the process by which

assets are sold on a without recourse basis by the
Seller to a Special Purpose Entity (SPE) and the
issuance of asset-backed securities (ABS) by the
SPE which depend, for their payment, on the cash
flow from the assets so sold and in accordance
with the Plan.

(b) Asset-backed securities (ABS)" refer to the

certificates issued by an SPE, the repayment of
which shall be derived from the cash flow of the
assets in accordance with the Plan.

(c) "Assets", whether used alone or in the term

"Asset-backed securities," refer to loans or
receivables or other similar financial assets with
an expected cash payment stream. The term
"Assets" shall include, but shall not be limited to,
receivables, mortgage loans and other debt
instruments: Provided, That receivables that are
to arise in the future and other receivables of
similar nature shall be subject to approval by the
Securities and Exchange Commission (SEC) or the
Bangko Sentral ng Pilipinas (BSP), as the case may
be: Provided, further, That the term "Assets" shall
exclude receivables from future expectation of

revenues by government, national or local, arising

from royalties, fees or imposts.

(d) "Asset Pool" means the group of identified,

homogeneous assets underlying the ABS.

(e) "Commission" refers to the Securities and

Exchange Commission (SEC).

(f) "Credit Enhancement" means any legally

enforceable scheme intended to improve the
marketability of the ABS and increase the
probability that the holders of the ABS receive
payment of amounts due them under the ABS in
accordance with the Plan.

(g) "Originator" means the person or entity which

was the original obligee of the Assets, such as
financial institution that grants a loan or a
corporation in the books of which the Assets
were created in accordance with the Plan.

(h) "Plan" means the plan for securitizations as

approved by the Commission

(i) "Secondary Mortgage Institution (SMI)" means

an entity created for the purpose of enhancing a
secondary market for residential mortgages and
housing-related ABS.

(j) "Seller" means the person or entity which

conveys to the SPE the Assets forming the Asset
Pool in accordance with the Plan. In most
instances, the Seller may itself be the Originator.

194

(k) "Servicer" refers to the entity designated by

the SPE to collect and record payments received
on the assets, to remit such collections to the
SPE, and perform such other services as may be
specifically required by the SPE, excluding asset
management or administration.

(l) "Special Purpose Entity (SPE)" means either a

Special Purpose Corporation (SPC) or a Special
Purpose Trust (SPT).

(m) "Special Purpose Corporation (SPC)" refers to

a juridical person created in accordance with the
Corporation Code of the Philippine solely for the
purpose of securitization and to which the Seller
makes a true and absolute sale of assets.

(n) "Special Purpose Trust (SPT)" means a trust

administered by an entity duly licensed to
perform trust functions under the General
Banking Law, and created solely for the purpose
of securities and to which the Seller makes a true
and absolute sale of assets

SECTION 4. Declaration of Principles. - The

Commissions shall exercise the powers provided
for in this Act in consonance with the principle of
full disclosure, transparency and accountability.
The Commission shall include in its annual report
the list of SPEs with the corresponding types and
amounts of assets scrutinized.

SECTION 5. Special Purpose Entity (SPE). - The SPE

in the form of an SPC shall be a stock corporation
established in accordance with the Corporation
Code of the Philippines and the rules
promulgated by the Commission solely for the
purpose of securitization and registered as such
with the Commission. An SPE constituted as an
SPT shall be a trust administered by an entity duly
licensed to perform trust functions under the
General Banking Law and need not be registered
as such with the Commission. In any event, the
SPE, whether in the form of an SPT or SPC, shall
be solely organized and operated for purposes of
securitization in accordance with this Act. The
Commission and the BSP shall, from time to time,
determine the required capitalization for the SPCs
and SPTs, respectively.

SECTION 6. Approval of the Plan. - After the

establishment of an SPE pursuant to Section 5
hereof, the proposed Plan shall be submitted to
the Commission for approval, which shall include
the following:

(a) The nature and mechanics of the sale of assets

from the Seller to the SPE, including the terms,
conditions and circumstances specified in the
Plan wherein the assets may be reverted to the
Seller:

(b) The credit enhancements or liquidity supports

for the ABS which may be provided in the
following manner:

ARTICLE II
SPECIAL PURPOSE ENTITY

(i) standby letter of credit issued by a commercial

bank or universal bank other than the trustee
bank or the Originator or Seller or its
subsidiary/affiliate, its parent company or the
parent company's subsidiary/affiliate;
195

(ii) surety bond issued by any insurance company

other than the Originator or Seller or its
subsidiary or affiliate, its parent company or the
parent company's subsidiary or affiliate, or the
parent or subsidiary of the trustee bank;

(iii) guarantee issued by any entity other than the

Originator or Seller or its subsidiary/affiliate, its
parent company or the parent company's
subsidiary/affiliate, or the trustee bank or its
parent or subsidiary;

(iv) over-collateralization provided by the Seller

wherein the assets conveyed to the SPC or SPT
exceed the amount of ABS to be issued;

(v) subordinated securities issued by an SPE to

any entity including those issued to the Seller that
are lower ranking, or junior to other obligation,
and are paid after claims to holders of senior are
satisfied; and

(vi) other credit enhancements as may be

approved by the Commission.

(c) The identities and qualifications of the

Originator, Seller, Servicer, underwriter an dealer
of the ABS, and description of any compensation
the issuer, seller or any underwriter has received
or will receive in the future in connection with
the ABS;

(d) The identity, qualifications and compensation

of the trustee that will administer the assets
conveyed to the SPE for the benefit of the ABS

holders of the ABS holders which trustee shall not

be related directly or indirectly to the Originator
or Sellers;

(e) The aggregate principal amount of the value

of ABS to be issued, the principal amount of each
class within the ABS, and the denominations
which shall not be lower than Five thousand
pesos (P5,000.00) in which the ABS will be issued;

(f) The structure of the ABS to be registered,

including the structure and payment priorities of
each class of certificates within the ABS,
anticipated payments and yields for each class,
and the circumstances under which the ABS may
be redeemed or retired;

(g) A full description of the assets contained, or to

be contained, in the asset pool supporting the
ABS;

(h) The rating agency/agencies for the ABS, the

criteria used or to be used to rate the ABS, and
any limitation, qualifications or material risks not
addressed by the rating agency/agencies;

(i) A full description of how the issuer will collect

and maintain remittances from the assets
pending distribution to holders of the ABS,
including the issuer's investment policies and the
identity of the issuer's investment advisor, if any;

(j) The plan for the management and

administration of the assets, asset pool and the
ABS, including the disposition of the foreclosed
properties, if any; and
196

(b) Issue and offer the ABS for sale to investors;

(k) The manner of disposal of any residual value
or asset with the SPE after all obligations to
holders of ABS shall have been settled.

SECTION 7. Registration of Asset-Backed

Securities (ABS). - All ABS shall be registered with
the Commission in accordance with Sections 8
and 12 of the Securities Regulation Code and its
implementing rules and regulations: Provided,
however, That issuers of ABS falling under
Sections 9 and 10 thereof shall be required to file
with the Commission, a notice, with a disclosure
statement.

SECTION 8. Approval. - The commission shall

issue to an SPC or SPT the corresponding order
and permit to sell ABS only after compliance with
all the registration requirements and the
approval of the Plan by the Commission.

SECTION 9. Originator is a Bank; Special Purpose

Trust. - In case the originator of the assets is a
bank or any other financial intermediary which
under special laws is subject to the supervision of
the BSP, or an entity directly related to said bank
or other financial intermediary, or in the event
the SPE is constituted in the form of an SPT, an
endorsement by the BSP of the Plan shall be
required before it s approval by the Commission.

SECTION 10. Powers of the SPE. - Each SPE shall

have the power to:

(a) Accept the sale or transfer of assets;

(c) Undertake on its own or through contracts

with any person, such activities as contained in
the approved Plan;

(d) Create any indebtedness or encumbrances to

defray administrative or other necessary
expenses as specified in the Plan; and

(e) Pay out or invest its funds in accordance with

the Plan or as approved by the Commission.

SECTION 11. Restriction. - the SPE shall not

undertake any activity other than that contained
in the approved Plan except upon a written
approval of the Commission and the written
consent of the holders of the ABS representing at
least two-thirds (2/3) of the outstanding amount
of the ABS: Provided, That in case the originator
of the assets is a bank or nay other financial
intermediary which under special laws is subject
to the supervision of the BSP, or an entity directly
or indirectly related to said bank or other
financial intermediary, or in the event the SPE is
constituted in the form of an SPT, prior
endorsement by the BSP is necessary.

SECTION 12. Transfer of Assets and Security. - The

transfer of the assets from the Originator or
Seller to the SPE shall be deemed to be a "true
sale" when it results in the following:

(a) The transferred Assets are legally isolated and

put beyond the reach of the Originator or Seller
and its Creditors;
197

(b) The transferee SPE has the right to pledge,

mortgage or exchange those transferred Assets;

(c) The transferor relinquishes effective control

over the transferred assets;

(d) The transfer shall be effected by either a sale,

assignment or exchange, in any event on a
without recourse basis to the Originator or Seller;

(e) The transferee shall have the right to profits

and disposition with respect to the assets;

(f) The transferor shall have the right to recover

the assets and the transferee shall not have the
right to reimbursement of the price or other
consideration paid for the assets; and

(g) The transferee shall undertake the risks

associated with the assets. This shall not,
however, prevent the transferor from giving
normal representations or warranties of the
assets sold.

SECTION 13. Withdrawal of Registration. - If the

Commission finds that the Originator or Seller has
undertaken the securitization so as to seek the
benefits of this Act without a true intention to
carry it out, the Commission shall withdraw or
cancel the registration of the ABS and the
registration of the SPE as issuer, and cause the
dissolution of the SPC or termination of the SPT.
The Originator or Seller and as the case may be,
the trustees, shall pay as fine an amount equal to
the taxes from which the SPE has been exempted

plus a surcharge of twenty-five percent (25%) of

the face value of the ABS issued, without
prejudice to the penalties under this law and the
National Internal Revenue Code of 1997.

SECTION 14. Inheritance and Donor's Tax Evasion.

- It shall be unlawful for any person, whether or
not it contemplation of death, to cause directly,
the issuance, for the benefit of another or others,
of ABS and avail of the tax incentives granted by
this Act for the purpose of evading the payment
of donor's or estate taxes.

SECTION 15. Dissolution of the Special Purpose

Entity (SPE). - The SPE shall be dissolved in the
following cases:

(a) It fail to accept the transfer of assets or issue

ABS to investors within six (6) months from the
date of approval of the Plan unless extended by
the Commission;

(b) Holders of at least two third (2/3) of the total

amount of its ABS still outstanding have resolved
to dissolve the SPE and the approval of the
Commission has been obtained; in case the
Originator of the assets is a bank or any other
financial intermediary which under special laws,
is subject to supervision of the BSP, or an entity
directly or indirectly related to said bank or other
financial intermediary, or in the event the SPE is
constituted in the form of an SPT, an
endorsement by the BSP shall be required prior
to approval of the Commission;

(c) Conditions for dissolution that are specified in

the Plan occur; or
198

(d) The Commission orders dissolution in

accordance with Section 13 and 19.

SECTION 16. Effects of Dissolution of SPE. - The

SPE and the registration of the ABS shall be
terminated, cancelled withdrawn in any of the
cases provided for under the last preceding
section.

SECTION 17. Appointment of an Interim

Representative. - If the Commission finds that an
SPE has no authorized representative to act on its
behalf or such persons cannot act for any reason
resulting in the interruption of its activities
pursuant to the approved Plan, the Commission
shall have the power to appoint any person or
persons to act as interim representative for the
SPE. The interim representative shall have the full
and exclusive authority to implement the
approved Plan.

property accounts, documents, and seals of the

SPE to the interim representative; and

(b) Any person who possesses property or

documents of the SPE shall notify the
representative of such possession.

SECTION 19. Failure to Continue Business. - The

Commission shall order the dissolution of an SPE
upon finding that the SPE cannot continue to
undertake its business, and shall proceed to
liquidate the SPE in accordance with the
Corporation Code.

SECTION 20. Power of Inspection. - The

Commission shall have the power to inspect or
order the Production of the records of the SPE.

ARTICLE III
THE SERVICER

In the event of an appointment of replacement of

an interim representative, the Commission shall
post the notice at the Commission's office and
other its publication in at least two (2)
newspapers of national circulation.

SECTION 18. Delivery of Property and Records it

Interim Representative. - Where an interim
representative has been appointed in accordance
with Section 17.

SECTION 21. Duties. - The Service shall perform

its duties pursuant to the terms and conditions of
the servicing agreement and such other written
instructions as the SPE, the trustees or its interim
representative may issue or in case-to-case basis.
Collections made by the Servicer shall be
remitted promptly to the SPE or as may be
agreed upon the parties in the servicing
agreement, but in no case shall be remittance
period be longer than one (1) month.

(a) The directors, officers, or any employees of

the SPE shall take all appropriate steps to
safeguard the property and the benefits of the
holders of the ABS of the SPE and shall deliver the

SECTION 22. Reports. - The Servicer shall prepare

periodic reports as may be required by the SPE,
the trustee or its interim representative within
thirty (30) days, including reports of any borrower
199

or obligator which fails to pay its debt or

obligation at maturity date or any adverse
development that may be affect the collectibility
of any loan account or receivable comprising the
asset pool.

SECTION 23. Extent of Authority. - The Servicer

shall have such authority as is expressly stated in
the servicing agreement and unless otherwise
specifically provided therein, such authority shall
encompass the general powers of administration.
The Servicer shall have no authority to waive
penalties and charges except with the written
authority from the Board of SPE, the trustee or
the interim representative, should one be
appointed

SECTION 24. Qualifications. - The Servicer shall be

a corporation duly incorporated under Philippine
law, with a minimum authorized capitalization of
Ten million pesos (P10,000,00.00) or such higher
amounts as the Commission may prescribe. It
shall be independent of the SPC or the trustee
and shall not share common ownership, officers,
or directors with the SPC or the trustees. The
Originator or Seller may act as the Servicer as
may be approved by the Commission or the BSP,
as the case may be.

SECTION 25. Standard of Conduct. - The Servicer

shall act with utmost good faith and shall perform
its obligations under the servicing agreement
with the due diligence of a good father of a
family.

SECTION 26. Penalties. - Breach by the Servicer of

its obligations arising from the failure to abide by
the standard of conduct set forth in the preceding
section shall subject the Servicer to the penalty of

revocation of its corporate registration and a fine

of not less than One Million pesos
(P1,000,000.00) and shall subject its officers and
employees responsible for such noncompliance
with the standard of conduct referred to above,
to a penalty of imprisonment for not more than
five (5) years and a fine of not less than One
Hundred Thousand pesos (100,000.00). Breach
arising from bad faith or gross negligence shall
subject the Servicer to revocation of its corporate
registration and a fine of not less than Five million
pesos (P5,000,000.00) and shall subject the
officers and employees responsible for such
breach to a penalty of imprisonment for not more
than six (6) years and one (1) day up to a
maximum of twenty (20) years and a fine of not
less than Five hundred thousand pesos
(P500,000.00).

ARTICLE IV
TAX AND OTHER RELATED ISSUES

SECTION 27. income Taxation of Special Purpose

Entity. - The SPE in the form of an SPC shall be
subject to income tax under Section 27(a),
Chapter IV of the National Internal Revenue Code
of 1997. An SPE constituted as an SPT shall be
subject to income tax in accordance with the
provisions of Section 61, Chapter X of the same
Code.

SECTION 28. Transfer of Assets. - The sale or

transfer of assets to the SPE, which includes sale
or transfer of any and all security interest
thereto, it made in accordance with the Plan shall
be exempted from value-added tax (VAT) and
documentary stamp tax (DST), or any other taxes
imposed in lieu thereof. Except for registration
fees with the Commission, all applicable
registration and annotation fees to be paid,
200

related or incidental to the transfer of assets, or

the security interest thereto, shall be fifty percent
(50%) of the applicable registration and
annotation fees.

The transfer of assets by dation in payment

(dacion en pago) by the obligor in favor of an SPE
shall not be subject to capital gains tax as
provided under Section 27 (d)(5) of the National
Internal Revenue Code of 1997.

SECTION 29. Issuance and Transfer of Securities. The original issuance of ABS and other securities
related solely to such securitization transaction,
such as, but not limited to, seller's equity,
subordinated debt instruments purchased by the
originator, and other related forms of credit
enhancement shall be exempt from VAT, or any
other taxes imposed in lieu thereof, but subject
to DST. All secondary trades and subsequent
transfers of ABS, including all forms of credit
enhancement in such instruments, shall be
exempt from DST and VAT, or any other taxes
imposed in lieu thereof.

SECTION 30. Non-Classification of SPE as a Bank,

Quasi-Bank or Financial Intermediary. - The SPE,
created pursuant to a Plan, shall not be classified
as a ban, quasi-bank or financial intermediary
under the provisions of the New Central Bank Act,
the General Banking Law and the National
Internet Revenue Code of 1997, and shall not be
subject to the gross receipts tax (GRT) or any
other tax imposed in lieu thereof.

substitutes under the laws mentioned in Section

30 hereof: Provided, however, That for purposes
of taxation, the yield for the ABS shall be subject
to a twenty percent (20%) final withholding tax,
except those held by tax-exempt investors.

SECTION 32. Re-transfer of Assets. - Where the

implementation of the Plan or the provision of
this Act requires or provides a transfer of the
assets and collateral back to the Originator or
Seller, then the provisions of Section 28 shall
apply to such transfer.

SECTION 33. Incentives for Securitization. - In

order to promote the securitization of the
mortgage and housing related receivables of the
government housing agencies as may be
determined by the Housing and Urban
Development Coordinating Council (HUDCC) and
the Department of Finance (DOF), the yield or
income of the investor from any low-cost or
socialized housing-related ABS shall be exempt
from income tax.

SECTION 34. Waiver of Rights. - For purposes of

securitization pursuant to this Act, the buyer of
real estate on installment payments may agree to
waive his rights under Republic Act No. 6552, the
provision of Section 7 of the said
notwithstanding.

ARTICLE V
SECONDARY MORTGAGE INSTITUTION

SECTION 31. Securities not to be Categorized as

Deposit Substitutes. - The ABS issued by an SPE
pursuant to the Plan approved by the
Commission shall not be considered as deposit

SECTION 35. Registration of Secondary Mortgage

Institution (SMI). - An SMI, which shall be
primarily responsible in providing liquidity
201

mechanism to primary mortgage lenders/holders

as well as in developing a secondary market for
mortgage and housing-related ABS, shall also be
registered with the Commission.

(c) Provide loans to primary lending institutions

against residential mortgages;

(d) Issue housing-related ABS through an SPE, and

issue bonds and other debt instruments;
SECTION 36. Registration of Business and
Operational Plan. - The SMI shall also register its
business and operational plan with the
Commission and shall, as a minimum, be subject
to the same disclosure requirements as SPCs.

SECTION 37. Promulgation of Rules. - The

Commission, in consultation with the BSP and the
Insurance Commission (IC), shall promulgate rule
regarding
the
ownership,
organization,
capitalization and opertion of the SMI.

In promulgating such rules, the Commission shall

consider the size of the asset pools to be held by
the SMI, the amount of debt to be issued by it,
the extent of its operation and the powers of the
SMI specified under this Act.

SECTION 38. Powers of the SMI. - For purposes of

securitization under this Act and pursuant to the
Plan submitted to the Commission, the SMI may
perform any or all of the following:

(a) Wholesale purchase of residential mortgages

and housing-related contract receivables;

(b) Buy and sell residential mortgage and

housing-related ABS;

(e) Perform ancillary functions including, but not

limited to, title insurance, through a subsidiary,
wholly or partially owned by an SMI, and loan
servicing; and

(f) Perform such other functions as the

Commission may determine necessary to
mobilize and channel funds from the capital
markets to the mortgage and housing finance
sector.

SECTION
39.
SMI
Capitalization
and
Organizational Requirements. - Any SMI
established for the housing sector shall be a stock
corporation and shall have a minimum initial
paid-up capital of Two billion pesos
(P2,000,000,000.00): Provided, That the total
obligation of the SMI, including both actual and
contingent obligations, shall not exceed fifteen
(15) times its paid-up capital: Provided, further,
That the actual obligations of the SMI shall not
exceed ten (10) times its paid-up capital:
Provided, furthermore, That the ratios indicated
herein may be adjusted by the Commission with
approval of the DOF and BSP upon a showing that
the conditions of the secondary and primary
markets and the financial viability of the SMI
warrant such adjustment: Provided, Finally, That
the investment of financial entities in the SMI
shall be subjected to and be made to comply with
rules and regulations of the appropriate
regulatory agency.
202

Government
financial
institutions
and
government-owned or-controlled corporations,
may collectively hold and own up to a maximum
of thirty percent (30%) of the SMI's capital:
Provided, That such investment does not conflict
with their existing charters

A government financial institution may invest up

to a maximum of ten percent (10%) of its total
investible funds in housing-related assets or five
percent (5%) in non-housing related assets:
Provided, That such investment does not exceed
five percent (5%) of the total amount of each ABS
issue.

Within ten (10) years of its incorporation, the SMI

shall offer and list at least twenty percent (20%)
of its common shares in the stock exchange,
which period shall be extendible only upon
approval of the Commission in instances where
the lace of financial viability of the SMI warrants
such extension.

SECTION 40. Prohibited Activities of the SMI. The SMI shall be prohibited from:

SECTION 41. Extension of Benefits to the SMI. The benefits provided to the transactions entered
into by the SPCs under Sections 28 to 33 of this
Act shall also be granted to the same transactions
entered into by the SMIs for purposes of
securitzation in accordance with the provisions of
this Act.

SECTION 42. Dissolution of the SMI. - The

Commission shall order the dissolution and
liquidation of the SMI upon a finding that it;

(a) Cannot continue to undertake its business; or

(b) Is not operation actively; or

(c) Is engaging in activities that conflict with its

objectives as an SMI; or

(d) Has fulfilled a condition for dissolution

specified in its Articles of Incorporation.

ARTICLE VI
(a) Originating or financing individual mortgage
loans;

(b) Providing loans to other parties engaged in a

business other than that approved in the Plan
submitted to the Commission: and

(c) Providing capital equity to other companies.

RATING SYSTEM

SECTION 43. Rating ABS. - No ABS shall be issued

unless such ABS has been rated by a duly
accredited credit rating agency.

SECTION 44. Credit Rating Agency. - Every credit

rating agency which now exists or which may
203

hereafter be formed shall be subject to the

provisions of this Act.

SECTION 45. Accreditation of Credit Rating

Agency. - No credit rating agency shall commence
rate-making operations pursuant to this Act until
it shall have obtained an accreditation from the
Commission under such rules and regulations as
the Commission may deem appropriate.

SECTION 46. Examination of Credit Rating

Agencies. - Credit rating agencies shall be subject
to examination by the Commission as the latter
may deem warranted: Provided, That the
Commission shall conduct an examination of the
credit rating agencies at least once every three
(3) years.

make the statements therein not misleading,

shall, upon conviction, suffer a fine of not less
than Fifty thousand pesos (P50,000.00) nor more
than Five million pesos (P5,000.00) or
imprisonment of not less than six (6) years and
one (1) day nor more than twenty-one (21) years,
or both in the discretion of the court. If the
offender is corporation, partnership or
association or other juridical entity, the penalty
may in the discretion of the court be imposed
upon such juridical entity upon the officer or
officers of the corporation, partnership,
association or entity responsible fro the violation,
and if such officer is an alien, he shall in addition
to the penalties prescription prescribed, be
deported without further proceedings after
service of sentence.

ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 47. Noncompliance of Accredited Rating
Agencies. - The Commission may suspend or
revoke the accreditation given to any credit rating
agency which fails to comply with the
Commission's lawful order within the time limited
by such order, or any extension thereof which the
Commission may grant.

ARTICLE VII
PENAL PROVISIONS

SECTION 48. Penalties. - Any person who violates

any of the provisions of this Act, or the rules and
regulations promulgated by the Commission
under authority hereof, or any person who, in a
registration statement, notice, or Plan filed under
this Act, makes any untrue statement of a
material fact or omits to state any material fact
required to be stated therein or necessary to

SECTION 49. Implementing Rules and Regulations

(IRR). - The Commission, in coordination with the
BSP, DOF and the IC, shall promulgate the
implementing rules and regulations which shall
be submitted to the Congressional Oversight
Committee which shall review, revise and
approve the same: Provided, That the
Commission BSP, DOF and the IC may continue to
issue separate regulations that will apply
exclusively to the institutions under their
respective jurisdiction, consistent with the IRR as
approved by the Congressional Oversight
Committee.

SECTION 50. Congressional Oversight Committee.

- There is hereby created a Congressional
Oversight Committee composed of seven (7)
members from the Senate and seven (7)
members from the House of the Representatives.
204

The members from the Senate shall be appointed

by the Senate President with at least two (2)
Senators representing the Minority. The
members from the House of Representatives
shall also appointed by the Speaker with at least
two (2) members representing the Minority. After
the Oversight Committee has approved the IRR, it
shall thereafter become functus officio, and
therefore cease to exist.

SECTION 51. Repeating Clause. - All laws,

executive orders, rules and regulations, and parts
thereof which are inconsistent with this Act are
hereby repealed or amended accordingly.

SECTION 52. Separability Clause. - If for any

reason any article or provision of this Act or any
portion therefore or application of such article,
provision, or portion thereof to any person,
group, or circumstance is declared invalid or
unconstitutional, the remainder of this Act shall
not be affected by such decision.

SECTION 53. Effectivity Clause. - This Act shall

take effect fifteen (15) days after its complete
publication in the Official Gazette or in at least
two (2) newspapers of general circulation,
whichever comes earlier.
________________________________________
REPUBLIC ACT No. 6552

AN ACT TO PROVIDE PROTECTION TO BUYERS OF

REAL ESTATE ON INSTALLMENT PAYMENTS. (Rep.
Act No. 6552)

Section 1. This Act shall be known as the "Realty

Installment Buyer Act."

Section 2. It is hereby declared a public policy to

protect buyers of real estate on installment
payments against onerous and oppressive
conditions.

Section 3. In all transactions or contracts

involving the sale or financing of real estate on
installment payments, including residential
condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants
under Republic Act Numbered Thirty-eight
hundred forty-four, as amended by Republic Act
Numbered Sixty-three hundred eighty-nine,
where the buyer has paid at least two years of
installments, the buyer is entitled to the following
rights in case he defaults in the payment of
succeeding installments:

(a) To pay, without additional interest, the unpaid

installments due within the total grace period
earned by him which is hereby fixed at the rate of
one month grace period for every one year of
installment payments made: Provided, That this
right shall be exercised by the buyer only once in
every five years of the life of the contract and its
extensions, if any.

(b) If the contract is canceled, the seller shall

refund to the buyer the cash surrender value of
the payments on the property equivalent to fifty
per cent of the total payments made, and, after
five years of installments, an additional five per
cent every year but not to exceed ninety per cent
of the total payments made: Provided, That the
actual cancellation of the contract shall take place
after thirty days from receipt by the buyer of the
notice of cancellation or the demand for
rescission of the contract by a notarial act and
205

upon full payment of the cash surrender value to

the buyer.

Down payments, deposits or options on the

contract shall be included in the computation of
the total number of installment payments
made.lawphi1

Section 4. In case where less than two years of

installments were paid, the seller shall give the
buyer a grace period of not less than sixty days
from the date the installment became due.

Section 7. Any stipulation in any contract

hereafter entered into contrary to the provisions
of Sections 3, 4, 5 and 6, shall be null and void.

Section 8. If any provision of this Act is held

invalid or unconstitutional, no other provision
shall be affected thereby.lawphi1

Section 9. This Act shall take effect upon its

approval.
________________________________________
Republic Act No. 9856

If the buyer fails to pay the installments due at

the expiration of the grace period, the seller may
cancel the contract after thirty days from receipt
by the buyer of the notice of cancellation or the
demand for rescission of the contract by a
notarial act.

Section 5. Under Section 3 and 4, the buyer shall

have the right to sell his rights or assign the same
to another person or to reinstate the contract by
updating the account during the grace period and
before actual cancellation of the contract. The
deed of sale or assignment shall be done by
notarial act.

Section 6. The buyer shall have the right to pay in

advance any installment or the full unpaid
balance of the purchase price any time without
interest and to have such full payment of the
purchase price annotated in the certificate of title
covering the property.

AN ACT PROVIDING THE LEGAL FRAMEWORK FOR

REAL ESTATE INVESTMENT TRUST AND FOR
OTHER PURPOSES

Be it enacted by the Senate and House of

Representatives of the Philippines in Congress
assembled:

ARTICLE I
GENERAL PROVISIONS

Section 1. Short Title. - This Act shall be known as

"The Real Estate Investment Trust (REIT) Act of
2009".

Section 2. Declaration of Policy. - It IS the policy

of the State to promote the development of the
capital market, democratize wealth by
broadening the participation of Filipinos in the
ownership of real estate in the Philippines, use
the2 capital market as an instrument to help
206

finance and develop infrastructure projects, and

protect the investing public by providing an
enabling regulatory framework and environment
under which real estate investment trusts,
through certain incentives granted herein, may
assist in achieving the objectives of this policy.

accordance with the rules and regulations

prescribed by the Commission.

Section 3. Definition of Terms. - For the purposes

of this Act, the term:

(f) "Constitutive Documents" means the articles

of incorporation and bylaws of a REIT.

(a) "Adviser" means a lawyer, accountant,

auditor, financial or business consultant, and such
other persons rendering professional advisory
services to the real estate investment trust.

(c) "Associate" of a person includes:

(g) "Control" exists in favor of a parent

corporation when it has the power to direct or
govern the financial and operating3 policies of an
enterprise so as to obtain benefits from Its
activities. Control is presumed to exist when the
parent owns, directly or indirectly, through
subsidiaries, more than one - half (112) of the
voting power of an enterprise, unless m
exceptional circumstances, it can clearly be
demonstrated that such ownership does not
constitute control. Control also exists even when
the parent owns one - half (112) or less of the
voting power of an enterprise when there is
power

i. Any relative of such person within the fourth

(4th) degree of consanguinity or affinity; and

i. Over more than one - half (1/2) of the voting

rights by virtue of an agreement with investors;

ii. Any company in which he/she and his/her

relative within the fourth (4th) degree of
consanguinity or affinity, directly or indirectly,
has an interest of twenty - five percent (25%) or
more.

ii. To direct or govern the financial and operating

policies of the enterprise under a statute or an
agreement;

(b) "Affiliate" means a corporation that directly or

indirectly, through one or more intermediaries, is
controlled by, or is under the common control of
another corporation, which thereby becomes its
parent corporation.

(d) "Cash Equivalent Items" means instruments or

investments that are highly liquid and marketable
and are considered good as cash as determined in

(e) "Commission" or "SEC" means the Securities

and Exchange Commission of the Philippines.

iii. To appoint or remove the majority of the

members of the board of directors or equivalent
governing body; or

207

iv. To cast the majority votes at meetings of the

board of directors of equivalent governing body.

(h) "Corporation Code" refers to Batas Pambansa

Bilang 68, otherwise known as the Corporation
Code of the Philippines.

(i) "Deposited Property" means the total value of

the REIT's assets based on the latest valuation
determined m accordance with the rules and
regulations promulgated by the Commission.

(j) "Distributable Income" means net income as

adjusted for unrealized gains and losses/expenses
and impairment losses and other items in
accordance with internationally accepted
accounting standards. Distributable income
excludes proceeds from the sale of the REIT's
assets that are re - invested in the REIT within
one (1) year from the date of the sale.

(k) "Exchange" means any entity registered with

the Commission as a stock exchange pursuant to
the Securities Regulation Code.

(l) "Fund Manager" refers to the person

responsible for the allocation of the deposited
property to the allowable investment outlets and
selection of income - generating real4 estate. It
shall execute investment strategies for the REIT
and oversee and coordinate all of the following
activities:
property
acquisition;
property
management; leasing; operational and financial
reporting
(including
operating
budgets);
appraisals; audits; market review; accounting and
reporting procedures, as well as refinancing and
asset disposition plans. For clarity, a fund
manager is considered independent from the

REIT and its sponsors/promoters under this Act if

it is in compliance with the independence,
corporate governance (including the fit and
proper rule) and other requirements prescribed
by this Act, its implementing rules and regulations
and the Commission.

(m) "Income - generating Real Estate" means real

property which is held for the purpose of
generating a regular stream of income such as
rentals, toll fees, user's fees and the like, as may
be further defined and identified by the
Commission. The Commission may promulgate
rules to include real rights over real property,
provided they generate interest or other regular
payments to the REIT.

(n) "Independent Director" means a director who

has the qualifications and none of the
disqualifications of an independent director
specified in the Securities Regulation Code and its
implementing rules and regulations.

(o) "IRR" refers to the Implementing rules and

regulations promulgated to implement the
provisions of this Act.

(p) "Investible Funds" refer to funds of the REIT

that can be placed in investment vehicles other
than income generating real estate such as real
estate - related assets, managed funds,
government securities, and cash and cash
equivalents.

(q) "Investor" means the owner of investor

securities or investor shares.

208

(r) "Investor Securities" or "Investor Shares"

mean shares of stock issued by a REIT or
derivatives thereof.

(s) "Managed Funds" mean any arrangement

whereby funds are solicited from the investing
public and pooled for the purpose of Investing in
securities duly registered with and/or approved
by the appropriate regulatory agency of the
government for investment by the REIT.

(t) "Material Contract" refers to an agreement or

arrangement where the amount involved is at
least five percent (5%) of the deposited property
of the REIT or which is not entered into in the
ordinary course of business of the REIT: Provided,
however, That the following shall be deemed a
material contract regardless of the amount:

i. Related party transactions under Section 8.11

hereof;

vi. Contracts relating to investments of the REIT

under Section 8.3 hereof;

vii.
Any
contract
creating
mortgages,
encumbrances, liens or rights on the real estate
of the REIT;

viii. Contract of any nature that limits the

declaration or distribution of dividends by the
REIT;

ix. Any contract relating to joint venture, spin off, consolidation or merger involving the REIT;'
and

x. Any contract that may be expected to

materially affect the market activity and/or the
price of the investor securities issued by the REIT
as may be determined by the Commission.

ii. Contract between the REIT and fund manager;

iii. Agreement between the REIT and property

manager;

iv. Agreements between and among shareholders

such as voting trust agreements, pooling
agreements, joint venture agreements or other
shareholder agreements as may be determined
by the Commission;

v. Any acquisition or disposition of real estate by

the REIT;

(u) "Net Asset Value" or "NAV" means the total

'1ssets less total liabilities as determined by the
implementing rules and regulations (lRR) of the
Commission.

(v) "Net Income" means net income as

determined under the Philippine Financial
Reporting Standards (PFRS).

(w) "Overseas Filipino Investor" refers to an

individual citizen of the Philippines who is
working abroad, including one who has retained
or reacquired his Philippine citizenship under
Republic Act No. 9225, otherwise known as the
209

"Citizenship Retention and Re - acquisition Act of

2003".

(x) "Parent' means a corporation which has

control over another corporation, directly or
indirectly, through one or more intermediaries.

(y) "Principal Officer" means the chairman of the

board of directors, president, chi(,'!f executive
officer - , chief operating officer. treasurer, chief
financial officer corporate secretary, vice
president, their equivalent positions, or such
other officers occupying positions of significant
influence in a company as may be determined by
the Commission.

(z) "Principal Stockholder" means a stockholder

who is directly or indirectly the beneficial owner
of more than ten percent (10%) of any class of
security of the REIT.

(aa) "Public Shareholder" means a shareholder of

a REIT other than the following persons (non public shareholders):

i. The sponsor/promoter of the REIT;

ii. A director, principal officer or principal

shareholder of the sponsor/promoter of the REIT;

iii. A director, principal officer or principal

shareholder of the REIT;

iv. An associate of a director, principal officer or

principal shareholder of the REIT or its
sponsor/promoter;

v. A related corporation to the REIT or its sponsor

promoter; and

vi. Any person who holds legal title to the shares

of stock of the REIT for the benefit of another for
the purpose of circumventing the provisions of
this Act.

(bb) "Property Manager" refers to a professional

administrator of real properties who IS engaged
by the REIT to provide property management
services, lease management services, marketing
services, project management services, including
rent collection, tenant services, care of the
physical plant, security, leasing, marketing of the
property to outside prospects, and other similar
services pertaining to the property under
administration. For clarity, a property manager IS
considered independent from the REIT and its
sponsor(s)/promoter(s) under this Act if it is in
compliance with the independence, corporate
governance (including the fit and proper rule) and
other requirements prescribed by this Act, its IRR
and the Commission.

(cc) "Real Estate Investment Trust' or "RElT' IS a

stock corporation established in accordance with
the Corporation Code of the Philippines and the
rules and regulations promulgated by the
Commission principally for the purpose of owning
income - generating real estate assets. For
purposes of clarity, a REIT, although designated
as a "trust", does not have the same technical
meaning as "trust" under existing laws and
regulations but is used herein for the sole
210

purpose of adopting the internationally accepted

description of the company in accordance with
global best practices.

(dd) "Real Property" shall have the same

definition as "Immovable Property" under Article
415 of the Civil Code of the Philippines. Real
estate, when used in this Act, shall have the same
meaning as real property.

v. The property manager of the REIT;

vi. A director, principal shareholder or principal

officer of the sponsor/promoter of the REIT,
REIT's fund manager or property manager, or
associate of any such persons; and 1avvph!1

vii. Related corporation to the REIT.

(ee) "REIT Plan" refers to the plan, including its
amendments, of the REIT registered with the
Commission.

(ff) "Real Estate - Related Assets" mean:8 i. Debt

securities and listed shares issued by listed
property companies; or Ii. Other funds and assets,
including personal property, incidental to the
ownership of real estate.

(gg) "Related Corporation" means the parent,

subsidiary or affiliate of the REIT.

(hh) "Related Party" includes:

i. The director, officer or principal stockholder. of

the REIT or associate of such persons;

ii. The sponsor/promoter of the REIT;

iii. The fund manager of the REIT;

(ii) "Securities Regulation Code" or "SRC" refers to

the Securities Regulation Code of 2000 and its
implementing rules and regulations.

(jj) ,"Sponsor/Promoter" means any person who,

acting alone or in conjunction with one or more
other persons, directly or indirectly, contributes
cash or property in incorporating a REIT.

(kk) "Subsidiary" means a corporation more than

fifty percent (50%) of the voting stock of which is
owned or controlled, directly or indirectly,
through one or more intermediaries, by another
corporation, which thereby becomes its parent
corporation.

(ll) "Synthetic Investment Products" are

derivatives and other securities created
exclusively out of one or more financial
instruments to simulate the returns of the
underlying financial instruments, such as credit linked notes, collateralized debt obligations. total
return swaps, credit spread options, credit
default options, and similar products determined
by the Commission.

iv. The adviser of the REIT;

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(mm) "Taxable Net Income" means the pertinent

items of gross income specified in Section 32 of
the National Internal Revenue Code of 1997, as
amended, less all allowable deductions
enumerated in Section 34 of the National Internal
Revenue Code of 1997, as amended, less the
dividends distributed by a REIT out of its
distributable income as of the end of the taxable
year as: (a) dividends to owners of the common
shares; and (b) dividends to owners of the
preferred shares pursuant to their rights and
limitations specified in the articles of
incorporation of the REIT.

ARTICLE II
REAL ESTATE INVESTMENT TRUST

Section 4. Investment in the REIT. - Investment in

the REIT shall be by way of subscription to or
purchase of shares of stock of the REIT. No shares
of stock of the REIT shall be offered for
subscription or sale except in accordance with a
REIT plan and other requirements and restrictions
as may be prescribed by the Commission.

Section 5. Registration and Listing. - The shares of

stock of the REIT must be registered with the
Commission and listed in accordance with the
rules of the Exchange.

Section 6. Nationality Requirement. - A REIT that

owns land located in the Philippines must comply
with foreign ownership limitations imposed
under Philippine law.

Section 7. Dividend Distribution. - A REIT must

distribute annually at' least ninety percent (90%)
of its distributable income as dividends to its
shareholders not later than the last day of the
fifth (5") month following the close of the fiscal
10 year of the REIT. Subject to the provisions of
this Act, the dividends shall be payable only from
out of the unrestricted retained earnings of the
REIT as provided for under Section 43 of the
Corporation Code of the Philippines. The
percentage of dividends received by the public
shareholders to the total dividends distributed by
the REIT from out of its distributable income must
not be less than such percentage of their
aggregate ownership of the total outstanding
shares of the REIT. Any structure, arrangement or
provision which would have the effect of
diminishing or circumventing in any form this
entitlement to dividends shall be void and of no
force and effect.

Distributable income excludes proceeds from the

sale of the REIT's assets that are re - invested by
the REIT within one (1) year from the date of the
sale.

Section 8. Requirements. - Unless the

Commission provides otherwise and after public
hearing, taking into account public interest, the
need to protect investors and develop the
country's real estate investment industry to make
it
globally
competitive,
the
following
requirements shall apply:

8.1 Minimum Public Ownership - A REIT must be

a public company and to be considered as such, 'a
REIT, must: (a) maintain its status as a listed
company; and (b) upon and after listing, have at
least one thousand (1,000) public shareholders
each owning at least fifty (50) shares of any class
212

of shares who in the aggregate own at least one third (1/3) of the outstanding capital stock of the
REIT.

ii. Real estate - related assets, wherever the

issuers, assets, or securities are incorporated,
located, issued, or traded;

The Commission shall prescribe a recording and

monitoring system that will effectively ensure
that the shares of the public shareholders are
traceable to their names and for their own
benefit and not for the benefit of any of the non public shareholders mentioned above.

iii. Managed funds, debt securities and listed

shares issued by local or foreign non - property
corporations;

Compliance With the minimum public ownership

requirement under this section must be duly
certified by a responsible person designated by
the Commission upon listing, as of record date for
any dividend declaration or any qorporate action
requiring shareholder approval and other
relevant times as may be required by the IRR of
this Act.

8.2 Capitalization - A REIT must have a minimum

paid - up capital of Three hundred million pesos
(Php300, 000.000.00).

i. Real estate, whether freehold or leasehold,

located In the Philippines. A REIT may invest in
income - generating real estate located outside of
the Philippines: Provided, That such investment
does not exceed forty percent (40%) of its
deposited property and only upon special
authority from the Commission. The Commission
in issuing such authority shall consider, among
others, satisfactory proof that the valuation of
assets is fair and reasonable. An investment in
real estate may be by way of direct ownership or
a shareholding in an unlisted special purpose
vehicle constituted to hold/own real estate;

iv. Government securities issued on behalf of the

Philippine government or governments of other
countries and securities issued by multilateral
agencies;

v. Cash and cash equivalent items; and

vi. Such other similar investment outlets as the

Commission may allow.

8.4 Investment in Synthetic Investment Products A REIT may invest not more than five percent
(5%) of its investible funds in synthetic
investment products such as, but not limited to,
credit default swaps, credit - linked notes,
collateralized debt obligations, total return
swaps, credit spread options, and credit default
options, and only upon special authority from the
appropriate regulatory authority.

8.5 Income - generating Real Estate - At least

seventy - five percent (75%) of the deposited
property of the REIT must be invested in, or
consist of, income - generating real estate.

8.6 Property Development - A REIT must not

undertake property development activities
213

whether on its own, in a joint venture with

others, or by investing in unlisted property
development companies, unless it intends to hold
the developed property upon completion. The
total contract value of property development
activities undertaken and investments in
uncompleted property developments should not
exceed ten percent (10%) of the deposited
property of the REIT.

8.7 Single Entity Limit - Not more than fifteen

percent (15%) of investible funds of the REIT may
be invested in any one issuer's securities or
anyone managed fund, except with respect to
government securities where the limit is twenty five percent (25%).

8.8 Foreign Assets - A REIT may invest in local or

foreign, assets, subject to the terms of its articles
of incorporation. Where an investment in a
foreign real estate asset is made, the REIT should
ensure that the investment complies with all the
applicable laws and requirements in that foreign
country such as, but not limited to, foreign
ownership restrictions, if any, and requisites of
having good and valid title to that real estate.

8.9 Joint Venture - When investing in real estate

as a joint owner, the REIT should make such
investment by acquiring shares or interests in an
unlisted special purpose vehicle constituted to
hold/own the real estate and the REIT should
have freedom to dispose of such investment. The
joint venture agreement, memorandum and
articles of association or other constitutive
documents of the special purpose vehicle should
provide for a minimum percentage of
distributable profits of the special purpose
vehicle that will be distributed and grant the REIT

veto rights over key operational issues of the

special purpose vehicle. .

8.10 Aggregate Leverage Limit - The total

borrowings and deferred payments of a REIT
should not exceed, 'thirty - five percent (35%) of
its deposited property: Provided, however, That
the total borrowings and deferred payments of a
REIT that has a publicly disclosed investment
grade credit rating by a duly accredited or
internationally recognized rating agency may
exceed thirty - five percent (35%) but not more
than seventy percent (70%) of its deposited
property.

8.11 Related Party Transactions - Any contract or

amendment thereto, between the REIT and
related parties, including contracts involving the
acquisition or lease of assets and contracts for
services, must comply with the following
minimum requirements:

i. Full, fair, timely and accurate disclosures on the

identity of the parties their relationship

with the REIT, and other important details of the

transaction have been made to the Exchange and
the Commission;

ii. Be on fair and reasonable terms, including the

contract price;

iii. Approved by at least a majority of the entire

membership of the board of directors, including
the unanimous vote of all independent directors
of the REIT;
214

iv. Accompanied by a fairness opinion by an

independent appraiser done in accordance with
the valuation methodology prescribed by the
Commission, in the case of an acquisition or
disposition of real estate assets and property or
share swaps or similar transactions; and

v. Any other matter that may be materially

relevant to a prospective investor in deciding
whether or not to invest in the REIT.

8.12 Valuation - A full valuation of a REIT's assets

must be conducted by an independent appraisal
company, duly accredited by the Commission, at
least once a year In accordance with the
applicable rules of asset valuation and valuation
methodology' as prescribed by the Commission.

8.13 Fund Manager - A REIT must appoint a fund

manager that is independent from the REIT and
its sponsor(s)/ promoter(s) and shall be subject to
the following minimum requirements:

i. It must be a corporation duly organize under

the laws of the Republic of the Philippines or a
foreign corporation engaged in the business' of
fund management with proven track record and
duly licensed to do business in the Philippines by
the appropriate regulatory agency;

ii. It must have a minimum paid - up capital" stock

or assigned capital of Ten million pesos (Php10,
000.000.00), unless the Commission provides
otherwise;

iii. Its office in the Philippines must have a

meaningful role in its business activities and must
perform accounting, compliance and investor
relations, services in the Philippines;

iv. It must comply with the requirements of the

relevant law or appropriate regulatory authority
on the number of independent directors;

v. It must comply with the corporate, governance

requirements, including the fit and proper rule,
prescribed by this Act and its IRR;

vi. It must adopt measures as may be prescribed

by the IRR of this Act to avoid conflicts of interest
in the discharge of its duties as fund manager for
the REIT; and

vii. It must employ a resident chief executive

officer and at least two (2) full - time professional
employees who have a track record' and
experience in financial management as well as
experience in the real estate industry.

8.14 REIT Property Manager - The. RElT must

appoint a REIT property manager who shall be
responsible for managing the real estate assets
such as apartment buildings, office buildings,
warehouses, hospital buildings" medical facilities,
hotel buildings, resort facilities, manufacturing
plants and other physical assets of the REIT. The
contract between the REIT and the property
manager must comply with the disclosure and
other requirements prescribed for related party
transactions.

215

The REIT property manager shall be independent

from the REIT and its sponsor/promoter and
possess the qualifications and be subject to such
functions and responsibilities, restrictions and
other requirements prescribed by the
Commission.

The property manager must comply with the

following minimum qualifications:

i. It must comply with the requirement of the SRC

or the Commission on the number of
independent directors;

ii. It must comply with the corporate governance

requirements, including the fit and proper rule,
prescribed by this Act and its IRR; and

iii. It must adopt measures as may be prescribed

by the IRR of this Act to avoid conflicts of interest
in the discharge of its duties as property manager
for the REIT.

8.15 Independent Directors - At least one - third

(113) of the board of directors of a REIT must be
independent directors.

8.16 Fit and Proper Rule - To maintain the quality

of management of the REIT and afford better
protection to REIT investors, the Commission, or
the concerned regulatory agency, shall prescribe
or pass upon and review the qualifications and
disqualifications of individuals elected or
appointed as directors or officers of the REIT,
REIT fund managers, REIT property managers,
distributors and other REIT participants and
disqualify those found unfit. The appropriate

regulatory agency may disqualify, suspend or

remove any director or officer who commits or
omits an act which renders him unfit for the
position.

In determining whether an individual is fit and

proper to hold the position, regard shall be given
to his integrity, experience, education, training,
and competence: Provided, however, That the
following persons shall in no case be allowed to
serve or act in the capacity of officer, director or
consultant of any REIT, REIT fund manager, or
REIT property manager:

i. Any person convicted of any crime involving any

security or financial product;

ii. Any person convicted of an offense involving

fraud or embezzlement, theft, estafa or other
fraudulent acts or transactions;

iii. Any person who, by reason of any misconduct,

is enjoined by order, judgment, or decree by any
court, quasi - judicial body or administrative
agency of competent jurisdiction from acting as a
director, officer; employee, consultant, or agent
occupying any fiduciary position;

iv. Any person found by the appropriate

regulatory agency to have violated, or aided,
abetted, counseled commanded, induced, or
procured the violation of this Act, the
Corporation Code, the General Banking Law, the
Insurance Code, the SRC, or' any related laws and
any rules, regulations or orders thereunder; ,

216

v. Any person judicially declared to be' insolvent,

or incapacitated to contract; and

i. Material contracts as defined under Section 3 of

this Act;

vi. Any person found guilty by a foreign court,

regulatory authority or government agency of
the, acts or violations similar to any of the acts' or
misconduct enumerated in the foregoing
paragraphs.

ii. Allowable investments of the REIT under

Section 8.3 hereof;

A conviction in the first instance shall be

considered sufficient ground for disqualification.:

8.17 Executive Compensation - The total annual

compensation of all executive officers of the REIT
shall not exceed such percentage of the net
income before regular corporate income tax of
the REIT during the immediately preceding
taxable year, as may be provided in the IRR of this
Act and shall be governed by the provisions on
related party transactions.

iii. Related party transactions under Section 8.11

hereof;

iv. Contracts between the REIT and fund manager

or the property manager, including the identity of
the parties, contract price, fees and the other
basic terms of the contract;

v. Valuation of the real estate properties of the

REIT, including the valuation methodology used
therefore;

vi. Material changes in the income stream of the

REIT;
8.18 Fund Manager and Property Manager Fees Fees received by the REIT fund manager and the
RET property manager from the REIT shall not
exceed one percent (1%) of the net asset value of
the assets under management.

Section
9.
Reportorial
Requirements.

and

Disclosure

9.1 Requirements - The REIT shall comply with

the reportorial and disclosure requirements
prescribed by the Corporation Code, the SRC and
the Exchange. At the minimum, the REIT shall
disclose the following information:

vii. Any fee received by any party relating to the

acquisition or disposition of the real estate of the
REIT;

viii. Merger, consolidation, joint venture,

takeover or spin - off involving the REIT;

ix. Any modification of the rights of the holders of

any class of securities issued by the REIT and the
corresponding effect of such modification upon
the rights of the holders;

217

x. Any declaration of cash dividend, stock

dividend, property dividend and pre - emptive
rights by the REIT;

xi. Appointment of a receiver or liquidator for the

REIT;

xii. Change in control of the REIT;

xiii. Losses, or potential losses which amount to at

least five percent (5%) of the deposited property
of the REIT;

xx. Any planned acquisition of outstanding shares

or disposition of treasury shares of the REIT.

9.2 Special Quarterly and Annual Reports - In

addition to the quarterly and annual reportorial
and disclosure requirements prescribed for public
and listed companies, the REIT shall make a
report on and disclose the following to the
Commission and the Exchange:

i. Summary of all real estate transactions entered

into during the period, including the identity of
the parties, the contract price, and their
valuations:' including the methods' used to value
the assets;

xiv. Occurrence of any event of dissolution with

details in respect thereto;

xv. Acts or facts that might seriously impair the

business activities of the REIT;

xvi. Creation of mortgages, pledges or liens on

the properties of the REIT;

xvii. Any development activity undertaken by the

REIT, including the essential details thereof;

xviii. Direct and indirect ownership of directors

and principal officers in the securities of the REIT;

xix. Any amendment to the articles

incorporation and bylaws of the REIT; and

of

ii. Summary of all the REIT's real estate assets,

including the location of such assets, their
purchase' prices and the latest valuations, rentals
received and occupancy rates, and/or the
remaining terms of the REIT's leasehold
properties;

iii. Comparative summary of the financial

performance of the REIT covering various time
periods (e.g. quarterly, one (1) - year, three (3) year, five (5) - year or (l0) - year).

9.3 REIT Plan - The REIT plan or prospectus shall

comply with the requirements of the SRC and
disclose the risks specific to investing in REITs.

9.4 Failure of Compliance - Failure to comply with

reportorial and disclosure requirements shall
subject the REIT to the applicable penalties under
the SRC and the rules of the Exchange, without
prejudice to the filing of the appropriate
218

administrative, civil or criminal action under this

Act or existing laws.

registration of the investor securities by the

Commission; and/or

ARTICLE III

iii. Failure to distribute at least ninety percent

(90%) of its distributable income required under
Section 7 of this Act.

TAXES AND OTHER RELATED ISSUES

Section 10. Income Taxation of REITs. - A REIT

shall be subject to income tax under Chapter IV,
Title II of the National Internal Revenue Code of
1997, as amended, on its taxable net income as
defined in this Act: Provided, That in no case shall
a REIT be subject to the minimum corporate
income tax, as provided under Section 27(E) and
Section 28(A)(2) of the same Code: Provided,
further, That for purposes of computing the
taxable net income of a REIT, dividends
distributed by a REIT from its distributable
income after the close of a taxable year and on or
before the last day of the fifth (5") month
following the close of the taxable year shall be
considered as paid on the last day of such taxable
year.

A REIT shall be subject to the income tax on its

taxable net income as defined in Chapter V, Title
II of the National Internal Revenue Code of 1997,
as amended, instead of its taxable net income as
defined in this Act, upon the occurrence of any of
the following events subject to such curing period
as may be prescribed in the IRR of this Act:

i. Failure to maintain its status as a public

company as defined in Section 8.1 of this Act;

ii. Failure to maintain the listed status of the

investor securities on the Exchange and the

Section 11. Creditable Withholding Tax. - Income

payments to a REIT shall be subject to a lower
creditable withholding tax of one percent (1%).

Section 12. Transfer of Real Property. - Any

existing, law to the contrary notwithstanding, the
sale or transfer of real property to REITs, which
includes the sale or transfer of any and all
security interest thereto, shall be subject to fifty
percent (50%) of the applicable Documentary
Stamp Tax (DST) imposed under Title VII of the
National Internal Revenue Code of 1997, as
amended.

All applicable registration and annotation fees to

be paid, related or incidental to the transfer of
assets or the security interest thereto, shall be
fifty percent (50%) 'of the' applicable registration
and annotation fees.

The incentives granted under this section can be

availed of by an unlisted REIT, provided it is listed
with an Exchange not later than two (2) years
from the date of the initial availment of the
incentives.

The fifty percent (50%) of the applicable DST shall

nevertheless be due and demandable together
with the applicable surcharge, penalties, and
interest thereon reckoned from the date such
219

taxes should have been paid upon the occurrence

of any of the following events subject to such
curing period as may be prescribed in the IRR of
this Act:

i. Failure to list with an Exchange within the

period prescribed in this section;

ii. Failure to maintain its status as a public

company as defined in Section 8.1 of this Act;

iii. Failure to maintain the listed status of the

investor securities on the Exchange and the
registration of the investor securities by the
Commission; and/or

iv. Failure to distribute at least ninety percent

(90%) of its distributable income required under
Section 7 of this Act.

Section 13. Issuance and Transfer of Investor

Securities. - The following rules shall apply:

i. The original Issuance of investor securities shall

be subject to DST under Title VII of the National
Internal Revenue Code of 1997, as amended;

ii. Any sale, barter, exchange or other disposition

of listed investor securities through the Exchange,
including block sales or cross sales with prior
approval from the Exchange, shall be subject to
the stock transaction tax imposed under Section
127(a) of the National Internal Revenue Code of
1997, as amended;

iii. Any sale, barter or exchange or other

disposition of listed investor securities through
the Exchange, including block sales or cross sales
with prior approval from the Exchange, shall be
exempt from the DST prescribed under Title VII of
the National Internal Revenue Code of 1997, as
amended; and

iv. Any initial public offering and secondary

offering of investor securities shall be exempt
from the tax imposed under Section 127(b) of the
National Internal Revenue Code of 1997, as
amended.

Section 14. Dividends Paid by REITs. - Cash or

property dividends paid by a REIT shall be subject
to a final tax of ten percent (10%), unless: (a) the
dividends are received by a nonresident alien
individual or a nonresident foreign corporation
entitled to claim a preferential withholding tax
rate of less than ten percent (10%) pursuant to an
applicable tax treaty; or (b) the dividends are
received by a domestic corporation or resident
foreign corporation, or an overseas Filipino
investor in which case, they are exempt from
income tax or any withholding tax: Provided, That
in the case of overseas Filipino investors, they are
exempt from the dividends tax for seven (7) years
from the effectivity of the tax regulations
implementing this Act.

Section 15. VAT on Gross Sales or Gross Receipts

of RElTs. - A REIT shall be subject to value - added
tax (VAT) imposed under Title IV of the National
Internal Revenue Code of 1997, as amended, on
its gross sales from any disposal of real property,
and on its gross receipts from the rental of such
real property. A REIT shall not be considered as a
dealer in securities and shall not be subject to

220

VAT on its sale, exchange or transfer of securities

forming' part of its real estate - related assets.

Section 16. General Application of the National

Internal Revenue Code of 1997, as amended. Unless otherwise provided under this Act, the
internal revenue taxes under" the National
Internal Revenue Code of 1997, as amended, shall
apply.

Section 17. Delisting of REITs. - In the event the

REIT is delisted from the Exchange, whether
voluntarily or involuntarily, for failure to comply
with the provisions of this Act or rules of the
Exchange, the tax incentives granted under this
Act shall be ipso facto revoked and withdrawn as
of the date the delisting becomes final and
executory and any tax incentives that may have
been availed 'of by the REIT thereafter shall
immediately be refunded to the Government and
the surcharge and penalty prescribed by Section
19 hereof shall apply. If the delisting is for causes
highly prejudicial to the' interest of the investing
public such as violation of the disclosure and
related party provisions of this Act or insolvency
of the REIT due to mismanagement or
misappropriation, conversion, wastage or
dissipation of its corporate assets, the responsible
persons shall refund to its investors at the time of
final delisting the value of their shares.

ARTICLE IV
PENAL PROVISIONS

Section 18. Revocation of Registration. - If the

Commission finds out that the REIT was
established so as to seek the benefits of this Act
without a true, intention to carry out its

provisions and/or the IRR, the Commission shall

revoke or cancel the registration of the securities
of the REIT. The REIT shal1 pay the applicable
taxes plus interests and23 surcharges under the
National Internal Revenue Code of 1997, as
amended.

Section 19. Penalties. - A fine of not less than Two

hundred thousand pesos (Php200,000.00) nor
more than Five million pesos (Php5, 000.000.00)
or imprisonment of not less than six (6) years and
one (1) day nor more than twenty - one (21)
years, or both at the discretion of the court, shall
be imposed upon any person, association,
partnership or corporation, its officer, employee
or agent, who, acting alone or in connivance with
others, shall:

i. Understate or overstate
statements of the RElT;

the

financial

ii. Cause any loss, conversion, misappropriation of

the assets, securities or income of the REIT;

iii. Use another person to hold the legal title of

the shares of the REIT for his benefit for the
purpose of circumventing the minimum public
ownership prescribed in Section 8.1 of this Act;

iv. Allow himself to be used by another person to

hold legal title to the shares' of the REIT for the
purpose of circumventing the minimum public
ownership prescribed m Section 8.1 of this Act;

v. Submit false or misleading certification on the

minimum public ownership required by this Act;
or
221

vi. Violate any of the provisions of this Act, or the

rules and regulations promulgated under
authority hereof.

If the offender is a corporation, partnership or

association or other juridical entity, the penalty
may, at the discretion of the court, be imposed
upon such juridical entity and/or upon the officer
or officers of the corporation, partnership,
association or entity responsible for the violation,
and if such officer is an alien, he shall in addition
to the penalties prescribed, be deported without
further proceedings after service of sentence.

The prosecution and conviction of the offender

under this Act and the imposition of the above
penalties shall be without prejudice to the
administrative, civil and criminal liabilities of the
offender under the SRC.

ARTICLE V
MISCELLANEOUS PROVISIONS

Section 20. Corporate Governance. - The REIT

property manager and the REIT fund manager
shall be subject to the principles of corporate
governance adopted by the proper regulatory
body.

Section 21. Use of Registration Fees. - To carry

out the purposes of this Act, the. Commission
shall retain and use fifty percent (50%) of all fees
paid to it relative to the establishment of REITs
and the registration of their securities in addition
to its annual budget.

Section 22. Implementing Rules and Regulations.

- Within ninety (90) days from the effectivity of
this Act; the Commission, in coordination with
the Bangko Sentral ng Pilipinas (BSP) and the
Department of Finance (DOF) and in consultation
with other stakeholders such as the Philippine
Stock Exchange and the real estate industry, shall
promulgate the implementing rules and
regulations of the provisions of this Act: Provided,
That the Commission, the BSP and the DOF may
continue to issue separate regulations that will
apply exclusively to the institutions under their,
respective jurisdiction, consistent with the
implementing rules and regulations: Provided,
further, That the Commissioner of the Bureau of
Internal Revenue shall issue the lRR regarding all
tax provisions of this Act (Tax Regulations),
subject to the review of the Secretary of Finance,
in accordance with Section 4 of the National
Internal Revenue Code, as amended, after full
and
complete
consultation
with
all
concerned.1avvphi1

Section 23. Separability Clause. - If, for any

reason, any article or provision of this Act or any
portion therefore or application of such article,
provision or portion thereof to any person, group
or circumstance is declared invalid or
unconstitutional, the remainder of this Act shall
not be affected by such decision.

Section 24. Repealing Clause. - All laws, executive

orders, rules and regulations and parts thereof
which are inconsistent With this Act are hereby
repealed or amended accordingly.

Section 25. Effectivity Clause. - This Act shall take

effect fifteen (15) days after its complete
publication in the Official Gazette or in at least
222

two (2) newspapers of general circulation in the

Philippines.
________________________________________

Republic Act No. 9505

August 22, 2008

AN ACT ESTABLISHING A PROVIDENT PERSONAL

SAVINGS PLAN, KNOWN AS THE PERSONAL
EQUITY AND RETIREMENT ACCOUNT (PERA)

Be it enacted by the Senate and House of

Representatives of the Philippines in Congress
assembled::

SECTION 1. Title. - This Act shall be known as the

"Personal Equity and Retirement Account (PERA)
Act of 2008".

SEC. 2. Declaration of Policy. - It is declared the

policy of the State to promote capital market
development and savings mobilization by
establishing a legal and regulatory framework of
retirement plans for persons, comprised of
voluntary personal savings and investments. The
State recognizes the potential contribution of
PERA to long-term fiscal sustainability through
the, provision of long-term financing and
reduction of social pension benefits.

SEC. 3. Definition of Terms. -Unless the context

requires otherwise, the following terms shall
have the following significance as used in this Act:

qualification by the concerned Regulatory

Authority. The Administrator shall be responsible
for overseeing the PERA, whose core functions
shall include, but not limited to: reporting on
contributions made to the account, computing
the values of investments, educating the
Contributor, enforcing PERA contributions and
withdrawal limits, collecting appropriate taxes
and penalties for the government, securing BIR
Income Tax Credit Certificates for the
Contributor, consolidating reports on all
investments, income, expenses and withdrawals
on the account and ensuring that PERA
contributions are invested in accordance with the
prudential guidelines set by the Regulatory
Authorities.

(b) "Contributor" is any person with the capacity

to contract and possesses a tax identification
number. The Contributor establishes and makes
contributions to a PERA.

(c) "Custodian" is a separate and distinct entity

unrelated to the Administrator, accredited by the
Bangko Sentral ng Pilipinas, providing services in
connection with the custodianship of funds and
securities comprising the PERA investments. The
Custodian shall be responsible for receiving all
funds in connection with the PERA, maintaining
custody of all original securities, evidence of
deposits or other evidence of investment. The
Custodian shall operate independently from the
Administrator. The Custodian is required to
report to the Contributor and the concerned
Regulatory Authority at regular intervals all
financial transactions and all documents in its
custody under a PERA.

(a) "Administrator" is an entity accredited by the

Bureau of Internal Revenue (BIR), after pre
223

(d) "Early withdrawal" shall pertain to any

withdrawal prior to the period of distribution as
set forth under Section 12 hereof.

(e) "Investment Manager" is a regulated person

or entity authorized by a Contributor to make
investment decisions for his PERA. As such, it
shall assume fiduciary duty and responsibility for
PERA investments. An Investment Manager shall
act with utmost fidelity by observing policies
directed towards confidentiality, scrupulous care,
safety and prudent management of PERA funds.

(f) "Personal Equity and Retirement Account

(PERA)" refers to the voluntary retirement
account established by and for the exclusive use
and benefit of the Contributor for the purpose of
being invested solely in PERA investment
products in the Philippines. The Contributor shall
retain the ownership, whether legal or beneficial,
of funds placed therein, including all earnings of
such funds.

(g) "PERA Investment Product" refers to a unit

investment bust fund, mutual fund, annuity
contract, insurance pension products, pre-need
pension plan, shares of stock and other securities
listed and traded in a local exchange, exchangetraded bonds or any other investment product or
outlet which the concerned Regulatory Authority
may allow for PERA purposes: Provided, however,
That to qualify as a PERA investment product
under this Act, the product must be nonspeculative, readily marketable, and with a track
record of regular income payments to investors.
The concerned Regulatory Authority must first
approve the product before being granted taxexempt privileges by the BIR.

(h) "Regulatory Authority" refers to the Bangko

Sentral ng Pilipinas (BSP) as regards banks, other
supervised financial institutions and trust entities,
the Securities and Exchange Commission (SEC) for
investment companies, investment houses
stockbrokerages and pre-need plan companies,
and the Office of the Insurance Commission (OIC)
for insurance companies.

(i) "Oveseas Filipino" refers to (1) an individual

citizen of the Philippines who is working or
deriving income from abroad, including one who
retained or reacquired his Philippine citizenship
under Republic Act No. 9225, otherwise known as
the "Citizenship Retention and Reacquisition Act
of 2003"; or (2) the legitimate spouse, whether or
not said spouse is of Filipino ancestry, and the
children of the Filipino citizen mentioned in item
(1) hereof.

SEC. 4. Establishment of a PERA. - A Contributor

may create and maintain a maximum of five (5)
PERA, at any one time: Provided, That the
Contributor shall designate and maintain only
one (1) Administrator for all his PERA. The
Contributor shall make all investment decisions
pertaining to his PERA. However, he has the
option of appointing an Investment Manager,
either in writing or in electronic form, to make
investment decisions on his behalf without prior
consultation.

SEC. 5. Maximum Annual PERA Contributions. - A

Contributor may make an aggregate maximum
contribution of One hundred thousand pesos (P
l00,000.00) or its equivalent in any convertible
foreign currency at the prevailing rate at the time
of the actual contribution, to his her PERA per
year: Provided, That if the Contributor is married,
each of the spouses shall be entitled to make a
224

maximum contribution of One hundred thousand

pesos (P l00,000.00) or its equivalent in any
convertible foreign currency per year to his her
respective PERA: Provided, further, That if the
Contributor is an overseas Filipino, he shall be
allowed to make maximum contributions double
the allowable maximum amount. A Contributor
has the option to contribute more than the
maximum amount prescribed herein: Provided,
That the excess shall no longer be entitled to a
tax credit of five percent (5%). The Secretary of
Finance may adjust the maximum contribution
from time to time, taking into consideration the
present value of the said maximum contribution
using the Consumer Price Index as published by
the National Statistics Office, fiscal position of the
government and other pertinent factors.

SEC. 6. Employer's Contribution. - A private

employer may contribute to its employee's PERA
to the extent of the amount allowable to the
Contributor: Provided, however: That the
employer complies with the mandatory Social
Security System (SSS) contribution and retirement
pay under the Labor Code of the Philippines. Such
contribution shall be allowed as a deduction from
the employer's gross income. The Contributor,
however, retains the prerogative to make
investment decisions pertaining to his PERA.

SEC. 7. Separate Asset. -The PERA shall be kept

separate from the other assets of an
Administrator/Custodian and shall not be part of
the general assets of the Administrator/Custodian
for purposes of insolvency.

SEC. 8. Tax Treatment of Contributions. - The

Contributor shall be given an income tax credit
equivalent to five percent (5%) of the total PERA
contribution: Provided, however: That in no

instance can there be any refund of the said tax

credit arising from the PERA contributions. If the
Contributor is an overseas Filipino, he shall be
entitled to claim tax credit from any tax payable
to the national government under the National
Internal Revenue Code of 1997, as amended.

SEC. 9. Tax Treatment of Investment Income. - All

income earned from the investments and
reinvestments of the maximum amount allowed
herein is tax exempt.

SEC. 10. Tax Treatment of Distributions. - All

distributions in accordance with Section 12
hereof are tax exempt.

SEC. 11. Termination. -Any premature

termination shall be treated as an early
withdrawal under Section 13 hereof: Provided,
That the penalties thereunder shall not apply if
the entire proceeds there from are immediately
transferred to another PERA investment and/or
another Administrator.

SEC. 12. Distributions Upon Retirement/Death. Distributions may be made upon reaching the age
of fifty-five (55) years: Provided, That the
Contributor has made contributions to the PERA
for at least five (5) years. The distribution shall be
made in either lump sum or pension for a definite
period or lifetime pension, the choice of which
shall be at the option of the Contributor. The
Contributor, however, has the option to continue
the PERA. Complete distribution shall be made
upon the death of the Contributor, irrespective of
the age of the Contributor at the time of his
death.

225

SEC. 13. Penalty on Early Withdrawal. - Any early

withdrawal shall be subject to a penalty, the
amount of which would be determined by the
Secretary of Finance and payable to the
government: Provided, That the amount of the
penalty shall in no case be less than the tax
incentives enjoyed by the Contributor.

No early withdrawal penalty shall be imposed on

any withdrawal of any funds for the following
purposes:

(a) Qualification and disqualification standards for

Administrators, Custodians and Investment
Managers, including directors and officers
thereof;

(b) Qualified and/or eligible PERA investment

products;

(c) Valuation standards for PERA investments;

(a) For payment of accident or illness-related
hospitalization in excess of thirty (30) days; and

(b) For payment to a Contributor who has been

subsequently rendered permanently totally
disabled as defined under the Employees
Compensation Law, Social Security Law and
Government Service Insurance System Law.

SEC. 14. Non-Assignability. - No portion of the

assets of a PERA may be assigned, alienated,
pledged, encumbered, attached, garnished,
seized or levied upon. PERA assets shall not be
considered assets of the Contributor for purposes
of insolvency and estate taxes.

SEC. 15. Rules and Regulations. - Consistent with

the policy of promoting transparency in PERA
investment and thereby affording protection to
the Contributor, the Department of Finance, the
Bureau of Internal Revenue and the concerned
Regulatory Authorities, with the Bangko Sentral
ng Pilipinas as lead agency, shall coordinate to
establish uniform rules and regulations pertaining
to the following subject matters:

(d) Disclosure requirements on the terms and

conditions of the PERA investments;

(e) Minimum requirements imposed on the

Administrators as regards inculcating financial
literacy in investors;

(f) Ascertainment of client suitability for PERA

products;

(g) Fees to be charged by the Administrator,

Custodian or Investment Manager shall always be
reasonable and approved by the concerned
Regulatory Authority;

(h) Record-keeping, reporting and audit

requirement of Administrators and Custodians
pertaining to records for all contributions,
earnings and total account balances; and

(i) Other pertinent matters to be determined by

the Regulatory Authorities.
226

SEC. 16. Administration of Tax Incentives. - The

BIR shall issue the implementing rules and
regulations regarding all aspects of tax
administration relating to PERA. The BIR shall
coordinate the qualification standards of the
Administrator with the Regulatory Authorities.

SEC. 17. Penalty. - A fine of not less than Fifty

thousand pesos (P 50,000.00) nor more than Two
hundred thousand pesos (P 200,000.00) or
imprisonment of not less than six (6) years and
one (1) day to not more than twelve (12) years or
both such fine and imprisonment, at the
discretion of the court, shall be imposed upon
any person, association, partnership or
corporation, its officer, employee or agent, who,
acting alone or in connivance with others, shall:

(a) Act as Administrator, Custodian or Investment

Manager without being properly qualified or
without being granted prior accreditation by the
concerned Regulatory Authority;

(b) Invest the contribution without written or

electronically authenticated authority from the
Contributor, or invest the contribution in
contravention of the instructions of the
Contributor;

(c) Knowingly and willfully make any statement in

any application, report, or document required to
be filed under this Act, which statement is false
or misleading with respect to any material fact;

(d) Misappropriate or convert, to the prejudice of

the Contributor, contributions to and investments
or income from the PERA;

(e) By gross negligence, cause any loss,

conversion, or misappropriation of the
contributions to, or investments from, the PERA
or

(f) Violate any provision of this Act or rules and

regulations issued pursuant to this Act.
Notwithstanding the foregoing, any willful
violation by the accredited Administrator,
Custodian or Investment Manager of any of the
provisions of this Act, or its implementing rules
and regulations, or other terms and conditions of
the authority to act as Administrator, Custodian
or Investment Manager may be subject to the
administrative sanctions provided for in
applicable laws. The above penalties shall be
without prejudice to whatever civil and criminal
liability provided for under applicable laws for the
same act or omission.

SEC. 18. Abuse of the Tax Exemption and

Privileges. - Any person, natural or juridical, who
unduly avails of the tax exemption privileges
herein granted, possibly by co-mingling PERA
accounts in an investment with other
investments, when such person is not entitled
hereto, shall be subject to the penalties provided
in Section 17 hereof. In addition, the offender
shall refund to the government double the
amount of the tax exemptions and privileges
enjoyed under this Act, plus interest of twelve
percent (12%) per year from the date of
enjoyment of the tax exemptions and privileges
to the date of actual payment.

227

SEC. 19. Separability Clause. - If any provision or

part hereof is held invalid or unconstitutional, the
remainder of the law or the provision not
otherwise affected shall remain valid and
subsisting.

SEC. 20. Repealing Clause. - All laws, decrees,

orders, rules and regulations or parts thereof
inconsistent with this Act are hereby amended or
modified accordingly.

SEC. 21. Effectivity. -This Act shall take effect

fifteen (15) days following its publication in a
newspaper of general circulation: Provided, That
the tax incentives granted hereunder shall take
effect on January 1, 2009.
________________________________________
PRESIDENTIAL DECREE No. 129 February 15, 1973

GOVERNING THE ESTABLISHMENT, OPERATION

AND REGULATION OF INVESTMENT HOUSES

WHEREAS, there were pending before Congress,

prior to the promulgation of Proclamation No.
1081, dated September 21, 1972, urgent
measures proposing the regulation of the socalled investment banks;

WHEREAS, an extensive survey and study of the

Philippine financial system had been undertaken
in order to determine its adequacy in Philippine
economic development, and an integrated set of
recommendations were submitted;

WHEREAS, the recommendations, as endorsed

with modifications by the monetary authorities
and made the basis of this Decree, advocated the
enactment of the statutory framework within
which the underwriting of securities may be
governed and, to the extent that these entities
perform quasi-banking functions, to harmonize
their operations with national monetary goals.

NOW, THEREFORE, I, FERDINAND E. MARCOS,

President of the Philippines, by virtue of the
powers vested in me by the Constitution as
Commander-in-Chief of all the Armed Forces of
the Philippines, and pursuant to Proclamation No.
1081, dated September 21, 1972, and General
Order No. 1, dated September 22, 1972, as
amended, and in order to effect the desired
changes and reforms in the social, economic, and
political structure of our society, do hereby order
and decree and make part of the law of the land
the following:

Section 1. Title. This Decree shall be known as

"The Investment Houses Law".

Section 2. Scope. Any enterprise which engages in

the underwriting of securities of other
corporations shall be considered an "Investment
House" and shall be subject to the provisions of
this Decree and of other pertinent laws.

Nothing in this Decree shall be understood to

preclude other enterprises from engaging in the
mere buying and selling of short-term securities
of other persons or enterprises.

Section 3. Definitions. For the purpose of this

Decree, unless the context otherwise indicates,
228

the following definition of terms are hereby

adopted:

(a) "Underwriting" is the act or process of

guaranteeing the distribution and sale of
securities of any kind issued by another
corporation.

(b) "Securities" are written evidences of

ownership, interest, or participation, in an
enterprise, or written evidences of indebtedness
of a person or enterprise. It includes, but is not
limited to the instruments enumerated in Section
2 of the Securities Act (Commonwealth Act No.
83, as amended).

Section 4. Organization and registration.

Investment Houses shall be organized in the form
of stock corporations.

The Securities and Exchange Commission shall

not register the articles of incorporation of any
Investment House, or any amendment thereto,
unless it is satisfied from the evidence submitted
to it:

(a) That all the requirements of this Decree and of

existing laws or regulations to engage in the
business have been complied with;

(b) That the proposed enterprise will not be in

conflict with public interest and economic
growth;

(c) That the amount of capital, the proposed

organization, direction and administration, as
well as the integrity, experience and expertise of
the organizers and the proposed managerial staff,
provide reasonable assurance that the enterprise
will be conducted with financial prudence.

In determining compliance with the provisions of

subsections (b) and (c) above, the Securities and
Exchange Commission shall consult the Monetary
Board of the Central Bank of the Philippines.

All applications for registration of the articles of

incorporation of Investment Houses shall be
accompanied by:

1. At least three copies of the proposed articles of

incorporation; lawphi1.net

2. A statement under oath of the educational

background and experience of the organizers,
directors, and the proposed managerial staff, as
well as in information on any position
concurrently held by them in other financial or
banking institutions, if any;

3. A projected statement of assets and liabilities

of the proposed Investment House;

4. A tentative program of operation for one year,

including its investment direction and volume;
and

5. Such other information as the Securities and

Exchange Commission may require in support of
229

the application and to enable the Commission to

determine the justifiability of establishing the
proposed enterprise.

Any enterprise already in operation and

exercising the powers of an Investment House
prior to the effectivity of this Decree shall, within
six months therefrom, file an information sheet
with the Securities and Exchange Commission in
such form and containing such data as the
Securities and Exchange Commission may, at its
discretion, require, to enable the Commission to
determine, in consultation with the Monetary
Board, whether the enterprise meets the
requirements of this Decree.

Section 5. Citizenship requirements. The majority

of the voting stock of any Investment House shall
be owned by citizens of the Philippines. In
determining the percentage of foreign-owned
voting stocks in Investment Houses, the basis for
the computation shall be the citizenship of each
stockholder, and, with respect to corporate
owners of voting stock, the citizenship of the
individual owners of voting stock in the
corporation holding shares in that Investment
House.

The majority of the members of the Board shall

be citizens of the Philippines.

Section 6. Prohibitions. Except as may be

authorized by the Monetary Board, no director or
officer of an Investment House shall concurrently
be a director or officer of a bank, as defined in
Section 2 of the Republic Act No. 337, as
amended: Provided, however, That in no event
can a person be authorized to be concurrently an
officer of an Investment House and of a bank.

No Investment House shall engage in banking

operations as defined in Section 2 of Republic Act
No. 337, as amended.

Section 7. Powers. In addition to the powers

granted to corporations in general, an Investment
House is authorized to do the following:

1. Arrange to distribute on a guaranteed basis

securities of other corporations and of the
Government or its instrumentalities;

2. Participate in a syndicate undertaking

purchase and sell, distribute or arrange
distribute on a guaranteed basis securities
other corporations and of the Government or
instrumentalities;

to
to
of
its

3. Arrange to distribute or participate in a

syndicate undertaking to purchase and sell on a
best-efforts basis securities of other corporations
and of the Government or its instrumentalities;

4. Participate as soliciting dealer or selling group

member in tender offers, block sales, or exchange
offering or securities; deal in options, rights or
warrants relating to securities and such other
powers which a dealer may exercise under the
Securities Act (Act No. 83, as amended);

5. Promote, sponsor, or otherwise assist and

implement ventures, projects and programs that
contribute to the economy's development;

230

6. Act as financial consultant, investment adviser,

or broker;

7. Act as porfolio manager, and/or financial

agent, but not as trustee of a trust fund or trust
property as provided for in Chapter VII of
Republic Act No. 337, as amended;

8. Encourage companies to go public, and initiate

and/or promote, whenever warranted, the
formation, merger, consolidation, reorganization,
or recapitalization of productive enterprises, by
providing assistance or participation in the form
of debt or equity financing or through the
extension of financial or technical advice or
service;

9. Undertake or contract for researches, studies

and surveys on such matters as business and
economic conditions of various countries, the
structure of financial markets, the institutional
arrangements for mobilizing investments;

10. Acquire, own, hold, lease or obtain an interest

in real and/or personal property as may be
necessary or appropriate to carry on its objectives
and purposes;

11. Design pension, profit-sharing and other

employee benefits plans; and

12. Such other activities or business ventures as

are directly or indirectly related to the dealing in
securities and other commercial papers, unless
otherwise governed or prohibited by special laws,
in which case the special law shall apply.

Nothing in this section shall preclude other

enterprises not covered by this Decree from
engaging in the activities listed under subsections
(3) to (11) of this section, except as may
otherwise be governed by special laws.

Section 8. Capital. The minimum initial paid-incapital of any Investment House shall be twenty
million (P20,000,000) pesos.

Section 9. Credit policies. Investment Houses shall

coordinate their credit policies with the general
credit policies of the Monetary Board of the
Central Bank.

Section 10. Reports. Investment Houses shall

submit to the Securities and Exchange
Commission and to the Central Bank a semiannual report of operations and financial
condition, signed under oath by its chief
accountant and verified by its president.

The Securities and Exchange Commission may, at

its discretion, require Investment Houses to
include their underwriting commitments as
contingent accounts in their financial statements.

Section 11. Regulations. Within six months after

the approval of this Decree, the Securities and
Exchange Commission, in coordination with the
Central Bank, shall promulgate the necessary
rules and regulations implementing the
provisions of this Decree.

231

Section 12. Central Bank regulatory powers.

Investment Houses shall be subject to such
regulations of the Central Bank or non-bank
financial intermediaries as may be promulgated
pursuant to Section 2-B of Republic Act No. 337,
as amended. The regulations which may include,
but need not be limited to (a) minimum size of
fund acceptance or receipt, (b) methods of
marketing and distribution, (c) terms of
placement and maturities, and (d) uses of funds
may be modified by the Monetary Board insofar
as they apply to Investment Houses.

The Monetary Board may, at its discretion,

determine whether Investment Houses may be
permitted to perform quasi- banking functions as
defined in Section 2-D, subsection (b) of Republic
Act No. 337, as amended. The Monetary Board is
hereby authorized, at its discretion, to require
any enterprise which is engaged or proposes to
engage in quasi-banking functions to incorporate
as an Investment House. If the Monetary Board
decides to permit Investment Houses to engage
in quasi-banking functions, the Board may require
as a condition precedent the obtaining of a
certificate of authority for the purpose from the
Monetary Board.

Whenever the Monetary Board authorizes an

Investment House to engage in quasi-banking
functions, in accordance with the provisions of
this section, the Board may subject Investment
Houses to further regulations, pursuant to
Republic Act 337, as amended, which may include
but need not necessarily be limited to (a) liquidity
reserve requirements; (b) capital-to-risk assets
ratios; (c) interest rate ceilings; and (d) such other
constraints as the Board may deem necessary.

In the exercise of its authority in this section, the

Monetary Board may, whenever, it determines
that the circumstances so warrant subject an
Investment House to special examination.

Whenever on the basis of the reports submitted

by, or upon examination of the books and records
of, an Investment House, the Central Bank finds
that the Investment House is not complying with
the provisions of this section, with the pertinent
provisions of this Decree, of other laws, or of
orders, instructions, rules or regulations issued by
the Monetary Board pertaining non-bank
financial intermediaries and quasi-banking
activities, said Board shall forthwith issue a ceaseand-desist order upon the Investment House
concerned. Failure on the part of an Investment
House to comply with the cease-and-desist order
shall subject said Investment House to a fine not
exceeding two hundred (P200) pesos for every
day the order is violated, to be imposed by the
Monetary Board, without prejudice to the
penalties provided in Section 16 of this Decree.

Section 13. Applicability of Securities Act. An

Investment House may engage in the business of
a dealer or a broker under the Securities Act
without obtaining a separate license for the
purpose as required in Section 14 of the
Securities Act (C.A. No. 83, as amended).

Section 14. Applicability of Corporation Law. The

provisions of the Corporation Law (Act No. 1459,
as amended) insofar as they are not in conflict or
inconsistent with the provisions of this Decree
shall apply to Investment Houses.

Section 15. Transitory provisions. Existing

enterprises which are operating as Investment
232

Houses shall, within one year following the

approval of this Decree, comply with the
requirements hereof, except with respect to the
filing of an information sheet which shall be
complied with within six months as provided in
the last paragraph of Section 4 of this Decree.

Section 16. Penalties for violation. Upon proof

that an Investment House is violating or not
complying with the provisions of this Decree, of
other pertinent laws, of the terms or conditions
of its certificate of registration or charter, or of
orders, decisions, rulings or regulations issued by
the Securities and Exchange Commission or by
the Central Bank of the Philippines, the Securities
and Exchange Commission shall impose upon the
Investment House and collect a fine not
exceeding two hundred (P200) pesos per day for
every day during which such violation or noncompliance continues, and/or suspend its
certificate of registration. The officer or director
of the Investment House who ordered or
authorized the violation or non-compliance shall
be solidarily liable. The fine so imposed shall be
paid to the Government of the Philippines
through the Securities and Exchange Commission.

Without prejudice to the provisions of the

preceding paragraph any person, or any director
or officer of an Investment House who violates or
does not comply with the provisions of this
Decree, of other pertinent laws, of the terms or
conditions of its certificate of registration or
charter, or of orders, decisions, rulings or
regulations issued by the Securities and Exchange
Commission or by the Central Bank of the
Philippines, shall be punished by a fine of not
more than twenty thousand (P20,000) pesos, or
an imprisonment of not more than five years or
both, at the discretion of the Court.

Section 17. Separability clause. The provisions of

this Decree are hereby declared separable, and if
any clause, sentence, provision or section hereof,
or its application to any person or circumstance
should be declared invalid, such invalidity shall
not affect the other provisions of this Decree
which can be given force and effect without the
provisions which have been declared invalid.

Section 18. Repeal. All Acts and existing laws

inconsistent with this Decree are hereby
repealed.

Section 19. Effectivity. This Decree shall take

effect immediately.
________________________________________
Republic Act No. 8366

October 21, 1997

AN ACT LIBERALIZING THE PHILIPPINE

INVESTMENT HOUSE INDUSTRY, AMENDING
CERTAIN SECTIONS OF PRESIDENTIAL DECREE NO.
129, AS AMENDED, OTHERWISE KNOWN AS THE
INVESTMENT HOUSES LAW

Be it enacted by the Senate and House of

Representatives of the Philippines in Congress
assembled::

Section 1. Declaration of policy. It is the policy

of the State to expand and strengthen the capital
base of the economy in order to ensure sustained
economic growth and development. Toward this
end, the Philippine investment house industry is
hereby liberalized, increasing foreign equity
participation and raising the minimum
capitalization of investment houses to enable
233

them to meet the present and future demands of

the market.

Section 2. Sec. 5 of Presidential Decree No. 129,

as amended, otherwise known as the Investment
Houses Law, is hereby further amended, to read
as follows:

"Sec. 5. Citizenship requirements. At least forty

percent (40%) of the voting stock of any
Investment House shall be owned by citizens of
the Philippines. In determining the percentage of
foreign-owned voting stocks in Investment
Houses, the basis for the computation shall be
the citizenship of each stockholder, and, if the
stockholder is a corporation, the citizenship of
the individual stockholders holding voting shares
in that corporation. In approving foreign equity
applications in Investment Houses, the Securities
and Exchange Commission shall approve such
applications only if the same or similar rights are
enjoyed by Philippine nationals in the applicant's
country.

"Foreign nationals may become members of the

board of directors to the extent of the foreign
participation in the equity of said enterprise."

of this Act in the following manner: Two hundred

million pesos (P200,000,000) after the effectivity
of this Act and an additional Fifty million pesos
(P50,000,000) for every year thereafter until the
minimum capitalization is attained. The Monetary
Board may prescribe a higher minimum
capitalization in order to promote and ensure the
stability of the Philippine capital market and the
competitiveness of the investment house
industry in line with the national economic goals.
The Monetary Board shall, within six (6) months,
prescribe a risk assets to capital ratio and other
capital adequacy ratios in order to provide
broader protection to the investing public."

Section 4. This Act shall take effect fifteen (15)

days from its publication in a newspaper of
general circulation.
________________________________________

REPUBLIC ACT No. 5980

AN ACT REGULATING THE ORGANIZATION AND

OPERATION OF FINANCING COMPANIES.

Section 1. This Act shall be known as the

"Financing Company Act."
Section 3. Sec. 8 of the same Decree is hereby
amended to read as follows:

"Sec. 8. Capital requirements. In the case of

newly-organized Investment Houses, the
minimum paid-in capital shall be Three hundred
million pesos (P300,000,000). The minimum paidin capital of the existing Investment Houses shall
be Three hundred million pesos (P300,000,000)
to be built up in two (2) years after the effectivity

Section 2. Declaration of Policy. It is hereby

declared to be the policy of the State to regulate
the activities of financing companies to place
their operations on a sound, stable and efficient
basis, so that they may be in a better position to
extend effective service in a fair manner to the
general public and to industry, commerce and
agriculture; to curtail and prevent acts or
practices prejudicial to the public interests.
234

Section 3. Definition of Terms. As used in this Act,

the term:

(a) "Financing companies," hereinafter called

companies, are corporations, or partnerships,
except those regulated by the Central Bank of the
Philippines, the Insurance Commissioner and the
Cooperatives Administration Office, which are
primarily organized for the purpose of extending
credit facilities to consumers and to industrial,
commercial, or agricultural enterprises, either by
discounting or factoring commercial papers on
accounts receivable, or by buying and selling
contracts, leases, chattel mortgages, or other
evidences of indebtedness, or by leasing of motor
vehicles, heavy equipment and industrial
machinery, business and office machine and
equipment, appliances and other movable
property;

(b) "Securities and Exchange Commission" shall

mean the office of the Securities and Exchange
Commission of the Philippines;

(c) "Credit" shall mean any loan, mortgage, deed

of trust, advance, or discount; any conditional
sales contract, any contract to sell, or sale or
contract of sale of property or service, either for
present or future delivery, under which, part or
all the price is payable subsequent to the making
of such sale or contract; any rental-purchase
contract; any option, demand, lien, pledge, or
other claim against, or for the delivery of,
property or money, any purchase, or other
acquisition of or any credit upon the security of,
any obligation or claim arising out of the
foregoing; and any transaction or series of
transactions having a similar purpose or effect;
and

(d) "Purchase discount" is the difference between

the value of the receivable purchased or credit
assigned, and the net amount paid by the finance
company for such purchase or assignment,
exclusive of fees, service charges, interests and
other charges incident to the extension of credit.

Section 4. Grant of Authority to the Securities and

Exchange Commission. The Securities and
Exchange Commission of the Philippines is hereby
empowered to enforce the provisions of this Act.

Section 5. Limitation on Purchase Discount, Fees,

Service and Other Charges. In the case of
assignments of credit or the buying of installment
papers, accounts, receivables and other
evidences of indebtedness by financing
companies, the purchase discount, exclusive of
interest and other charges shall be limited to
fourteen (14%) per cent of the value of the credit
assigned or the value of the installment papers,
accounts receivable and other evidence of
indebtedness purchased based on a period of
twelve (12) months or less, and to one and onesixth (1 1/6%) per cent of each additional month
or fraction thereof in excess of twelve months,
regardless of the terms and conditions of the
assignment or purchase.

In the case of assignment of credit or the buying

of installment papers, accounts receivable and
other evidence of indebtedness pertaining to
appliances, furniture, and office equipment, the
purchase discount, exclusive of interest charges,
shall be limited to eighteen (18%) per cent of the
value at maturity of the credit assigned or
receivable purchased, based on a period of
twelve months or less, and to one and one-half (1
1/2%) per cent for each additional month or
235

fraction thereof in excess of twelve months,

regardless of the terms and conditions of the
assignment or purchase.

In case of factoring of accounts receivables or

other evidences of indebtedness, the discounting
rate that can be charged, exclusive of interest and
other charges, shall not exceed two per cent of
the value of the credit assigned or receivable
purchased for every thirty days, regardless of the
terms and conditions of the factoring agreement.

The Securities and Exchange Commission, in

consultation with the financing companies, shall
prescribe reasonable limitations on fees, service
and other charges which shall be uniform for all
financing companies, taking into consideration
the nature of the transaction or service and the
cost thereof to the financing companies.

Section 6. Form of Organization. Financing

companies shall be organized in the form of stock
corporations or general partnerships at least sixty
per centum of the capital of which is owned by
citizens of the Philippines and shall have a paidup capital of not less than five hundred thousand
pesos: Provided, however, That financing
companies duly existing and operating before the
approval of this Act shall comply with the
requirement that sixty (60%) per centum of the
capital be owned by citizens of the Philippines
within one year from the date of said approval.

Section 7. Requirement for Registration. Aside

from requiring compliance with the provisions of
the Corporation Law and the New Civil Code in
case of partnership the Securities and Exchange
Commission shall not register the articles of
incorporation or the articles of partnership of any

financing company unless his office is satisfied on

the evidence submitted to it that:

(a) all the requirements of existing laws to engage

in the business for which the applicant is
proposed to be incorporated or organized have
been complied with;

(b)
the
organization,
direction,
and
administration, as well as the integrity and
responsibility
of
the
organizers
and
administrators reasonably assume the protection
of the interest of the general public; and

(c) all the requirements of this Act have been

complied with: Provided, That financing
companies duly incorporated or registered prior
to the approval of this Act, and which are actually
existing and operating as such, shall file an
information sheet with the Securities and
Exchange Commission in the form to be
prescribed by the Securities and Exchange
Commission within sixty (60) days after notice
from the said Commission. No person,
association, partnership, or corporation shall hold
itself out as doing business as a "financing
company" or "finance and investment company"
or any other title or name tending to give the
public the impression that it is engaged in the
operations and activities of a financing company,
unless so authorized under this Act.

Section 8. Citizenship Requirement of the Board

of Directors. In the case of a corporation, at least
two-thirds of all members of the Board of
Directors of any financing company which may be
established after the approval of this Act, shall be
citizens of the Philippines. In the case of
partnerships, all the managing partners must be
236

citizens of the Philippines. In the case of

corporations and partnerships existing before the
approval of this Act compliance with this
provisions shall be required within the period of
one year from the date of said approval.

(b) Hold themselves out to be a financing

company, either through advertisement in
whatever form, whether in its stationary,
commercial paper, or other document, or
through other representations without authority;

Section 9. Revocation and Suspension of

Registration. The Securities and Exchange
Commission may revoke or suspend the
registration of any financing company by entering
an order to this effect together with its findings in
respect thereto, if upon investigation into the
affairs of said financing company or complaint by
any person, it shall appear that:

(c) Make use of a trade or firm name containing

the words "financing company" or "finance
company" or "finance and investment company"
or any other designation that would give the
public the impression that it is engaged in the
business of a financing company as defined in this
Act without authority; and

(d) Violate the provisions of this Act.

(a) it is insolvent; or

(b) it has violated any provision of this Act.

Section 10. Penalty. A fine of not less than five

thousand pesos (P5,000.00) and not more than
ten
thousand
pesos
(P10,000.00)
or
imprisonment for not more than six months or
both, at the discretion of the court, shall be
imposed upon:

1. Persons, associations, partnerships, or

corporations, including the managing officer
thereof, that shall:

(a) Engage in the business of a financing company

without authority from the Securities and
Exchange Commission;

2. Any officer, employee, or agent of a financing

company who shall:

(a) Knowingly and willingly make any statement

in any application, report, or document required
to be filed under this Act, which statement is
false or misleading with respect to any material
fact; or

(b) Overvalue or aid in overvaluing any security

for the purpose of influencing in any way the
action of the company on any loan, or
discounting line.

3. Any officer, employee, or examiner of the

Securities and Exchange Commission directly
charged with the implementation of this Act who
shall commit, connive, aid, or assist in the
commission of acts enumerated under
subsections 1 and 2 of this Section.
237

Section 11. Separability of Clause. If any provision

or section of this Act or the application thereof to
any person or circumstances is held invalid, the
other provisions or sections hereof and the
application of such provisions or sections to other
persons or circumstances shall not be affected
thereby.

Section 12. Repealing Clause. All Acts inconsistent

with this Act are hereby repealed.

Section 13. Effectivity. This Act shall take effect

upon its approval.
________________________________________
Republic Act No. 9474

May 22, 2007

AN ACT GOVERNING THE ESTABLISHMENT,

OPERATION AND REGULATION OF LENDING
COMPANIES

Be it enacted by the Senate and the House of

Representatives of the Philippines in Congress
assembled:

SECTION 1. Title. - This Act shall be known as the

""Lending Company Regulation Act of 2007"".

SEC. 2. Declaration of Policy. - It is hereby

declared the policy of the State to regulate the
establishment of lending companies and to place
their operation on a sound, efficient and stable
condition to derive the optimum advantages from
them as an additional source of credit; to prevent
and mitigate, as far as practicable, practices

prejudicial to public interest; and to lay down the

minimum requirements and standards under
which they may be established and do business.

SEC. 3. Definition of Terms. - For purposes of

implementing this Act, the following definitions
shall apply:

(a) Lending Company shall refer to a corporation

engaged in granting loans from its own capital
funds or from funds sourced from not more than
nineteen (19) persons. It shall not be deemed to
include banking institutions, investment houses,
savings and loan associations, financing
companies, pawnshops, insurance companies,
cooperatives and other credit institutions already
regulated by law. The term shall be synonymous
with lending investors.

(b) Debtor shall refer to a borrower or person

granted a loan by the lending company.

(c) Quasi-Bank shall refer to a non-bank financial

institution authorized by the BSP to engage in
quasi-banking functions and to borrow funds
from more than nineteen (19) lenders through
the issuance, endorsement or assignment with
recourse or acceptance of deposit substitutes as
defined in Section 95 of Republic Act No. 7653
(the ":New Central Bank Act":) for purposes of
relending or purchasing of receivables and other
obligations.

(d) Subsidiary shall refer to a corporation more

than fifty percent (50%) of the voting stock of
which is owned by a bank or quasi-bank.

238

(e) Affiliate shall refer to a corporation, the voting

stock of which, to the extent of fifty percent
(50%) or less, is owned by a bank or quasi-bank
which is related or linked to such institution
through common stockholders or such other
factors as may be determined by the Monetary
Board of the BSP.

(f) SEC shall refer to the Securities and Exchange

Commission.

(g) BSP shall refer to the Bangko Sentral ng

Pilipinas.

SEC. 4. Form of Organization. - A lending

company shall be established only as a
corporation: Provided That existing lending
investors organized as single proprietorships or
partnerships shall be disallowed from engaging in
the business of granting loans to the public one
year after the date of effectivity of this Act.

No lending company shall conduct business

unless granted an authority to operate by the
SEC.

SEC. 5. Capital. - The minimum paid in capital of

any lending company which may be established
after the effectivity of this Act shall be One
million
pesos
(P1,000,000.00):
Provided,
however, That lending companies established and
in operation prior thereto shall comply with the
minimum capitalization required under the
provisions of this Section within such time as may
be prescribed by the SEC which time shall, in no
case, be less than three years from the date of
effectivity of this Act and: Provided, further, That

the SEC may prescribe a higher minimum

capitalization if warranted by circumstances.

SEC. 6. Citizenship Requirements. - Upon the

effectivity of this Act, at least a majority of the
voting capital stock shall be owned by citizens of
the Philippines.

The percentage of foreign-owned voting stock in

any lending company existing prior to the
effectivity of this Act, if such percentage is in
excess of forty-nine percent (49%) of the voting
stock, shall not be increased but may be reduced
and, once reduced, shall not be increased
thereafter beyond forty-nine percent (49%) of the
voting stock of the lending company. The
percentage of foreign-owned voting stocks in any
lending company shall be determined by the
citizenship of the individual stockholders. In the
case of corporations owning shares in a lending
company, the citizenship of the individual owners
of voting stock in such corporations shall be the
basis in the computation of the percentage.

No foreign national may be allowed to own stock

unless the country of which he is a national
accords reciprocal rights to Filipinos.

SEC. 7. Amount and Charges on Loans. - A lending

company may grant loans in such amounts and
reasonable interest rates and charges as may be
agreed upon between the lending company and
the debtor: Provided, That the agreement shall
be in compliance with the provisions of Republic
Act No. 3765, otherwise known as the "Truth in
Lending Act" and Republic Act 7394, otherwise
known as the "Consumer Act of the Philippines":
Provided, further, That the Monetary Board, in
consultation with the SEC and the industry, may
239

prescribe such interest rate as may be warranted

by prevailing economic and social conditions.

SEC. 8. Maintenance of Books of Accounts and

Records. - Every lending company shall maintain
books of accounts and records as may be
required by the SEC and prescribed by the Bureau
of Internal Revenue and other government
agencies. In case a lending company engages in
other businesses, it shall maintain separate books
of accounts for these businesses.

The Manual of Accounts prescribed by the BSP for

lending investors shall continue to be adopted by
lending companies for uniform recording and
reporting of their operations, until a new Manual
of Accounts shall have been prescribed by the
SEC.

It shall issue the appropriate instruments and

documents to the parties concerned to evidence
its lending and borrowing transactions.

SEC. 9. Authority of the SEC. - The SEC is hereby

authorized to:

(a) Create a new division or bureau within its

control to regulate and supervise the operations
and activities of lending companies in the
country;

(b) Issue rules and regulations to implement the

provisions contained herein;

(c) Issue rules and regulations on, among other

things, minimum capitalization, uses of funds
received, method of marketing and distribution,
maturity of funds received, restrictions or
outright prohibition of purchases or sales of
receivables with or without recourse basis;

(d) Require from lending companies reports of

condition and such other reports necessary to
determine compliance with the provisions of this
Act;

(e) Exercise visitorial powers whenever deemed

necessary; and

(f) Impose such administrative sanctions including

suspension or revocation of the lending
company's authority to operate and the
imposition of fines for violations of this Act and
regulations issued by the SEC in pursuance
thereto.

SEC. 10. Implementing Rules and Regulations.

Within three months after the approval of this
Act, the SEC shall promulgate the necessary rules
and regulations implementing the provisions of
this Act.

SEC. 11. Delineation of Authority between SEC

and the BSP. - Lending companies shall be under
the supervision and regulation of the SEC:
Provided, however, That lending companies
which are subsidiaries and affiliates of banks and
quasi-banks shall be subject to BSP supervision
and examination in accordance with Republic Act
No. 7653: Provider further, That the Monetary
Board, after being satisfied that there is
reasonable ground to believe that a lending
240

company is being used as a conduit by a bank,

quasi-bank or their subsidiary/affiliate to
circumvent or violate BSP rules and regulations,
may order an examination of the lending
company's books and accounts.

d. Violate the provisions of this Act.

3. Any officer, employee, or agent of a lending

company who shall:
SEC. 12. Penalty. - A fine of not less than Ten
Thousand Pesos (P10,000.00) and not more than
Fifty
thousand
pesos(P50,000.00)
or
imprisonment of not less than six months but not
more than ten (10) years or both, at the
discretion of the court, shall be imposed upon:

1. Any person who shall engage in the business of

a lending company without a validly subsisting
authority to operate from the SEC.

2. The president, treasurer and other officers of

the corporation, including the managing officer
thereof, who shall knowingly and willingly:

a. Engage in the business of a lending company

without a validly subsisting authority to operate
from the SEC;

b. Hold themselves out to be a lending company,

either through advertisement in whatever form,
whether in its stationery, commercial paper, or
other
document,
or
through
other
representations without authority;

c. Make use of a trade or firm name containing

the words "lending company" or "lending
investor" or any other designation that would
give the public the impression that it is engaged
in the business of a lending company as defined
in this Act without authority; and

a. Knowingly and willingly make any statement in

any application, report, or document required to
be filed under this Act, which statement is false
or misleading with respect to any material fact;
and

b. Overvalue or aid in overvaluing any security for

the purpose of influencing in any way the action
of the company in any loan, or discounting line.

4. Any officer, employee or examiner of the SEC

directly charged with the implementation of this
Act or of other government agencies who shall
commit, connive, aid, or assist in the commission
of acts enumerated under Subsections 1 and 2 of
this Section.

SEC. 13. Matters not Covered by this Act. The

provisions of Republic Act No. 3765, otherwise
known as the "Truth in Lending Act", Republic Act
No. 7394 or the "Consumer Act of the
Philippines" and other existing laws, insofar as
they are not in conflict with any provision of this
Act, shall apply in matters not otherwise
specifically provided in this Act.

SEC. 14. Repealing Clause. - All laws, executive

orders, letters of instruction, rules and
regulations, or provisions thereof which are
inconsistent with the provisions of this Act are
241

hereby repealed,
accordingly.

amended

or

modified

SEC. 15. Separability Clause. - If any portion

hereof shall be held invalid or unconstitutional,
such invalidity or unconstitutionality shall not
affect the other provisions which shall remain in
full force and effect.

SEC. 16. Effectivity. - This Act shall take effect

fifteen (15) days after its publication in at least
two national newspapers of general circulation.

242