Commercial Laws

CHAPTER VIII Discharge of Negotiable
COMMERCIAL LAWS Instruments

TITLE II Bills of Exchange
13
13
OF THE PHILIPPINES CHAPTER IX Form and Interpretation 13
CHAPTER X Acceptance 14

Compendium
CHAPTER XI Presentment for Acceptance 14
CHAPTER XII Protest 15
CHAPTER XIII Acceptance for Honor 15
COMMERCIAL LAW CURRICULUM MAP CHAPTER XIV Payment for Honor 16
CHAPTER XV Bills in a Set 16
TITLE III Promissory Notes and Checks 16
Year Sem Course
CHAPTER XVI 16
3 1 Insurance TITLE IV General Provisions 16
CHAPTER XVII 16
Negotiable Instruments BP Blg 80 | The Corporation Code of the Philippines 17

TITLE I General Provisions, Definitions and
Classifications 17
Transportation Laws TITLE II Incorporation and Organization of Private
Corporations 18
➔ Carriage of Goods by Sea TITLE III Board of Directors/Trustees/Officers 21
➔ Land Transportation and TITLE IV Powers of Corporations 22
TITLE V Bylaws 25
Traffic Code TITLE VI Meetings 25
TITLE VII Stocks and Stockholders 26
➔ Maritime Commerce
TITLE VIII Corporate Books and Records 28
➔ Warsaw Convention TITLE IX Merger and Consolidation 28
TITLE X Appraisal Right 29
TITLE XI Non-Stock Corporations 30
2 Corporation Laws CHAPTER I Members 30
CHAPTER II Trustees and Officers 30
Electives CHAPTER III Distribution of Assets in Non-Stock
Corporations 31
Banking Laws TITLE XII Close Corporations 31
TITLE XIII Special Corporations 33
➔ Bank Secrecy Deposit CHAPTER I Educational Corporations 33
➔ Central Bank Act CHAPTER II Religious Corporations 33
TITLE XIV Dissolution 34
➔ General Banking Law TITLE XV Foreign Corporations 35
TITLE XVI Miscellaneous Provisions 37
Intellectual Property RA No 10607 | The Insurance Code 38

CHAPTER I The Contract of Insurance 39
Securities Regulation TITLE 1 What May be Insured 39
TITLE 2 Parties to the Contract 39
TITLE 3 Insurable Interest 39
Anti-Money Laundering TITLE 4 Concealment 40
TITLE 5 Representation 40

TITLE 6 The Policy 40
TABLE OF CONTENTS TITLE 7 Warranties 41
TITLE 8 Premium 42
PD No 115 | Trust Receipts Law 5 TITLE 9 Loss 42
TITLE 10 Notice of Loss 42
Act No 2031 | The Negotiable Instruments Law 6 TITLE 11 Double Insurance 43
TITLE I Negotiable Instruments in General 7 TITLE 12 Reinsurance 43
CHAPTER I Form and Interpretation 7 CHAPTER II Classes of Insurance 43
CHAPTER II Consideration 8 TITLE 1 Marine Insurance 43
CHAPTER III Negotiation 9 SUB-TITLE 1-A Definition 43
CHAPTER IV Rights of the Holder 9 SUB-TITLE 1-B Insurable Interest 43
CHAPTER V Liabilities of Parties 10 SUB-TITLE 1-C Concealment 43
CHAPTER VI Presentment for Payment 11 SUB-TITLE 1-D Representation 44
CHAPTER VII Notice of Dishonor 11 SUB-TITLE 1-E Implied Warranties 44
SUB-TITLE 1-F The Voyage and Deviation 44
© Compiled by Rehne Gibb Larena | JD-2 | University of San Carlos

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

SUB-TITLE 1-G Loss 44

RA No 4136 | Land Transportation and Traffic Code 90
SUB-TITLE 1-H Abandonment 45
CHAPTER I Preliminary Provisions Article 90
SUB-TITLE 1-I Measure of Indemnity 45
ARTICLE I Title and Scope of Act 90
TITLE 2 Fire Insurance 46
ARTICLE II Definitions 90
TITLE 3 Casualty Insurance 46
ARTICLE III Administration of Act 91
TITLE 4 Suretyship 46
CHAPTER II Registration of Motor Vehicles 92
TITLE 5 Life Insurance 47
ARTICLE I Duty to Register, Reports, Applications,
TITLE 6 Microinsurance 47 Classifications 92
CHAPTER II-A Financial Reporting Framework 47 ARTICLE II Registration Fees 93
CHAPTER III The Business of Insurance 48 ARTICLE III Registration Certificates, Records,
TITLE 1 Insurance Companies, Organization, Number Plates 95
Capitalization and Authorization 48 CHAPTER III Operation of Motor Vehicle 95
TITLE 2 Solvency 50 ARTICLE I License to Drive Motor Vehicles 95
TITLE 3 Assets 50 ARTICLE II Illegal Use of Licenses, Number Plates,
TITLE 4 Investments 51 Etc. 97
TITLE 5 Reserves 54 ARTICLE III Passengers and Freight 97
TITLE 6 Limit of Single Risk 55 ARTICLE IV Accessories of Motor Vehicles 97
TITLE 7 Reinsurance Transactions 55 CHAPTER IV Traffic Rules 98
TITLE 8 Annual Statement 55 ARTICLE I Speed Limit and Keeping to the Right
TITLE 9 Policy Forms 56 98
TITLE 10 Variable Contracts 59 ARTICLE II Overtaking and Passing a Vehicle, and
TITLE 11 Claims Settlement 60 Turning at Intersections 99
TITLE 12 Examination of Companies 61 ARTICLE III Right of Way and Signals 99
TITLE 13 Suspension or Revocation of Authority 61 ARTICLE IV Turning and Parking 99
TITLE 14 Appointment of Conservator 61 ARTICLE V Miscellaneous Traffic Rules 100
TITLE 15 Proceedings Upon Insolvency 61 CHAPTER V Penal and Other Provisions 100
TITLE 16 Consolidation and Merger of Insurance ARTICLE I Penalties 100
Companies 62 ARTICLE II Collection of Fees, Taxes and Fines,
TITLE 17 Mutualization of Stock Life Insurance Liens, Allotment of Funds 101
Companies 63 ARTICLE III Final Provisions 101
TITLE 18 Withdrawal of Foreign Insurance
Warsaw Convention 102
Companies 66
TITLE 19 Professional Reinsurers 66 CHAPTER I Scope of Definitions 102
TITLE 20 Holding Companies 67 CHAPTER II Transportation Documents 102
CHAPTER IV Sales Agencies and Technical Services 69 SECTION I Passenger Ticket 102
TITLE 1 Insurance Agents and Insurance Brokers SECTION II Baggage Check 102
69 SECTION III Air Waybill 103
TITLE 2 Reinsurance Brokers 70 CHAPTER III Liability of the Carrier 104
TITLE 3 Resident Agents 71 CHAPTER IV Provisions Relating to Combined
TITLE 4 Non-Life Company Underwriter 71 Transportation 105
TITLE 5 Adjusters 71 CHAPTER V General and Final Provisions 105
TITLE 6 Actuaries 72 Code of Commerce for Maritime Law 106
TITLE 7 Rating Organization and Rate Making 73 BOOK II Special Commercial Contracts 106
TITLE 8 Provision Common to Agents, Brokers TITLE VII Commercial Contracts for
and Adjusters 75 Transportation Overland 106
TITLE 9 Bancassurance 75 BOOK III Maritime Commerce 108
CHAPTER V Security Fund 75 TITLE I Vessels 108
CHAPTER VI Compulsory Motor Vehicle Liability TITLE II Persons Who May Take Part in Maritime
Insurance 76 Commerce 109
CHAPTER VII Mutual Benefit Associations and Trusts SECTION I Owners of Vessels and Ship Agents
for Charitable Uses 78 109
TITLE 1 Mutual Benefit Associations 78 SECTION II Captains and Masters of Vessels 111
TITLE 2 Trusts for Charitable Uses 80 SECTION III Officers and Crews of Vessels 113
CHAPTER VIII Trust Business in General 80 SECTION IV Supercargoes 116
CHAPTER IX Registration, Responsibilities and TITLE III Special Contracts of Maritime Commerce
Oversight of Self-Regulatory Organizations 80 116
CHAPTER X The Insurance Commissioner 82 SECTION I Charter Parties 116
TITLE l Administrative and Adjudicatory Powers 82 SECTION II Loans on Bottomry and
TITLE 2 Fees and Other Sources of Funds 83 Respondentia 121
TITLE IV Risks, Damages and Accidents of
CA No 65 | Carriage of Goods by Sea Act 84 Maritime Commerce 122
TITLE I 85 SECTION I Averages 122
TITLE II 87 SECTION II Arrivals Under Stress 124
Public Act No 521 | Carriage of Goods by Sea Act 88 SECTION III Collisions 124
© Compiled by RGL 2 of 211


SECTION IV Shipwrecks 125 ARTICLE I Privileges 143

TITLE V Proof and Liquidation of Averages 125 ARTICLE II Prohibitions 143
SECTION I Provisions Common to All Kinds of CHAPTER VII Transitory Provisions 143
Averages 125
SECTION II Liquidation of Gross Averages 126 RA No 8791 | The General Banking Law of 2000 144
SECTION III Liquidation of Ordinary Averages CHAPTER I Title and Classification of Banks 144
127 CHAPTER II Authority of the Bangko Sentral 144
CHAPTER III Organization, Management and
RA No 1405 | Secrecy of Bank Deposits Act 127 Administration of Banks, Quasi-Banks and Trust
Entities 145
RA No 7653 | The New Central Bank Act 127
CHAPTER IV Deposits, Loans and Other Operations
CHAPTER I Establishment and Organization of the 146
Bangko Sentral ng Pilipinas 128
ARTICLE I Operations of Universal Banks 146
ARTICLE I Creation, Responsibilities and
Corporate Powers of the Bangko Sentral 128 ARTICLE II Operations of Commercial Banks 147
ARTICLE II The Monetary Board 128 ARTICLE III Provisions Applicable to All Banks,
Quasi-Banks, and Trust Entities 147
ARTICLE III The Governor and Deputy Governors
of the Bangko Sentral 129 CHAPTER V Placement Under Conservatorship 151
ARTICLE IV Operations of the Bangko Sentral 130 CHAPTER VI Cessation of Banking Business 152
ARTICLE V Reports and Publications 133 CHAPTER VII Laws Governing Other Types of Banks
152
ARTICLE VI Profits, Losses, and Special Accounts
134 CHAPTER VIII Foreign Banks 152
CHAPTER II The Bangko Sentral and the Means of CHAPTER IX Trust Operations 153
Payment 134 CHAPTER X Final Provisions 154
ARTICLE I The Unit of Monetary Value 134
RA No 8293 | Intellectual Property Code of the
ARTICLE II Issue of Means of Payment 135 Philippines 154
A. Currency 135 PART I The Intellectual Property Office 154
B. Demand Deposits 135 PART II The Law on Patents 157
CHAPTER III Guiding Principles of Monetary CHAPTER I General Provisions 157
Administration by the Bangko Sentral 136
CHAPTER II Patentability 158
ARTICLE I Domestic Monetary Stabilization 136
CHAPTER III Right to a Patent 158
ARTICLE II International Monetary Stabilization136
CHAPTER IV Patent Application 159
CHAPTER IV Instruments of Bangko Sentral Action 137
CHAPTER V Procedure for Grant of Patent 159
ARTICLE I General Criterion 137
CHAPTER VI Cancellation of Patents and
ARTICLE II Operations in Gold and Foreign Substitution of Patentee 161
Exchange 137
CHAPTER VII Remedies of a Person with a Right
ARTICLE III Regulation of Foreign Exchange to a Patent 161
Operations of the Banks 137
CHAPTER VIII Rights of Patentees and
ARTICLE IV Loans to Banking and Other Financial Infringement of Patents 161
Institutions 138
CHAPTER IX Voluntary Licensing 163
A. Credit Policy 138
CHAPTER X Compulsory Licensing 164
B. Normal Credit Operations 138
CHAPTER XI Assignment and Transmission of
C. Special Credit Operation 138 Rights 166
D. Emergency Credit Operation 139 CHAPTER XII Registration of Utility Models 166
E. Credit Terms 139 CHAPTER XIII Industrial Design And
ARTICLE V Open Market Operations for the Layout-designs (Topographies) of Integrated
Account of the Bangko Sentral 139 Circuits 167
ARTICLE VI Composition of Bangko Sentral's PART III The Law on Trademarks, Service Marks and
Portfolio 140 Trade Names 169
ARTICLE VII Bank Reserves 140 PART IV The Law on Copyright 175
ARTICLE VIII Selective Regulation of Bank CHAPTER I Preliminary Provisions 175
Operations 141 CHAPTER II Original Works 176
ARTICLE IX Coordination of Credit Policies by CHAPTER III Derivative Works 176
Government Institutions 141
CHAPTER IV Works Not Protected 177
CHAPTER V Functions as Banker and Financial
Advisor of the Government 141 CHAPTER V Copyright or Economic Rights 177
ARTICLE I Functions as Banker of the CHAPTER VI Ownership of Copyright 177
Government 141 CHAPTER VII Transfer, Assignment And Licensing
ARTICLE II The Marketing and Stabilization of Of Copyright 177
Securities for the Account of the Government 142 CHAPTER VIII Limitations on Copyright 178
A. The Issue and Placing of Government CHAPTER IX Deposit and Notice 179
Securities 142 CHAPTER X Moral Rights 179
B. Bangko Sentral Support of the CHAPTER XI Rights to Proceeds in Subsequent
Government Securities Market 142 Transfers 179
ARTICLE III Functions as Financial Advisor of the CHAPTER XII Rights of Performers, Producers of
Government 142 Sounds Recordings and Broadcasting
CHAPTER VI Privileges and Prohibitions 143 Organizations 179
CHAPTER XIII Producers of Sound Recordings 180



CHAPTER XIV Broadcasting Organizations 180

CHAPTER XV Limitations on Protection 181
CHAPTER XVI Term of Protection 181
CHAPTER XVII Infringement 181
CHAPTER XVIII Scope of Application 183
CHAPTER XIX Institution of Actions 183
CHAPTER XX Miscellaneous Provisions 183
PART V Final Provisions 183
RA No 8799 | The Securities Regulations Code 184

CHAPTER I Title and Definitions 184
CHAPTER II Securities and Exchange Commission 185
CHAPTER III Registration of Securities 186
CHAPTER IV Regulation of Pre-Need Plans 189
CHAPTER V Reportorial Requirements 189
CHAPTER VI Protection of Shareholder Interests 190
CHAPTER VII Prohibitions on Fraud, Manipulation and
Insider Trading 191
CHAPTER VIII Regulation of Securities Market
Professionals 192
CHAPTER IX Exchanges and Other Securities Trading
Markets 194
CHAPTER X Registration, Responsibilities and
Oversight of Self-Regulatory Organizations 196
CHAPTER XI Acquisition and Transfer of Securities
and Settlement of Transactions in Securities 198
CHAPTER XII Margin and Credit 199
CHAPTER XIII General Provisions 200
RA No 9160 | Anti-Money Laundering Act of 2001 205



by virtue of possession and the face of the instrument to
be the owner. "Instrument" shall not include a document
PD No 115 | Trust Receipts Law as defined in this Decree.
(f) "Purchase" means taking by sale, conditional sale,
January 29, 1973 lease, mortgage, or pledge, legal or equitable.
PRESIDENTIAL DECREE NO. 115 (g) "Purchaser" means any person taking by purchase.
PROVIDING FOR THE REGULATION OF TRUST RECEIPT (h) "Security Interest" means a property interest in goods,
TRANSACTIONS documents or instruments to secure performance of
some obligations of the entrustee or of some third
WHEREAS, the utilization of trust receipts, as a persons to the entruster and includes title, whether or not
convenient business device to assist importers and expressed to be absolute, whenever such title is in
merchants solve their financing problems, had gained substance taken or retained for security only.
popular acceptance in international and domestic
business practices, particularly in commercial banking (i) "Person" means, as the case may be, an individual,
transactions; trustee, receiver, or other fiduciary, partnership,
corporation, business trust or other association, and two
WHEREAS, there is no specific law in the Philippines that or more persons having a joint or common interest.
governs trust receipt transactions, especially the rights
and obligations of the parties involved therein and the ( j) "Trust Receipt" shall refer to the written or printed
enforcement of the said rights in case of default or document signed by the entrustee in favor of the
violation of the terms of the trust receipt agreement; entruster containing terms and conditions substantially
complying with the provisions of this Decree. No further
WHEREAS, the recommendations contained in the report formality of execution or authentication shall be
on the financial system which have been accepted, with necessary to the validity of a trust receipt.
certain modifications by the monetary authorities
included, among others, the enactment of a law (k) "Value" means any consideration sufficient to support
regulating the trust receipt transactions; a simple contract.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President SECTION 4. What constitutes a trust receipt
of the Philippines, by virtue of the powers vested in me by transaction. — A trust receipt transaction, within the
the Constitution, as Commander-in-Chief of all the Armed meaning of this Decree, is any transaction by and
Forces of the Philippines, and pursuant to Proclamation between a person referred to in this Decree as the
No. 1081, dated September 21, 1972, and General Order No. entruster, and another person referred to in this Decree
1, dated September 22, 1972, as amended, and in order to as the entrustee, whereby the entruster, who owns or
effect the desired changes and reforms in the social, holds absolute title or security interests over certain
economic, and political structure of our society, do hereby specified goods, documents or instruments, releases the
order and decree and make as part of the law of the land same to the possession of the entrustee upon the latter's
the following: execution and delivery to the entruster of a signed
document called a "trust receipt" wherein the entrustee
SECTION 1. Short Title. — This Decree shall be known as binds himself to hold the designated goods, documents
the Trust Receipts Law. or instruments in trust for the entruster and to sell or
SECTION 2. Declaration of Policy. — It is hereby declared otherwise dispose of the goods, documents or
to be the policy of the state (a) to encourage and promote instruments with the obligation to turn over to the
the use of trust receipts as an additional and convenient entruster the proceeds thereof to the extent of the
aid to commerce and trade; (b) to provide for the amount owing to the entruster or as appears in the trust
regulation of trust receipt transactions in order to assure receipt or the goods, documents or instruments
the protection of the rights and the enforcement of themselves if they are unsold or not otherwise disposed
obligations of the parties involved therein; and (c) to of, in accordance with the terms and conditions specified
declare the misuse and/or misappropriation of goods or in the trust receipt, or for other purposes substantially
proceeds realized from the sale of goods, documents or equivalent to any of the following:
instruments released under trust receipts as a criminal 1. In the case of goods or documents, (a) to sell the goods
offense punishable under Article Three hundred and or procure their sale; or (b) to manufacture or process the
fifteen of the Revised Penal Code. goods with the purpose of ultimate sale: Provided, That,
SECTION 3. Definition of terms. — As used in this in the case of goods delivered under trust receipt for the
Decree, unless the context otherwise requires, the term purpose of manufacturing or processing before its
— ultimate sale, the entruster shall retain its title over the
goods whether in its original or processed form until the
(a) "Document" shall mean written or printed evidence of entrustee has complied fully with his obligation under
title to goods. the trust receipt; or (c) to load, unload, ship or transship or
(b) "Entrustee" shall refer to the person having or taking otherwise deal with them in a manner preliminary or
possession of goods, documents or instruments under a necessary to their sale; or
trust receipt transaction, and any successor in interest of 2. In the case of instruments, (a) to sell or procure their
such person for the purpose or purposes specified in the sale or exchange; or (b) to deliver them to a principal; or
trust receipt agreement. (c) to effect the consummation of some transactions
(c) "Entruster" shall refer to the person holding title over involving delivery to a depository or register; or (d) to
the goods, documents, or instruments subject of a trust effect their presentation, collection or renewal.
receipt transaction, and any successor in interest of such The sale of goods, documents or instruments by a person
person. in the business of selling goods, documents or
(d) "Goods" shall include chattels and personal property instruments for profit who, at the outset of the
other than: money, things in action, or things so affixed to transaction, has, as against the buyer, general property
land as to become a part thereof. rights in such goods, documents or instruments, or who
(e) "Instrument" means any negotiable instrument as sells the same to the buyer on credit, retaining title or
defined in the Negotiable Instrument Law; any certificate other interest as security for the payment of the purchase
of stock, or bond or debenture for the payment of money price, does not constitute a trust receipt transaction and
issued by a public or private corporation, or any certificate is outside the purview and coverage of this Decree.
of deposit, participation certificate or receipt, any credit SECTION 5. Form of trust receipts; contents. — A trust
or investment instrument of a sort marketed in the receipt need not be in any particular form, but every such
ordinary course of business or finance, whereby the receipt must substantially contain (a) a description of the
entrustee, after the issuance of the trust receipt, appears goods, documents or instruments subject of the trust



receipt; (2) the total invoice value of the goods and the conditions of the trust receipt; (2) receive the proceeds in
amount of the draft to be paid by the entrustee; (3) an trust for the entruster and turnover the same to the
undertaking or a commitment of the entrustee (a) to hold entruster to the extent of the amount owing to the
in trust for the entruster the goods, documents or entruster or as appears on the trust receipt; (3) insure the
instruments therein described; (b) to dispose of them in goods for their total value against loss from fire, theft,
the manner provided for in the trust receipt; and (c) to pilferage or other casualties; (4) keep said goods or
turn over the proceeds of the sale of the goods, proceeds thereof whether in money or whatever form,
documents or instruments to the entruster to the extent separate and capable of identification as property of the
of the amount owing to the entruster or as appears in the entruster; (5) return the goods, documents or
trust receipt or to return the goods, documents or instruments in the event of non-sale or upon demand of
instruments in the event of their non-sale within the the entruster; and (6) observe all other terms and
period specified therein. conditions of the trust receipt not contrary to the
The trust receipt may contain other terms and conditions provisions of this Decree.
agreed upon by the parties in addition to those SECTION 10. Liability of entrustee for loss. — The risk of
hereinabove enumerated provided that such terms and loss shall be borne by the entrustee. Loss of goods,
conditions shall not be contrary to the provisions of this documents or instruments which are the subject of a
Decree, any existing laws, public policy or morals, public trust receipt, pending their disposition, irrespective of
order or good customs. whether or not it was due to the fault or negligence of the
SECTION 6. Currency in which a trust receipt may be entrustee, shall not extinguish his obligation to the
denominated. — A trust receipt may be denominated in entruster for the value thereof.
Philippine currency or any foreign currency acceptable SECTION 11. Rights of purchaser for value and in good
and eligible as part of international reserves of the faith. — Any purchaser of goods from an entrustee with
Philippines, the provisions of existing law, executive right to sell, or of documents or instruments through
orders, rules and regulations to the contrary their customary form of transfer, who buys the goods,
notwithstanding: Provided, however, That in the case of documents, or instruments for value and in good faith
trust receipts denominated in foreign currency, payment from the entrustee, acquires said goods, documents or
shall be made in its equivalent in Philippine currency instruments free from the entruster's security interest.
computed at the prevailing exchange rate on the date SECTION 12. Validity of entruster's security interest as
the proceeds of sale of the goods, documents or against creditors. — The entruster's security interest in
instruments held in trust by the entrustee are turned over goods, documents, or instruments pursuant to the
to the entruster or on such other date as may be written terms of a trust receipt shall be valid as against all
stipulated in the trust receipt or other agreements creditors of the entrustee for the duration of the trust
executed between the entruster and the entrustee. receipt agreement.
SECTION 7. Rights of the entruster. — The entruster shall SECTION 13. Penalty clause. — The failure of an entrustee
be entitled to the proceeds from the sale of the goods, to turn over the proceeds of the sale of the goods,
documents or instruments released under a trust receipt documents or instruments covered by a trust receipt to
to the entrustee to the extent of the amount owing to the the extent of the amount owing to the entruster or as
entruster or as appears in the trust receipt, or to the appears in the trust receipt or to return said goods,
return of the goods, documents or instruments in case of documents or instruments if they were not sold or
non-sale, and to the enforcement of all other rights disposed of in accordance with the terms of the trust
conferred on him in the trust receipt provided such are receipt shall constitute the crime of estafa, punishable
not contrary to the provisions of this Decree. under the provisions of Article Three hundred and fifteen,
The entruster may cancel the trust and take possession of paragraph one (b) of Act Numbered Three thousand
the goods, documents or instruments subject of the trust eight hundred and fifteen, as amended, otherwise known
or of the proceeds realized therefrom at any time upon as the Revised Penal Code. If the violation or offense is
default or failure of the entrustee to comply with any of committed by a corporation, partnership, association or
the terms and conditions of the trust receipt or any other other juridical entities, the penalty provided for in this
agreement between the entruster and the entrustee, and Decree shall be imposed upon the directors, officers,
the entruster in possession of the goods, documents or employees or other officials or persons therein
instruments may, on or after default, give notice to the responsible for the offense, without prejudice to the civil
entrustee of the intention to sell, and may, not less than liabilities arising from the criminal offense.
five days after serving or sending of such notice, sell the SECTION 14. Cases not covered by this Decree. — Cases
goods, documents or instruments at public or private not provided for in this Decree shall be governed by the
sale, and the entruster may, at a public sale, become a applicable provisions of existing laws.
purchaser. The proceeds of any such sale, whether public
or private, shall be applied (a) to the payment of the SECTION 15. Separability clause. — If any provision or
expenses thereof; (b) to the payment of the expenses of section of this Decree or the application thereof to any
re-taking, keeping and storing the goods, documents or person or circumstance is held invalid, the other
instruments; (c) to the satisfaction of the entrustee's provisions or sections hereof and the application of such
indebtedness to the entruster. The entrustee shall receive provisions or sections to other persons or circumstances
any surplus but shall be liable to the entruster for any shall not be affected thereby.
deficiency. Notice of sale shall be deemed sufficiently SECTION 16. Repealing clause. — All Acts inconsistent
given if in writing, and either personally served on the with this Decree are hereby repealed.
entrustee or sent by post-paid ordinary mail to the
entrustee's last known business address. SECTION 17. This Decree shall take effect immediately.
SECTION 8. Entruster not responsible on sale by Done in the City of Manila, this 29th day of January, in the
entrustee. — The entruster holding a security interest year of Our Lord, nineteen hundred and seventy-three.
shall not, merely by virtue of such interest or having given (Trust Receipts Law, Presidential Decree No. 115, [January
the entrustee liberty of sale or other disposition of the 29, 1973])
goods, documents or instruments under the terms of the
trust receipt transaction, be responsible as principal or as
vendor under any sale or contract to sell made by the
entrustee.
Act No 2031 | The Negotiable
SECTION 9. Obligations of the entrustee. — The Instruments Law
entrustee shall (1) hold the goods, documents or
instruments in trust for the entruster and shall dispose of
them strictly in accordance with the terms and February 3, 1911


But nothing in this section shall validate any provision or
stipulation otherwise illegal. cdasia
TITLE I Negotiable Instruments in General
SECTION 6.Omission; Seal; Particular Money. — The
validity and negotiable character of an instrument are
CHAPTER I Form and Interpretation not affected by the fact that —
SECTION 1.Form of Negotiable Instruments. — An (a)It is not dated; or
instrument to be negotiable must conform to the
following requirements: cdasia (b)Does not specify the value given, or that any value has
been given therefor; or
(a)It must be in writing and signed by the maker or
drawer; (c)Does not specify the place where it is drawn or the
place where it is payable; or
(b)Must contain an unconditional promise or order to pay
a sum certain in money; (d)Bears a seal; or
(c)Must be payable on demand, or at a fixed or (e)Designates a particular kind of current money in which
determinable future time; payment is to be made. cdrep
(d)Must be payable to order or to bearer; and But nothing in this section shall alter or repeal any statute

requiring in certain cases the nature of the consideration
(e)Where the instrument is addressed to a drawee, he to be stated in the instrument.
must be named or otherwise indicated therein with
reasonable certainty. cda SECTION 7.When Payable on Demand. — An
instrument is payable on demand —
SECTION 2.Certainty as to Sum; What Constitutes. —
The sum payable is a sum certain within the meaning of (a)Where it is expressed to be payable on demand, or at
this Act, although it is to be paid — sight, or on presentation; or
(a)With interest; or (b)In which no time for payment is expressed.
(b)By stated installments; or Where an instrument is issued, accepted, or indorsed
when overdue, it is, as regards the person so issuing,
(c)By stated installments, with a provision that upon accepting, or indorsing it, payable on demand.
default in payment of any installment or of interest the
whole shall become due; or SECTION 8.When Payable to Order. — The instrument is
payable to order where it is drawn payable to the order
(d)With exchange, whether at a fixed rate or at the of a specified person or to him or his order. It may be
current rate; or drawn payable to the order of —
(e)With costs of collection or an attorney's fee, in case (a)A payee who is not maker, drawer, or drawee; or
payment shall not be made at maturity. cdrep
(b)The drawer or maker; or
SECTION 3.When Promise is Unconditional. — An
unqualified order or promise to pay is unconditional (c)The drawee; or
within the meaning of this Act, though coupled with — (d)Two or more payees jointly; or
(a)An indication of a particular fund out of which (e)One or some of several payees; or
reimbursement is to be made, or a particular account to (f)The holder of an office for the time being. cdpr
be debited with the amount; or
Where the instrument is payable to order the payee must
(b)A statement of the transaction which gives rise to the be named or otherwise indicated therein with reasonable
instrument. certainty.
But an order or promise to pay out of a particular fund is SECTION 9.When Payable to Bearer. — The instrument
not unconditional. is payable to bearer —
SECTION 4.Determinable Future Time; What (a)When it is expressed to be so payable; or
Constitutes. — An instrument is payable at a
determinable future time, within the meaning of this (b)When it is payable to a person named therein or
Act, which is expressed to be payable — bearer; or
(a)At a fixed period after date or sight; or (c)When it is payable to the order of a fictitious or
non-existing person, and such fact was known to the
(b)On or before a fixed or determinable future time person making it so payable; or
specified therein; or
(d)When the name of the payee does not purport to be
(c)On or at a fixed period after the occurrence of a the name of any person; or
specified event, which is certain to happen, though the
time of happening be uncertain. (e)When the only or last indorsement is an indorsement
in blank.
An instrument payable upon a contingency is not
negotiable, and the happening of the event does not cure SECTION 10.Terms, When Sufficient. — The instrument
the defect. cdphil need not follow the language of this Act, but any terms
are sufficient which clearly indicate an intention to
SECTION 5.Additional Provision Not Affecting conform to the requirements hereof. asiadc
Negotiability. — An instrument which contains an order
or promise to do any act in addition to the payment of SECTION 11.Date, Presumption As To. — Where the
money is not negotiable. But the negotiable character instrument or an acceptance or any indorsement thereon
of an instrument otherwise negotiable is not affected is dated, such date is deemed prima facie to be the true
by a provision which — date of the making, drawing, acceptance, or indorsement,
as the case may be.
(a)Authorizes the sale of collateral securities in case the
instrument be not paid at maturity; or SECTION 12.Antedated and Postdated. — The
instrument is not invalid for the reason only that it is
(b)Authorizes a confession of judgment if the instrument antedated or postdated, provided this is not done for an
be not paid at maturity; or illegal or fraudulent purpose. The person to whom an
(c)Waives the benefit of any law intended for the instrument so dated is delivered acquires the title thereto
advantage or protection of the obligor; or as of the date of delivery.
(d)Gives the holder an election to require something to be SECTION 13.When Date May Be Inserted. — Where an
done in lieu of payment of money. instrument expressed to be payable at a fixed period after
date is issued undated, or where the acceptance of an


instrument payable at a fixed period after sight is (g)Where an instrument containing the word "I promise
undated, any holder may insert therein the true date of to pay" is signed by two or more persons, they are
issue or acceptance, and the instrument shall be payable deemed to be jointly and severally liable thereon. cdasia
accordingly. The insertion of a wrong date does not avoid SECTION 18.Liability of Person Signing in Trade or
the instrument in the hands of a subsequent holder in Assumed Name. — No person is liable on the instrument
due course; but as to him, the date so inserted is to be whose signature does not appear thereon, except as
regarded as the true date. herein otherwise expressly provided. But one who signs
SECTION 14.Blanks; When May Be Filled. — Where the in a trade or assumed name will be liable to the same
instrument is wanting in any material particular, the extent as if he had signed in his own name.
person in possession thereof has a prima facie authority SECTION 19.Signature by Agent; Authority; How Shown.
to complete it by filling up the blanks therein. And a — The signature of any party may be made by a duly
signature on a blank paper delivered by the person authorized agent. No particular form of appointment is
making the signature in order that the paper may be necessary for this purpose; and the authority of the agent
converted into a negotiable instrument operates as a may be established as in other cases of agency.
prima facie authority to fill it up as such for any amount.
In order, however, that any such instrument when SECTION 20.Liability of Person Signing as Agent, and So
completed may be enforced against any person who Forth. — Where the instrument contains or a person adds
became a party thereto prior to its completion, it must be to his signature words indicating that he signs for or on
filled up strictly in accordance with the authority given behalf of a principal, or in a representative capacity, he is
and within a reasonable time. But if any such instrument, not liable on the instrument if he was duly authorized;
after completion, is negotiated to a holder in due course, but the mere addition of words describing him as an
it is valid and effectual for all purposes in his hands, and agent, or as filling a representative character, without
he may enforce it as if it had been filled up strictly in disclosing his principal, does not exempt him from
accordance with the authority given and within a personal liability.
reasonable time. SECTION 21.Signature by Procuration; Effect of . — A
SECTION 15.Incomplete Instrument Not Delivered. — signature by "procuration" operates as notice that the
Where an incomplete instrument has not been delivered, agent has but a limited authority to sign, and the
it will not, if completed and negotiated without authority, principal is bound only in case the agent in so signing
be a valid contract in the hands of any holder, as against acted within the actual limits of his authority.
any person whose signature was placed thereon before SECTION 22.Effect of Indorsement by Infant or
delivery. Corporation.— The indorsement or assignment of the
SECTION 16.Delivery; When Effectual; When Presumed. instrument by a corporation or by an infant passes the
— Every contract on a negotiable instrument is property therein, notwithstanding that from want of
incomplete and revocable until delivery of the instrument capacity the corporation or infant may incur no liability
for the purpose of giving effect thereto. As between thereon.
immediate parties, and as regards a remote party other SECTION 23.Forged Signature; Effect of . — When a
than a holder in due course, the delivery, in order to be signature is forged or made without the authority of the
effectual, must be made either by or under the authority person whose signature it purports to be, it is wholly
of the party making, drawing, accepting, or indorsing, as inoperative, and no right to retain the instrument, or to
the case may be; and in such case the delivery may be give a discharge therefor, or to enforce payment thereof
shown to have been conditional, or for a special purpose against any party thereto, can be acquired through or
only, and not for the purpose of transferring the property under such signature, unless the party against whom it is
in the instrument. But where the instrument is in the sought to enforce such right is precluded from setting up
hands of a holder in due course, a valid delivery thereof by the forgery or want of authority.
all parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no
longer in the possession of a party whose signature CHAPTER II Consideration
appears thereon, a valid and intentional delivery by him is SECTION 24.Presumption of Consideration. — Every
presumed until the contrary is proved. cdrp negotiable instrument is deemed prima facie to have
SECTION 17.Construction Where Instrument is been issued for a valuable consideration; and every
Ambiguous. — Where the language of the instrument is person whose signature appears thereon to have become
ambiguous or there are omissions therein, the following a party thereto for value.
rules of construction apply: SECTION 25.Value, What Constitutes. — Value is any
(a)Where the sum payable is expressed in words and also consideration sufficient to support a simple contract. An
in figures and there is a discrepancy between the two, the antecedent or pre-existing debt constitutes value; and is
sum denoted by the words is the sum payable; but if the deemed such whether the instrument is payable on
words are ambiguous or uncertain, reference may be had demand or at a future time.
to the figures to fix the amount; SECTION 26.What Constitutes Holder for Value. —
(b)Where the instrument provides for the payment of Where value has at any time been given for the
interest, without specifying the date from which interest instrument, the holder is deemed a holder for value in
is to run, the interest runs from the date of the respect to all parties who became such prior to that time.
instrument, and if the instrument is undated, from the SECTION 27.When Lien on Instrument Constitutes
issue thereof; Holder for Value. — Where the holder has a lien on the
(c)Where the instrument is not dated, it will be instrument, arising either from contract or by implication
considered to be dated as of the time it was issued; of law, he is deemed a holder for value to the extent of his
lien.
(d)Where there is a conflict between the written and
printed provisions of the instrument, the written SECTION 28.Effect of Want of Consideration. — Absence
provisions prevail; or failure of consideration is matter of defense as against
any person not a holder in due course; and partial failure
(e)Where the instrument is so ambiguous that there is
of consideration is a defense pro tanto, whether the
doubt whether it is a bill or note, the holder may treat it
failure is an ascertained and liquidated amount or
as either at his election;
otherwise.
(f)Where a signature is so placed upon the instrument
SECTION 29.Liability of Accommodation Party. — An
that it is not clear in what capacity the person making the
accommodation party is one who has signed the
same intended to sign, he is to be deemed an indorser;
instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of



lending his name to some other person. Such a person is whom an instrument so indorsed is negotiated will hold
liable on the instrument to a holder for value, the same, or the proceeds thereof, subject to the rights of
notwithstanding such holder at the time of taking the the person indorsing conditionally.
instrument knew him to be only an accommodation SECTION 40.Indorsement of Instrument Payable to
party. Bearer. — Where an instrument, payable to bearer, is
indorsed specially, it may nevertheless be further
CHAPTER III Negotiation negotiated by delivery; but the person indorsing specially
is liable as indorser to only such holders as make title
SECTION 30.What Constitutes Negotiation. — An through his indorsement.
instrument is negotiated when it is transferred from one
person to another in such manner as to constitute the SECTION 41.Indorsement Where Payable to Two or
transferee the holder thereof. If payable to bearer, it is More Persons. — Where an instrument is payable to the
negotiated by delivery; if payable to order, it is negotiated order of two or more payees or indorsees who are not
by the indorsement of the holder completed by delivery. partners, all must indorse, unless the one indorsing has
authority to indorse for the others.
SECTION 31.Indorsement; How Made. — The
indorsement must be written on the instrument itself or SECTION 42.Effect of Instrument Drawn or Indorsed to
upon a paper attached thereto. The signature of the a Person as Cashier. — Where an instrument is drawn or
indorser, without additional words, is a sufficient indorsed to a person as "cashier" or other fiscal officer of a
indorsement. bank or corporation, it is deemed prima facie to be
payable to the bank or corporation of which he is such
SECTION 32.Indorsement Must Be of Entire Instrument. officer; and may be negotiated by either the indorsement
— The indorsement must be an indorsement of the entire of the bank or corporation, or the indorsement of the
instrument. An indorsement which purports to transfer to officer.
the indorsee a part only of the amount payable, or which
purports to transfer the instrument to two or more SECTION 43.Indorsement Where Name is Misspelled,
indorsees severally, does not operate as a negotiation of and So Forth. — Where the name of a payee or indorsee
the instrument. But where the instrument has been paid is wrongly designated or misspelled, he may indorse the
in part, it may be indorsed as to the residue. instrument as therein described, adding, if he thinks fit,
his proper signature.
SECTION 33.Kinds of Indorsement. — An indorsement
may be either special or in blank; and it may also be SECTION 44.Indorsement in Representative Capacity. —
either restrictive or qualified, or conditional. Where any person is under obligation to indorse in a
representative capacity, he may indorse in such terms as
SECTION 34.Special Indorsement; Indorsement in to negative personal liability.
Blank. — A special indorsement specifies the person to
whom, or to whose order, the instrument is to be payable; SECTION 45.Time of Indorsement; Presumption. —
and the indorsement of such indorsee is necessary to the Except where an indorsement bears date after the
further negotiation of the instrument. An indorsement in maturity of the instrument, every negotiation is deemed
blank specifies no indorsee, and an instrument so prima facie to have been effected before the instrument
indorsed is payable to bearer, and may be negotiated by was overdue.
delivery. SECTION 46.Place of Indorsement; Presumption. —
SECTION 35.Blank Indorsement; How Changed to Except where the contrary appears, every indorsement is
Special Indorsement. — The holder may convert a blank presumed prima facie to have been made at the place
indorsement into a special indorsement by writing over where the instrument is dated.
the signature of the indorser in blank any contract SECTION 47.Continuation of Negotiable Character. —
consistent with the character of the indorsement. An instrument negotiable in its origin continues to be
SECTION 36.When Indorsement Restrictive. — An negotiable until it has been restrictively indorsed or
indorsement is restrictive which either — discharged by payment or otherwise.
(a)Prohibits the further negotiation of the instrument; or SECTION 48.Striking Out Indorsement. — The holder
may at any time strikeout any indorsement which is not
(b)Constitutes the indorsee the agent of the indorser; or necessary to his title. The indorser whose indorsement is
(c)Vests the title in the indorsee in trust for or to the use of struck out, and all indorsers subsequent to him, are
some other persons. cdasia thereby relieved from liability on the instrument.
But the mere absence of words implying power to SECTION 49.Transfer Without Indorsement; Effect of . —
negotiate does not make an indorsement restrictive. Where the holder of an instrument payable to his order
transfers it for value without indorsing it, the transfer
SECTION 37.Effect of Restrictive Indorsement; Rights of
vests in the transferee such title as the transferor had
Indorsee. — A restrictive indorsement confers upon the
therein, and the transferee acquires, in addition, the right
indorsee the right —
to have the indorsement of the transferor. But for the
(a)To receive payment of the instrument; purpose of determining whether the transferee is a
(b)To bring any action thereon that the indorser could holder in due course, the negotiation takes effect as of
bring; the time when the indorsement is actually made.
(c)To transfer his rights as such indorsee, where the form SECTION 50.When Prior Party May Negotiate
of the indorsement authorizes him to do so. Instrument. — Where an instrument is negotiated back
to a prior party, such party may, subject to the provisions
But all subsequent indorsees acquire only the title of the of this Act, reissue and further negotiate the same. But he
first indorsee under the restrictive indorsement. is not entitled to enforce payment thereof against any
SECTION 38.Qualified Indorsement. — A qualified intervening party to whom he was personally liable.
indorsement constitutes the indorser a mere assignor of
the title to the instrument. It may be made by adding to CHAPTER IV Rights of the Holder
the indorser's signature the words "without recourse" or
any words of similar import. Such an indorsement does SECTION 51.Right of Holder to Sue; Payment. — The
not impair the negotiable character of the instrument. holder of a negotiable instrument may sue thereon in his
own name; and payment to him in due course discharges
SECTION 39.Conditional Indorsement. — Where an the instrument.
indorsement is conditional, a party required to pay the
instrument may disregard the condition and make SECTION 52.What Constitutes a Holder in Due Course.
payment to the indorsee or his transferee whether the — A holder in due course is a holder who has taken the
condition has been fulfilled or not. But any person to instrument under the following conditions:


(a)That it is complete and regular upon its face; SECTION 62.Liability of Acceptor. — The acceptor by
(b)That he became the holder of it before it was overdue, accepting the instrument engages that he will pay it
and without notice that it had been previously according to the tenor of his acceptance; and admits —
dishonored, if such was the fact; (a)The existence of the drawer, the genuineness of his
(c)That he took it in good faith and for value; signature, and his capacity and authority to draw the
instrument; and
(d)That at the time it was negotiated to him he had no
notice of any infirmity in the instrument or defect in the (b)The existence of the payee and his then capacity to
title of the person negotiating it. indorse.
SECTION 53.When Person Not Deemed Holder in Due SECTION 63.When Person Deemed Indorser. — A person
Course. — Where an instrument payable on demand is placing his signature upon an instrument otherwise than
negotiated an unreasonable length of time after its issue, as maker, drawer, or acceptor is deemed to be an
the holder is not deemed a holder in due course. indorser, unless he clearly indicates by appropriate words
his intention to be bound in some other capacity.
SECTION 54.Notice Before Full Amount Paid. — Where
the transferee receives notice of any infirmity in the SECTION 64.Liability of Irregular Indorser. — Where a
instrument or defect in the title of the person negotiating person, not otherwise a party to an instrument, places
the same before he has paid the full amount agreed to be thereon his signature in blank before delivery, he is liable
paid therefor, he will be deemed a holder in due course as indorser, in accordance with the following rules:
only to the extent of the amount theretofore paid by him. (a)If the instrument is payable to the order of a third
SECTION 55.When Title Defective. — The title of a person person, he is liable to the payee and to all subsequent
who negotiates an instrument is defective within the parties.
meaning of this Act when he obtained the instrument, or (b)If the instrument is payable to the order of the maker
any signature thereto, by fraud, duress, or force and fear, or drawer, or is payable to bearer, he is liable to all parties
or other unlawful means, or for an illegal consideration, or subsequent to the maker or drawer.
when he negotiates it in breach of faith, or under such (c)If he signs for the accommodation of the payee, he is
circumstances as amount to a fraud. liable to all parties subsequent to the payee.
SECTION 56.What Constitutes Notice of Defect. — To SECTION 65.Warranty Where Negotiation by Delivery
constitute notice of an infirmity in the instrument or and So Forth. — Every person negotiating an
defect in the title of the person negotiating the same, the instrument by delivery or by a qualified indorsement
person to whom it is negotiated must have had actual warrants —
knowledge of the infirmity or defect, or knowledge of
such facts that his action in taking the instrument (a)That the instrument is genuine and in all respects what
amounted to bad faith. it purports to be;
SECTION 57.Rights of Holder in Due Course. — A holder (b)That he has a good title to it;
in due course holds the instrument free from any defect (c)That all prior parties had capacity to contract;
of title of prior parties, and free from defenses available to
prior parties among themselves, and may enforce (d)That he has no knowledge of any fact which would
payment of the instrument for the full amount thereof impair the validity of the instrument or render it valueless.
against all parties liable thereon. But when the negotiation is by delivery only, the warranty
SECTION 58.When Subject to Original Defenses. — In extends in favor of no holder other than the immediate
the hands of any holder other than a holder in due transferee.
course, a negotiable instrument is subject to the same The provisions of subdivision (c) of this section do not
defenses as if it were non-negotiable. But a holder who apply to persons negotiating public or corporation
derives his title through a holder in due course, and who securities, other than bills and notes.
is not himself a party to any fraud or illegality affecting
the instrument, has all the rights of such former holder in SECTION 66.Liability of General Indorser. — Every
respect of all parties prior to the latter. indorser who indorses without qualification, warrants,
to all subsequent holders in due course —
SECTION 59.Who is Deemed Holder in Due Course. —
Every holder is deemed prima facie to be a holder in due (a)The matters and things mentioned in subdivisions (a),
course; but when it is shown that the title of any person (b), and (c) of the next preceding section; and
who has negotiated the instrument was defective, the (b)That the instrument is at the time of his indorsement
burden is on the holder to prove that he or some person valid and subsisting.
under whom he claims acquired the title as holder in due And, in addition, he engages that on due presentment, it
course. But the last-mentioned rule does not apply in shall be accepted or paid, or both, as the case may be,
favor of a party who became bound on the instrument according to its tenor, and that if it be dishonored, and
prior to the acquisition of such defective title. the necessary proceedings on dishonor be duly taken, he
will pay the amount thereof to the holder, or to any
CHAPTER V Liabilities of Parties subsequent indorser who may be compelled to pay it.
SECTION 60.Liability of Maker. — The maker of a SECTION 67.Liability of Indorser Where Paper
negotiable instrument by making it engages that he will Negotiable by Delivery. — Where a person places his
pay it according to its tenor, and admits the existence of indorsement on an instrument negotiable by delivery he
the payee and his then capacity to indorse. incurs all the liabilities of an indorser.
SECTION 61.Liability of Drawer. — The drawer by drawing SECTION 68.Order in Which Indorsers are Liable. — As
the instrument admits the existence of the payee and his respects one another, indorsers are liable prima facie in
then capacity to indorse; and engages that on due the order in which they indorse; but evidence is
presentment the instrument will be accepted or paid, or admissible to show that as between or among
both, according to its tenor, and that if it be dishonored, themselves they have agreed otherwise. Joint payees or
and the necessary proceedings on dishonor be duly joint indorsees who indorse are deemed to indorse jointly
taken, he will pay the amount thereof to the holder, or to and severally.
any subsequent indorser who may be compelled to pay it. SECTION 69.Liability of an Agent or Broker. — Where a
But the drawer may insert in the instrument an express broker or other agent negotiates an instrument without
stipulation negativing or limiting his own liability to the indorsement, he incurs all the liabilities prescribed by
holder. section sixty-five of this Act, unless he discloses the name


of his principal and the fact that he is acting only as the instrument, and no place of payment is specified,
agent. presentment must be made to them all.
SECTION 79.When Presentment Not Required to
CHAPTER VI Presentment for Payment Charge the Drawer. — Presentment for payment is not
required in order to charge the drawer where he has no
SECTION 70.Effect of Want of Demand on Principal right to expect or require that the drawee or acceptor will
Debtor. — Presentment for payment is not necessary in pay the instrument.
order to charge the person primarily liable on the
instrument; but if the instrument is, by its terms, payable SECTION 80.When Presentment Not Required to
at a special place, and he is able and willing to pay it there Charge the Indorser. — Presentment for payment is not
at maturity, such ability and willingness are equivalent to required in order to charge an indorser where the
a tender of payment upon his part. But, except as herein instrument was made or accepted for his
otherwise provided, presentment for payment is accommodation and he has no reason to expect that the
necessary in order to charge the drawer and indorsers. instrument will be paid if presented.
SECTION 71.Presentment Where Instrument is Not SECTION 81.When Delay in Making Presentment is
Payable on Demand and Where Payable on Demand. Excused. — Delay in making presentment for payment is
— Where the instrument is not payable on demand, excused when the delay is caused by circumstances
presentment must be made on the day it falls due. beyond the control of the holder, and not imputable to
Where it is payable on demand, presentment must be his default, misconduct, or negligence. When the cause
made within a reasonable time after its issue, except that of delay ceases to operate, presentment must be made
in the case of a bill of exchange, presentment for with reasonable diligence.
payment will be sufficient if made within a reasonable SECTION 82.When Presentment May Be Dispensed
time after the last negotiation thereof. With. — Presentment for payment is dispensed with —
SECTION 72.What Constitutes a Sufficient Presentment. (a)Where after the exercise of reasonable diligence
— Presentment for payment, to be sufficient, must be presentment as required by this Act can not be made;
made —
(b)Where the drawee is a fictitious person;
(a)By the holder, or by some person authorized to receive
payment on his behalf; (c)By waiver of presentment, express or implied.
(b)At a reasonable hour on a business day; SECTION 83.When Instrument Dishonored by
Non-payment. — The instrument is dishonored by
(c)At a proper place as herein defined; non-payment when —
(d)To the person primarily liable on the instrument, or if (a)It is duly presented for payment and payment is
he is absent or inaccessible, to any person found at the refused or can not be obtained; or
place where the presentment is made. cdasia
(b)Presentment is excused and the instrument is overdue
SECTION 73.Place of Presentment. — Presentment for and unpaid.
payment is made at the proper place —
SECTION 84.Liability of Person Secondarily Liable,
(a)Where a place of payment is specified in the When Instrument Dishonored. — Subject to the
instrument and it is there presented; provisions of this Act, when the instrument is dishonored
(b)Where no place of payment is specified, but the by non-payment, an immediate right of recourse to all
address of the person to make payment is given in the parties secondarily liable thereon accrues to the holder.
instrument and it is there presented; SECTION 85.Time of Maturity. — Every negotiable
(c)Where no place of payment is specified and no address instrument is payable at the time fixed therein without
is given and the instrument is presented at the usual grace. When the day of maturity falls upon Sunday, or a
place of business or residence of the person to make holiday, the instrument is payable on the next succeeding
payment; business day. Instruments falling due or becoming
payable on Saturday are to be presented for payment on
(d)In any other case if presented to the person to make the next succeeding business day, except that
payment wherever he can be found, or if presented at his instruments payable on demand may, at the option of
last known place of business or residence. the holder, be presented for payment before twelve
SECTION 74.Instrument Must Be Exhibited. — The o'clock noon on Saturday when that entire day is not a
instrument must be exhibited to the person from whom holiday.
payment is demanded, and when it is paid must be SECTION 86.Time; How Computed. — When the
delivered up to the party paying it. instrument is payable at a fixed period after date, after
SECTION 75.Presentment Where Instrument Payable at sight, or after that happening of a specified event, the
Bank. — Where the instrument is payable at a bank, time of payment is determined by excluding the day
presentment for payment must be made during banking from which the time is to begin to run, and by including
hours, unless the person to make payment has no funds the date of payment.
there to meet it at any time during the day, in which case SECTION 87.Rule Where Instrument Payable at Bank. —
presentment at any hour before the bank is closed on Where the instrument is made payable at a bank it is
that day is sufficient. equivalent to an order to the bank to pay the same for the
SECTION 76.Presentment Where Principal Debtor is account of the principal debtor thereon.
Dead. — Where the person primarily liable on the SECTION 88.What Constitutes Payment in Due Course.
instrument is dead, and no place of payment is specified, — Payment is made in due course when it is made at or
presentment for payment must be made to his personal after the maturity of the instrument to the holder thereof
representative, if such there be, and if, with the exercise of in good faith and without notice that his title is defective.
reasonable diligence, he can be found.
SECTION 77.Presentment to Persons Liable as Partners.
— Where the persons primarily liable on the instrument CHAPTER VII Notice of Dishonor
are liable as partners, and no place of payment is SECTION 89.To Whom Notice of Dishonor Must Be
specified, presentment for payment may be made to any Given. — Except as herein otherwise provided, when a
one of them, even though there has been a dissolution of negotiable instrument has been dishonored by
the firm. non-acceptance or non-payment, notice of dishonor
SECTION 78.Presentment to Joint Debtors. — Where must be given to the drawer and to each indorser, and
there are several persons, not partners, primarily liable on any drawer or indorser to whom such notice is not given
is discharged.


SECTION 90.By Whom Given. — The notice may be given (a)If given at the place of business of the person to receive
by or on behalf of the holder, or by or on behalf of any notice, it must be given before the close of business hours
party to the instrument who might be compelled to pay it on the day following.
to the holder, and who, upon taking it up, would have a (b)If given at his residence, it must be given before the
right to reimbursement from the party to whom the usual hours of rest of the day following.
notice is given.
(c)If sent by mail, it must be deposited in the post-office
SECTION 91.Notice Given by Agent. — Notice of dishonor in time to reach him in usual course on the day following.
may be given by an agent either in his own name or in
the name of any party entitled to give notice, whether SECTION 104.Where Parties Reside in Different Places.
that party be his principal or not. casia — Where the person giving and the person to receive
notice reside in different places, the notice must be given
SECTION 92.Effect of Notice Given on Behalf of Holder. within the following times:
— Where notice is given by or on behalf of the holder, it
inures for the benefit of all subsequent holders and all (a)If sent by mail, it must be deposited in the post-office
prior parties who have a right of recourse against the in time to go by mail the day following the day of
party to whom it is given. dishonor, or if there be no mail at a convenient hour on
that day, by the next mail thereafter.
SECTION 93.Effect Where Notice is Given by Party
Entitled Thereto. — Where notice is given by or on behalf (b)If given otherwise than through the post-office, then
of a party entitled to give notice, it inures for the benefit within the time that notice would have been received in
of the holder and all parties subsequent to the party to due course of mail, if it had been deposited in the
whom notice is given. post-office within the time specified in the last
subdivision.
SECTION 94.When Agent May Give Notice. — Where the
instrument has been dishonored in the hands of an SECTION 105.When Sender Deemed to Have Given Due
agent, he may either himself give notice to the parties Notice. — Where notice of dishonor is duly addressed and
liable thereon, or he may give notice to his principal. If he deposited in the post-office, the sender is deemed to
give notice to his principal, he must do so within the have given due notice, notwithstanding any miscarriage
same time as if he were the holder, and the principal in the mails.
upon the receipt of such notice has himself the same SECTION 106.Deposit in Post-Office; What Constitutes.
time for giving notice as if the agent had been an — Notice is deemed to have been deposited in the
independent holder. post-office when deposited in any branch post-office or
SECTION 95.When Notice Sufficient. — A written notice in any letter box under the control of the post-office
need not be signed, and an insufficient written notice department.
may be supplemented and validated by verbal SECTION 107.Notice of Subsequent Party; Time of . —
communication. A misdescription of the instrument does Where a party receives notice of dishonor, he has, after
not vitiate the notice unless the party to whom the notice the receipt of such notice, the same time for giving notice
is given is in fact misled thereby. to antecedent parties that the holder has after the
SECTION 96.Form of Notice. — The notice may be in dishonor.
writing or merely oral and may be given in any terms SECTION 108.Where Notice Must Be Sent. — Where a
which sufficiently identify the instrument and indicate party has added an address to his signature, notice of
that it has been dishonored by non-acceptance or dishonor must be sent to that address; but if he has not
non-payment. It may in all cases be given by delivering it given such address, then the notice must be sent as
personally or through the mails. cdrep follows:
SECTION 97.To Whom Notice May Be Given. — Notice of (a)Either to the post-office nearest to his place of
dishonor may be given either to the party himself or to residence or to the post-office where he is accustomed to
his agent in that behalf. receive his letters; or
SECTION 98.Notice Where Party is Dead. — When any (b)If he lives in one place, and has his place of business in
party is dead, and his death is known to the party giving another, notice may be sent to either place; or
notice, the notice must be given to a personal
representative, if there be one, and if with reasonable (c)If he is sojourning in another place, notice may be sent
diligence he can be found. If there be no personal to the place where he is so sojourning.
representative, notice may be sent to the last residence or But where the notice is actually received by the party
last place of business of the deceased. within the time specified in this Act, it will be sufficient,
SECTION 99.Notice to Partners. — When the parties to though not sent in accordance with the requirement of
be notified are partners, notice to any one partner is this section.
notice to the firm even though there has been a SECTION 109.Waiver of Notice. — Notice of dishonor may
dissolution. be waived, either before the time of giving notice has
SECTION 100.Notice to Persons Jointly Liable. — Notice arrived or after the omission to give due notice, and the
to joint parties who are not partners must be given to waiver may be express or implied.
each of them, unless one of them has authority to receive SECTION 110.Whom Affected by Waiver. — Where the
such notice for the others. waiver is embodied in the instrument itself, it is binding
SECTION 101.Notice to Bankrupt. — Where a party has upon all parties; but, where it is written above the
been adjudged a bankrupt or an insolvent, or has made signature of an indorser, it binds him only.
an assignment for the benefit of creditors, notice may be SECTION 111.Waiver of Protest. — A waiver of protest,
given either to the party himself or to his trustee or whether in the case of a foreign bill of exchange or other
assignee. cdphil negotiable instrument, is deemed to be a waiver not only
SECTION 102.Time Within Which Notice Must Be Given. of a formal protest, but also of presentment and notice of
— Notice may be given as soon as the instrument is dishonor.
dishonored; and unless delay is excused as hereinafter SECTION 112.When Notice is Dispensed With. — Notice
provided, must be given within the times fixed by this of dishonor is dispensed with when, after the exercise of
Act. reasonable diligence, it can not be given to or does not
SECTION 103.Where Parties Reside in Same Place. — reach the parties sought to be charged.
Where the person giving and the person to receive notice SECTION 113.Delay in Giving Notice; How Excused. —
reside in the same place, notice must be given within the Delay in giving notice of dishonor is excused when the
following times: delay is caused by circumstances beyond the control of
the holder, and not imputable to his default, misconduct,



or negligence. When the cause of delay ceases to operate, the party secondarily liable, or unless the right of recourse

notice must be given with reasonable diligence. against such party is expressly reserved. acd
SECTION 114.When Notice Need Not Be Given to SECTION 121.Right of Party Who Discharges Instrument.
Drawer. — Notice of dishonor is not required to be given — Where the instrument is paid by a party secondarily
to the drawer in either of the following cases: liable thereon, it is not discharged; but the party so
(a)Where the drawer and drawee are the same person. paying it is remitted to his former rights as regard all
prior parties, and he may strike out his own and all
(b)When the drawee is a fictitious person or a person not subsequent indorsements, and again negotiate the
having capacity to contract. instrument, except —
(c)When the drawer is the person to whom the (a)Where it is payable to the order of a third person, and
instrument is presented for payment. has been paid by the drawer; and
(d)Where the drawer has no right to expect or require (b)Where it was made or accepted for accommodation,
that the drawee or acceptor will honor the instrument. and has been paid by the party accommodated.
(e)Where the drawer has countermanded payment. SECTION 122.Renunciation by Holder. — The holder may
SECTION 115.When Notice Need Not Be Given to expressly renounce his rights against any party to the
Indorser. — Notice of dishonor is not required to be given instrument before, at, or after its maturity. An absolute
to an indorser in either of the following cases: and unconditional renunciation of his rights against the
principal debtor made at or after the maturity of the
(a)Where the drawee is a fictitious person or a person not instrument discharges the instrument. But a
having capacity to contract, and the indorser was aware renunciation does not affect the rights of a holder in due
of the fact at the time he indorsed the instrument; course without notice. A renunciation must be in writing,
(b)Where the indorser is the person to whom the unless the instrument is delivered up to the person
instrument is presented for payment; primarily liable thereon.
(c)Where the instrument was made or accepted for his SECTION 123.Cancellation; Unintentional; Burden of
accommodation. Proof . — A cancellation made unintentionally, or under a
mistake or without the authority of the holder, is
SECTION 116.Notice of Non-payment Where Acceptance inoperative, but where an instrument or any signature
Refused. — Where due notice of dishonor by thereon appears to have been cancelled the burden of
non-acceptance has been given, notice of a subsequent proof lies on the party who alleges that the cancellation
dishonor by non-payment is not necessary, unless in the was made unintentionally, or under a mistake or without
meantime the instrument has been accepted. authority.
SECTION 117.Effect of Omission to Give Notice of SECTION 124.Alteration of Instrument; Effect of . —
Non-acceptance. — An omission to give notice of Where a negotiable instrument is materially altered
dishonor by non-acceptance does not prejudice the without the assent of all parties liable thereon, it is
rights of a holder in due course subsequent to the avoided, except as against a party who has himself made,
omission. authorized, or assented to the alteration, and subsequent
SECTION 118.When Protest Need Not Be Made; When indorsers.
Must Be Made. — Where any negotiable instrument has But when an instrument has been materially altered and
been dishonored it may be protested for non-acceptance is in the hands of a holder in due course, not a party to
or non-payment, as the case may be; but protest is not the alteration, he may enforce payment thereof
required except in the case of foreign bills of exchange. according to its original tenor.
SECTION 125.What Constitutes a Material Alteration. —
CHAPTER VIII Discharge of Negotiable Any alteration which changes —
Instruments
(a)The date;
SECTION 119.Instrument; How Discharged. — A
(b)The sum payable, either for principal or interest;
negotiable instrument is discharged —
(c)The time or place of payment;
(a)By payment in due course by or on behalf of the
principal debtor; (d)The number or the relations of the parties;
(b)By payment in due course by the party (e)The medium or currency in which payment is to be
accommodated, where the instrument is made or made;
accepted for accommodation; Or which adds a place of payment where no place of
(c)By the intentional cancellation thereof by the holder; payment is specified, or any other change or addition
which alters the effect of the instrument in any respect, is
(d)By any other act which will discharge a simple contract
a material alteration.
for the payment of money;
(e)When the principal debtor becomes the holder of the
instrument at or after maturity in his own right. TITLE II Bills of Exchange
SECTION 120.When Persons Secondarily Liable on,
Discharged. — A person secondarily liable on the CHAPTER IX Form and Interpretation
instrument is discharged —
SECTION 126.Bill of Exchange, Defined. — A bill of
(a)By any act which discharges the instrument; exchange is an unconditional order in writing addressed
(b)By the intentional cancellation of his signature by the by one person to another, signed by the person giving it,
holder; requiring the person to whom it is addressed to pay on
demand or at a fixed or determinable future time a sum
(c)By the discharge of a prior party;
certain in money to order or to bearer.
(d)By a valid tender of payment made by a prior party;
SECTION 127.Bill Not an Assignment of Funds in Hands
(e)By a release of the principal debtor, unless the holder's of Drawee. — A bill of itself does not operate as an
right of recourse against the party secondarily liable is assignment of the funds in the hands of the drawee
expressly reserved; available for the payment thereof, and the drawee is not
(f)By any agreement binding upon the holder to extend liable on the bill unless and until he accepts the same.
the time of payment, or to postpone the holder's right to SECTION 128.Bill Addressed to More Than One Drawee.
enforce the instrument, unless made with the assent of — A bill may be addressed to two or more drawees jointly,


whether they are partners or not; but not to two or more SECTION 140.What Constitutes a General Acceptance.
drawees in the alternative or in succession. — An acceptance to pay at a particular place is a general
SECTION 129.Inland and Foreign Bills of Exchange. — An acceptance, unless it expressly states that the bill is to be
inland bill of exchange is a bill which is, or on its face paid there only and not elsewhere.
purports to be, both drawn and payable within the SECTION 141.Qualified Acceptance. — An acceptance is
Philippine Islands. Any other bill is a foreign bill. Unless qualified which is —
the contrary appears on the face of the bill, the holder (a)Conditional; that is to say, which makes payment by
may treat it as an inland bill. the acceptor dependent on the fulfillment of a condition
SECTION 130.When Bill May Be Treated as Promissory therein stated;
Note. — Where in a bill drawer and drawee are the same (b)Partial; that is to say, an acceptance to pay part only of
person, or where the drawee is a fictitious person, or a the amount for which the bill is drawn;
person not having capacity to contract, the holder may
treat the instrument, at his option, either as a bill of (c)Local; that is to say, an acceptance to pay only at a
exchange or a promissory note. particular place;
SECTION 131.Referee in Case of Need. — The drawer of a (d)Qualified as to time;
bill and any indorser may insert thereon the name of a (e)The acceptance of some one or more of the drawees,
person to whom the holder may resort in case of need; but not of all.
that is to say, in case the bill is dishonored by
non-acceptance or non-payment. Such person is called SECTION 142.Rights of Parties as to Qualified
the referee in case of need. It is in the option of the holder Acceptance. — The holder may refuse to take a qualified
to resort to the referee in case of need or not, as he may acceptance, and if he does not obtain an unqualified
see fit. acceptance, he may treat the bill as dishonored by
non-acceptance. Where a qualified acceptance is taken,
the drawer and indorsers are discharged from liability on
CHAPTER X Acceptance the bill, unless they have expressly or impliedly authorized
SECTION 132.Acceptance; How Made, and So Forth. — the holder to take a qualified acceptance, or
The acceptance of a bill is the signification by the drawee subsequently assent thereto. When the drawer or an
of his assent to the order of the drawer. The acceptance indorser receives notice of a qualified acceptance, he
must be in writing and signed by the drawee. It must not must, within a reasonable time, express his dissent to the
express that the drawee will perform his promise by any holder, or he will be deemed to have assented thereto.
other means than the payment of money.
SECTION 133.Holder Entitled to Acceptance on Face of CHAPTER XI Presentment for Acceptance
Bill. — The holder of a bill presenting the same for SECTION 143.When Presentment for Acceptance Must
acceptance may require that the acceptance be written Be Made. — Presentment for acceptance must be made
on the bill, and, if such request is refused, may treat the —
bill as dishonored.
(a)Where the bill is payable after sight, or in any other
SECTION 134.Acceptance by Separate Instrument. — case, where presentment for acceptance is necessary in
Where an acceptance is written on a paper other than order to fix the maturity of the instrument; or
the bill itself, it does not bind the acceptor except in favor
of a person to whom it is shown and who, on the faith (b)Where the bill expressly stipulates that it shall be
thereof, receives the bill for value. presented for acceptance; or
SECTION 135.Promise to Accept; When Equivalent to (c)Where the bill is drawn payable elsewhere than at the
Acceptance. — An unconditional promise in writing to residence or place of business of the drawee.
accept a bill before it is drawn is deemed an actual In no other case is presentment for acceptance necessary
acceptance in favor of every person who, upon the faith in order to render any party to the bill liable.
thereof, receives the bill for value.
SECTION 144.When Failure to Present Releases Drawer
SECTION 136.Time Allowed Drawee to Accept. — The and Indorser. — Except as herein otherwise provided, the
drawee is allowed twenty-four hours after presentment in holder of a bill which is required by the next preceding
which to decide whether or not he will accept the bill; but section to be presented for acceptance must either
the acceptance, if given, dates as of the day of present it for acceptance or negotiate it within a
presentation. reasonable time. If he fail to do so, the drawer and all
SECTION 137.Liability of Drawee Retaining or indorsers are discharged.
Destroying Bill. — Where a drawee to whom a bill is SECTION 145.Presentment; How Made. — Presentment
delivered for acceptance destroys the same, or refuses for acceptance must be made by or on behalf of the
within twenty-four hours after such delivery, or within holder at a reasonable hour, on a business day and before
such other period as the holder may allow, to return the the bill is overdue, to the drawee or some person
bill accepted or non-accepted to the holder, he will be authorized to accept or refuse acceptance on his behalf;
deemed to have accepted the same. and
(a)Where a bill is addressed to two or more drawees who
SECTION 138.Acceptance of Incomplete Bill. — A bill may are not partners, presentment must be made to them all,
be accepted before it has been signed by the drawer, or unless one has authority to accept or refuse acceptance
while otherwise incomplete, or when it is overdue, or after for all, in which case presentment may be made to him
it has been dishonored by a previous refusal to accept, or only;
by non-payment. But when a bill payable after sight is (b)Where the drawee is dead, presentment may be made
dishonored by non-acceptance and the drawee to his personal representative;
subsequently accepts it, the holder, in the absence of any
different agreement, is entitled to have the bill accepted (c)Where the drawee has been adjudged a bankrupt or
as of the date of the first presentment. an insolvent, or has made an assignment for the benefit
of creditors, presentment may be made to him or to his
SECTION 139.Kinds of Acceptance. — An acceptance is trustee or assignee.
either general or qualified. A general acceptance assents
without qualification to the order of the drawer. A SECTION 146.On What Days Presentment May Be
qualified acceptance in express terms varies the effect of Made. — A bill may be presented for acceptance on any
the bill as drawn. day on which negotiable instruments may be presented
for payment under the provisions of sections seventy-two
and eighty-five of this Act. When Saturday is not


otherwise a holiday, presentment for acceptance may be dishonor, unless delay is excused as herein provided.
made before twelve o'clock, noon, on that day. When a bill has been duly noted, the protest may be
SECTION 147.Presentment Where Time is Insufficient. — subsequently extended as of the date of the noting.
Where the holder of a bill drawn payable elsewhere than SECTION 156.Protest; Where Made. — A bill must be
at the place of business or the residence of the drawee protested at the place where it is dishonored, except that
has no time with the exercise of reasonable diligence to when a bill drawn payable at the place of business or
present the bill for acceptance before presenting it for residence of some person other than the drawee has
payment on the day that it falls due, the delay caused by been dishonored by non-acceptance, it must be
presenting the bill for acceptance before presenting it for protested for non-payment at the place where it is
payment is excused, and does not discharge the drawers expressed to be payable, and no further presentment for
and indorsers. payment to, or demand on, the drawee is necessary.
SECTION 148.Where Presentment is Excused. — SECTION 157.Protest Both for Non-acceptance and
Presentment for acceptance is excused, and a bill may be Non-payment. — A bill which has been protested for
treated as dishonored by non-acceptance, in either of the non-acceptance may be subsequently protested for
following cases: non-payment.
(a)Where the drawee is dead, or has absconded, or is a SECTION 158.Protest Before Maturity Where Acceptor
fictitious person or a person not having capacity to Insolvent. — Where the acceptor has been adjudged a
contract by bill. bankrupt or an insolvent, or has made an assignment for
(b)Where, after the exercise of reasonable diligence, the benefit of creditors before the bill matures, the holder
presentment can not be made. may cause the bill to be protested for better security
against the drawer and indorsers.
(c)Where, although presentment has been irregular,
acceptance has been refused on some other ground. SECTION 159.When Protest Dispensed With. — Protest is
dispensed with by any circumstances which would
SECTION 149.When Dishonored by Non-acceptance. — dispense with notice of dishonor. Delay in noting or
A bill is dishonored by non-acceptance — protesting is excused when delay is caused by
(a)When it is duly presented for acceptance and such an circumstances beyond the control of the holder and not
acceptance as is prescribed by this Act is refused or can imputable to his default, misconduct, or negligence.
not be obtained; or When the cause of delay ceases to operate, the bill must
be noted or protested with reasonable diligence.
(b)When presentment for acceptance is excused, and the
bill is not accepted. SECTION 160.Protest Where Bill is Lost, and So Forth. —
When a bill is lost or destroyed or is wrongly detained
SECTION 150.Duty of Holder Where Bill Not Accepted. — from the person entitled to hold it, protest may be made
Where a bill is duly presented for acceptance and is not on a copy or written particulars thereof.
accepted within the prescribed time, the person
presenting it must treat the bill as dishonored by
non-acceptance or he loses the right of recourse against CHAPTER XIII Acceptance for Honor
the drawer and indorsers. SECTION 161.When Bill May Be Accepted for Honor. —
SECTION 151.Right of Holder Where Bill Not Accepted. — Where a bill of exchange has been protested for dishonor
When a bill is dishonored by non-acceptance, an by non-acceptance or protested for better security, and is
immediate right of recourse against the drawer and not overdue, any person not being a party already liable
indorsers accrues to the holder and no presentment for thereon may, with the consent of the holder, intervene
payment is necessary. and accept the bill supra protest for the honor of any
party liable thereon, or for the honor of the person for
whose account the bill is drawn. The acceptance for
CHAPTER XII Protest honor may be for part only of the sum for which the bill is
SECTION 152.In What Cases Protest Necessary. — Where drawn; and where there has been an acceptance for
a foreign bill appearing on its face to be such is honor for one party, there may be a further acceptance by
dishonored by non-acceptance, it must be duly protested a different person for the honor of another party.
for non-acceptance, and where such bill which has not SECTION 162.Acceptance for Honor; How Made. — An
previously been dishonored by non-acceptance is acceptance for honor supra protest must be in writing,
dishonored by non-payment, it must be duly protested and indicate that it is an acceptance for honor, and must
for non-payment. If it is not so protested, the drawer and be signed by the acceptor for honor.
indorsers are discharged. Where a bill does not appear on
its face to be a foreign bill, protest thereof in case of SECTION 163.When Deemed to Be an Acceptance for
dishonor is unnecessary. Honor of the Drawer. — Where an acceptance for honor
does not expressly state for whose honor it is made, it is
SECTION 153.Protest; How Made. — The protest must be deemed to be an acceptance for the honor of the drawer.
annexed to the bill, or must contain a copy thereof, and
must be under the hand and seal of the notary making
it, and must specify — SECTION 164.Liability of the Acceptor for Honor. — The
(a)The time and place of presentment; acceptor for honor is liable to the holder and to all parties
to the bill subsequent to the party for whose honor he
(b)The fact that presentment was made and the manner has accepted.
thereof;
SECTION 165.Agreement of Acceptor for Honor. — The
(c)The cause or reason for protesting the bill; acceptor for honor, by such acceptance engages that he
(d)The demand made and the answer given, if any, or the will on due presentment pay the bill according to the
fact that the drawee or acceptor could not be found. terms of his acceptance, provided it shall not have been
paid by the drawee, and provided also that it shall have
SECTION 154.Protest; By Whom Made. — Protest may be been duly presented for payment and protested for
made by — non-payment and notice of dishonor given to him.
(a)A notary public; or SECTION 166.Maturity of Bill Payable After Sight;
(b)By any respectable resident of the place where the bill Accepted for Honor. — Where a bill payable after sight is
is dishonored, in the presence of two or more credible accepted for honor, its maturity is calculated from the
witnesses. date of the noting for non-acceptance and not from the
SECTION 155.Protest; When to Be Made. — When a bill is date of the acceptance for honor.
protested, such protest must be made on the day of its


SECTION 167.Protest of Bill Accepted for Honor, and So the rights of a person who in due course accepts or pays
Forth. — Where a dishonored bill has been accepted for the part first presented to him.
honor supra protest or contains a reference in case of SECTION 180.Liability of Holder Who Indorses Two or
need, it must be protested for non-payment before it is More Parts of a Set to Different Persons. — Where the
presented for payment to the acceptor for honor or holder of a set indorses two or more parts to different
referee in case of need. persons he is liable on every such part, and every indorser
SECTION 168.Presentment for Payment to Acceptor for subsequent to him is liable on the part he has himself
Honor, How Made. — Presentment for payment to the indorsed, as if such parts were separate bills.
acceptor for honor must be made as follows: SECTION 181.Acceptance of Bills Drawn in Sets. — The
(a)If it is to be presented in the place where the protest for acceptance may be written on any part and it must be
non-payment was made, it must be presented not later written on one part only. If the drawee accepts more than
than the day following its maturity. one part, and such accepted parts are negotiated to
(b)If it is to be presented in some other place than the different holders in due course, he is liable on every such
place where it was protested, then it must be forwarded part as if it were a separate bill.
within the time specified in section one hundred and SECTION 182.Payment by Acceptor of Bills Drawn in
four. Sets. — When the acceptor of a bill drawn in a set pays it
SECTION 169.When Delay in Making Presentment is without requiring the part bearing his acceptance to be
Excused. — The provisions of section eighty-one apply delivered up to him, and that part at maturity is
where there is delay in making presentment to the outstanding in the hands of a holder in due course, he is
acceptor for honor or referee in case of need. liable to the holder thereon.
SECTION 170.Dishonor of Bill by Acceptor for Honor. — SECTION 183.Effect of Discharging One of a Set. —
When the bill is dishonored by the acceptor for honor it Except as herein otherwise provided, where any one part
must be protested for non-payment by him. of a bill drawn in a set is discharged by payment or
otherwise the whole bill is discharged.
CHAPTER XIV Payment for Honor

SECTION 171.Who May Make Payment for Honor. —
TITLE III Promissory Notes and Checks
Where a bill has been protested for non-payment, any
person may intervene and pay it supra protest for the CHAPTER XVI
honor of any person liable thereon or for the honor of the
person for whose account it was drawn. SECTION 184.Promissory Note, Defined. — A negotiable
promissory note within the meaning of this Act is an
SECTION 172.Payment for Honor; How Made. — The unconditional promise in writing made by one person to
payment for honor supra protest in order to operate as another, signed by the maker, engaging to pay on
such and not as a mere voluntary payment must be demand, or at a fixed or determinable future time, a sum
attested by a notarial act of honor which may be certain in money to order or to bearer. Where a note is
appended to the protest or form an extension to it. drawn to the maker's own order, it is not complete until
SECTION 173.Declaration Before Payment for Honor. — indorsed by him.
The notarial act of honor must be founded on a SECTION 185.Check, Defined. — A check is a bill of
declaration made by the payer for honor or by his agent exchange drawn on a bank payable on demand. Except
in that behalf declaring his intention to pay the bill for as herein otherwise provided, the provisions of this Act
honor and for whose honor he pays. applicable to a bill of exchange payable on demand apply
SECTION 174.Preference of Parties Offering to Pay for to a check.
Honor. — Where two or more persons offer to pay a bill SECTION 186.Within What Time a Check Must Be
for the honor of different parties, the person whose Presented. — A check must be presented for payment
payment will discharge most parties to the bill is to be within a reasonable time after its issue or the drawer will
given the preference. cdasia be discharged from liability thereon to the extent of the
SECTION 175.Effect on Subsequent Parties Where Bill is loss caused by the delay.
Paid for Honor. — Where a bill has been paid for honor, SECTION 187.Certification of Check; Effect of . — Where
all parties subsequent to the party for whose honor it is a check is certified by the bank on which it is drawn, the
paid are discharged, but the payer for honor is certification is equivalent to an acceptance.
subrogated for, and succeeds to, both the rights and
duties of the holder as regards the party for whose honor SECTION 188.Effect Where the Holder of Check Procures
he pays and all parties liable to the latter. it to be Certified. — Where the holder of a check
procures it to be accepted or certified, the drawer and all
SECTION 176.Where Holder Refuses to Receive Payment indorsers are discharged from liability thereon.
Supra Protest. — Where the holder of a bill refuses to
receive payment supra protest, he loses his right of SECTION 189.When Check Operates as an Assignment.
recourse against any party who would have been — A check of itself does not operate as an assignment of
discharged by such payment. any part of the funds to the credit of the drawer with the
bank, and the bank is not liable to the holder, unless and
SECTION 177.Rights of Payer for Honor. — The payer for until it accepts or certifies the check.
honor, on paying to the holder the amount of the bill and
the notarial expenses incidental to its dishonor, is entitled
to receive both the bill itself and the protest. TITLE IV General Provisions
CHAPTER XV Bills in a Set CHAPTER XVII

SECTION 178.Bills in Sets Constitute One Bill. — Where a SECTION 190.Short Title. — This Act shall be known as the
bill is drawn in a set, each part of the set being numbered Negotiable Instruments Law.
and containing a reference to the other parts, the whole
of the parts constitutes one bill. SECTION 191.Definition and Meaning of Terms. — In this
Act, unless the context otherwise requires —
SECTION 179.Rights of Holders Where Different Parts
are Negotiated. — Where two or more parts of a set are "Acceptance" means an acceptance completed by
negotiated to different holders in due course, the holder delivery or notification;
whose title first accrues is as between such holders the "Action" includes counterclaim and set-off;
true owner of the bill. But nothing in this section affects


"Bank" includes any person or association of persons SECTION 2. Corporation Defined. — A corporation is
carrying on the business of banking, whether an artificial being created by operation of law, having the
incorporated or not; right of succession and the powers, attributes and
"Bearer" means the person in possession of a bill or note properties expressly authorized by law or incident to its
which is payable to bearer; existence. (2)
"Bill" means bill of exchange, and "note" means SECTION 3. Classes of Corporations. — Corporations
negotiable promissory note; formed or organized under this Code may be stock or
non-stock corporations. Corporations which have capital
"Delivery" means transfer of possession, actual or stock divided into shares and are authorized to distribute
constructive, from one person to another; to the holders of such shares dividends or allotments of
"Holder" means the payee or indorsee of a bill or note, the surplus profits on the basis of the shares held are
who is in possession of it, or the bearer thereof; stock corporations. All other private corporations are
non-stock corporations. (3a)
"Indorsement" means an indorsement completed by
delivery; SECTION 4. Corporations Created by Special Laws
or Charters. — Corporations created by special laws or
"Instrument" means negotiable instrument; charters shall be governed primarily by the provisions of
"Issue" means the first delivery of the instrument, the special law or charter creating them or applicable to
complete in form, to a person who takes it as a holder; them, supplemented by the provisions of this Code,
insofar as they are applicable. (n)
"Person" includes a body of persons, whether
incorporated or not; SECTION 5. Corporators and Incorporators,
Stockholders and Members. — Corporators are those
"Value" means valuable consideration; who compose a corporation, whether as stockholders or
"Written" includes printed, and "writing" includes print. as members. Incorporators are those stockholders or
SECTION 192.Persons Primarily Liable on Instrument. — members mentioned in the articles of incorporation as
The person "primarily" liable on an instrument is the originally forming and composing the corporation and
person who by the terms of the instrument is absolutely who are signatories thereof.
required to pay the same. All other parties are Corporators in a stock corporation are called
"secondarily" liable. stockholders or shareholders. Corporators in a non-stock
SECTION 193.Reasonable Time, What Constitutes. — In corporation are called members. (4a)
determining what is a "reasonable time" or an SECTION 6. Classification of Shares. — The shares of
"unreasonable time," regard is to be had to the nature of stock of stock corporations may be divided into classes or
the instrument, the usage of trade or business (if any) series of shares, or both, any of which classes or series of
with respect to such instruments, and the facts of the shares may have such rights, privileges or restrictions as
particular case. may be stated in the articles of incorporation: Provided,
SECTION 194.Time, How Computed; When Last Day That no share may be deprived of voting rights except
Falls on Holiday. — Where the day, or the last day, for those classified and issued as "preferred" or "redeemable"
doing any act herein required or permitted to be done shares, unless otherwise provided in this Code: Provided,
falls on a Sunday or on a holiday, the act may be done on further, That there shall always be a class or series of
the next succeeding secular or business day. shares which have complete voting rights. Any or all of
the shares or series of shares may have a par value or
SECTION 195.Application of Act. — The provisions of this have no par value as may be provided for in the articles of
Act do not apply to negotiable instruments made and incorporation: Provided, however, That banks, trust
delivered prior to the taking effect hereof. companies, insurance companies, public utilities, and
SECTION 196.Cases Not Provided for in Act. — Any case building and loan associations shall not be permitted to
not provided for in this Act shall be governed by the issue no-par value shares of stock.
provisions of existing legislation, or in default thereof, by Preferred shares of stock issued by any corporation
the rules of the law merchant. may be given preference in the distribution of the assets
SECTION 197.Repeals. — All Acts and laws and parts of the corporation in case of liquidation and in the
thereof inconsistent with this Act are hereby repealed. distribution of dividends, or such other preferences as
may be stated in the articles of incorporation which are
SECTION 198.Time When Act Takes Effect. — This Act not violative of the provisions of this Code:Provided, That
shall take effect ninety days after its publication in the preferred shares of stock may be issued only with a stated
Official Gazette of the Philippine Islands shall have been par value. The Board of Directors, where authorized in the
completed. articles of incorporation, may fix the terms and conditions
Enacted: February 3, 1911 of preferred shares of stock or any series thereof:
Provided, That such terms and conditions shall be
(Negotiable Instruments Law, Act No. 2031, [February 3, effective upon filing of a certificate thereof with the
1911]) Securities and Exchange Commission.
Shares of capital stock issued without par value shall
BP Blg 80 | The Corporation Code of the be deemed fully paid and non-assessable and the holder
of such shares shall not be liable to the corporation or to
Philippines its creditors in respect thereto: Provided, That shares
without par value may not be issued for a consideration
less than the value of five (P5.00) pesos per share:
May 1, 1980 Provided, further, That the entire consideration received
by the corporation for its no-par value shares shall be
BATAS PAMBANSA BLG. 68 treated as capital and shall not be available for
THE CORPORATION CODE OF THE PHILIPPINES distribution as dividends.
A corporation may, furthermore, classify its shares for
the purpose of insuring compliance with constitutional or
TITLE I General Provisions, Definitions and legal requirements.
Classifications Except as otherwise provided by the articles of
SECTION 1. Title of the Code. — This Code shall be incorporation and stated in the certificate of stock, each
known as "The Corporation Code of the Philippines." (n) share shall be equal in all respects to every other share.


Where the articles of incorporation provide for SECTION 12. Minimum Capital Stock Required of
non-voting shares in the cases allowed by this Code, the Stock Corporations. — Stock corporations incorporated
holders of such shares shall nevertheless be entitled to under this Code shall not be required to have any
vote on the following matters: minimum authorized capital stock except as otherwise
1. Amendment of the articles of incorporation; specifically provided for by special law, and subject to the
provisions of the following section.
2. Adoption and amendment of bylaws;
SECTION 13. Amount of Capital Stock to be
3. Sale, lease, exchange, mortgage, pledge or other Subscribed and Paid for Purposes of Incorporation. —
disposition of all or substantially all of the corporate At least twenty-five (25%) percent of the authorized
property; capital stock as stated in the articles of incorporation
4. Incurring, creating or increasing bonded must be subscribed at the time of incorporation, and at
indebtedness; least twenty-five (25%) percent of the total subscription
must be paid upon subscription, the balance to be
5. Increase or decrease of capital stock; payable on a date or dates fixed in the contract of
6. Merger or consolidation of the corporation with subscription without need of call, or in the absence of a
another corporation or other corporations; fixed date or dates, upon call for payment by the board of
directors: Provided, however, That in no case shall the
7. Investment of corporate funds in another paid-up capital be less than five thousand (P5,000.00)
corporation or business in accordance with this Code; and pesos. (n)
8. Dissolution of the corporation. SECTION 14. Contents of Articles of Incorporation. —
Except as provided in the immediately preceding All corporations organized under this Code shall file with
paragraph, the vote necessary to approve a particular the Securities and Exchange Commission articles of
corporate act as provided in this Code shall be deemed to incorporation in any of the official languages, duly signed
refer only to stocks with voting rights. (5a) and acknowledged by all of the incorporators, containing
SECTION 7. Founders' Shares. — Founders' shares substantially the following matters, except as otherwise
classified as such in the articles of incorporation may be prescribed by this Code or by special law:
given certain rights and privileges not enjoyed by the 1. The name of the corporation;
owners of other stocks, provided that where the exclusive 2. The specific purpose or purposes for which the
right to vote and be voted for in the election of directors is corporation is being incorporated. Where a corporation
granted, it must be for a limited period not to exceed five has more than one stated purpose, the articles of
(5) years subject to the approval of the Securities and incorporation shall state which is the primary purpose
Exchange Commission. The five (5) year period shall and which is/are the secondary purpose or purposes:
commence from the date of the aforesaid approval by the Provided, That a non-stock corporation may not include a
Securities and Exchange Commission. purpose which would change or contradict its nature as
SECTION 8. Redeemable Shares. — Redeemable such;
shares may be issued by the corporation when expressly 3. The place where the principal office of the
so provided in the articles of incorporation. They may be corporation is to be located, which must be within the
purchased or taken up by the corporation upon the Philippines;
expiration of a fixed period, regardless of the existence of
unrestricted retained earnings in the books of the 4. The term for which the corporation is to exist;
corporation, and upon such other terms and conditions 5. The names, nationalities and residences of the
as may be stated in the articles of incorporation, which incorporators;
terms and conditions must also be stated in the
certificate of stock representing said shares. (n) 6. The number of directors or trustees, which shall not
be less than five (5) nor more than fifteen (15);
SECTION 9. Treasury Shares. — Treasury shares are
shares of stock which have been issued and fully paid for, 7. The names, nationalities and residences of the
but subsequently reacquired by the issuing corporation persons who shall act as directors or trustees until the
by purchase, redemption, donation or through some first regular directors or trustees are duly elected and
other lawful means. Such shares may again be disposed qualified in accordance with this Code;
of for a reasonable price fixed by the board of directors. 8. If it be a stock corporation, the amount of its
(n) authorized capital stock in lawful money of the
Philippines, the number of shares into which it is divided,
and in case the shares are par value shares, the par value
TITLE II Incorporation and Organization of Private of each, the names, nationalities and residences of the
Corporations original subscribers, and the amount subscribed and paid
by each on his subscription, and if some or all of the
SECTION 10. Number and Qualifications of shares are without par value, such fact must be stated;
Incorporators. — Any number of natural persons not less
than five (5) but not more than fifteen (15), all of legal age
and a majority of whom are residents of the Philippines, 9. If it be a non-stock corporation, the amount of its
may form a private corporation for any lawful purpose or capital, the names, nationalities and residences of the
purposes. Each of the incorporators of a stock corporation contributors and the amount contributed by each; and
must own or be a subscriber to at least one (1) share of
10. Such other matters as are not inconsistent with
the capital stock of the corporation. (6a)
law and which the incorporators may deem necessary
SECTION 11. Corporate Term. — A corporation shall and convenient.
exist for a period not exceeding fifty (50) years from the
The Securities and Exchange Commission shall not
date of incorporation unless sooner dissolved or unless
accept the articles of incorporation of any stock
said period is extended. The corporate term, as originally
corporation unless accompanied by a sworn statement of
stated in the articles of incorporation, may be extended
the Treasurer elected by the subscribers showing that at
for periods not exceeding fifty (50) years in any single
least twenty-five (25%) percent of the authorized capital
instance by an amendment of the articles of
stock of the corporation has been subscribed, and at least
incorporation, in accordance with this Code: Provided,
twenty-five (25%) percent of the total subscription has
That no extension can be made earlier than five (5) years
been fully paid to him in actual cash and/or in property
prior to the original or subsequent expiry date(s) unless
the fair valuation of which is equal to at least twenty-five
there are justifiable reasons for an earlier extension as
(25%) percent of the said subscription, such paid-up
may be determined by the Securities and Exchange
Commission. (6)


capital being not less than five thousand (P5,000.00) in lawful money of the Philippines, divided into __________
pesos. shares with the par value of _________________
SECTION 15. Forms of Articles of Incorporation. — (P_____________) Pesos per share.
Unless otherwise prescribed by special law, articles of (In case all the shares are without par value):
incorporation of all domestic corporations shall comply That the capital stock of the corporation is
substantially with the following form: ______________ shares without par value. (In case some
ARTICLES OF INCORPORATION OF shares have par value and some are without par value):
__________________________ That the capital stock of said corporation consists of
_____________ shares of which ______________ shares are of
(Name of Corporation) the par value of _________________ (P____________) pesos
KNOW ALL MEN BY THESE PRESENTS: each, and of which _____________ shares are without par
value.
The undersigned incorporators, all of legal age and a
majority of whom are residents of the Philippines, have EIGHTH: That at least twenty-five (25%) percent of the
this day voluntarily agreed to form a (stock) authorized capital stock above stated has been
(non-stock)corporation under the laws of the Republic of subscribed as follows:
the Philippines;
AND WE HEREBY CERTIFY: No. of Amo
FIRST: That the name of said corporation shall be Shares unt
"_____________________, INC. or CORPORATION"; Name of Nationality Subscribed Subs
SECOND: That the purpose or purposes for which Subscriber cribed
such corporation is incorporated are: (If there is more _____________ ___________ ___________ ______
than one purpose, indicate primary and secondary ____ _ _ ______
purposes);
_____________ ___________ ___________ ______
THIRD: That the principal office of the corporation is ____ _ _ ______
located in the City/Municipality of
________________________, Province of _____________ ___________ ___________ ______
_______________________, Philippines; ____ _ _ ______
FOURTH: That the term for which the said _____________ ___________ ___________ ______
corporation is to exist is ___________ years from and after ____ _ _ ______
the date of issuance of the certificate of incorporation; _____________ ___________ ___________ ______
FIFTH: That the names, nationalities and residences of ____ _ _ ______
the incorporators of the corporation are as follows:

NAME NATIONALITY RESIDENCE NINTH: That the above-named subscribers have paid
at least twenty-five (25%) percent of the total subscription
as follows:
_______________ _______________ _______________
____ ____ ____
_______________ _______________ _______________ Name of Amount Total Paid-In

____ ____ ____ Subscriber Subscribed
_______________ _______________ _______________ _______________ _______________ _______________

____ ____ ____ __ ____
_______________ _______________ _______________ _______________ _______________ _______________

____ ____ ____ __ ____
_______________ _______________ _______________ _______________ _______________ _______________

____ ____ ____ __ ____
_______________ _______________ _______________

__ ____

_______________ _______________ _______________
SIXTH: That the number of directors or trustees of the __ ____
corporation shall be _______; and the names, nationalities
and residences of the first directors or trustees of the
corporation are as follows:
(Modify Nos. 8 and 9 if shares are with no par value. In
NAME NATIONALITY RESIDENCE case the corporation is non-stock, Nos. 7, 8 and 9 of the
above articles may be modified accordingly, and it is
_______________ _______________ _______________ sufficient if the articles state the amount of capital or
____ ____ ____ money contributed or donated by specified persons,
_______________ _______________ _______________ stating the names, nationalities and residences of the
____ ____ ____ contributors or donors and the respective amount given
by each.)
_______________ _______________ _______________
____ ____ ____ TENTH: That _____________________ has been elected
by the subscribers as Treasurer of the Corporation to act
_______________ _______________ _______________ as such until his successor is duly elected and qualified in
____ ____ ____ accordance with the bylaws, and that as such Treasurer,
_______________ _______________ _______________ he has been authorized to receive for and in the name
____ ____ ____ and for the benefit of the corporation, all subscription (or
fees) or contributions or donations paid or given by the
subscribers or members.

SEVENTH: That the authorized capital stock of the
corporation is ______________________ (P___________) PESOS



ELEVENTH: (Corporations which will engage in any stockholders representing at least two-thirds (2/3) of the
business or activity reserved for Filipino citizens shall outstanding capital stock, without prejudice to the
provide the following): appraisal right of dissenting stockholders in accordance
"No transfer of stock or interest which will reduce the with the provisions of this Code, or the vote or written
ownership of Filipino citizens to less than the required assent of two-thirds (2/3) of the members if it be a
percentage of the capital stock as provided by existing non-stock corporation.
laws shall be allowed or permitted to be recorded in the The original and amended articles together shall
proper books of the corporation and this restriction shall contain all provisions required by law to be set out in the
be indicated in all the stock certificates issued by the articles of incorporation. Such articles, as amended, shall
corporation." be indicated by underscoring the change or changes
IN WITNESS WHEREOF, we have hereunto signed made, and a copy thereof duly certified under oath by the
these Articles of Incorporation, this _______ day of corporate secretary and a majority of the directors or
______________, 19____, in the City/Municipality of trustees stating the fact that said amendment or
__________________, Province of ___________________, amendments have been duly approved by the required
Republic of the Philippines. vote of the stockholders or members, shall be submitted
to the Securities and Exchange Commission.

The amendments shall take effect upon its approval
_______________________ _______________________ by the Securities and Exchange Commission or from the
_______________________ _______________________ date of filing with the said Commission if not acted upon
within six (6) months from the date of filing for a cause
not attributable to the corporation.
SECTION 17. Grounds When Articles of Incorporation
___________________________ or Amendment May Be Rejected or Disapproved. — The
Securities and Exchange Commission may reject the
(Names and signatures of the incorporators) articles of incorporation or disapprove any amendment
SIGNED IN THE PRESENCE OF: thereto if the same is not in compliance with the
requirements of this Code: Provided, That the
Commission shall give the incorporators a reasonable
_______________________ _______________________ time within which to correct or modify the objectionable
portions of the articles or amendment. The following are
grounds for such rejection or disapproval:

1. That the articles of incorporation or any
(Notarial Acknowledgment) amendment thereto is not substantially in accordance
TREASURER'S AFFIDAVIT with the form prescribed herein;
REPUBLIC OF THE PHILIPPINES) 2. That the purpose or purposes of the corporation are
patently unconstitutional, illegal, immoral, or contrary to
CITY/MUNICIPALITY OF ) S.S. government rules and regulations;
PROVINCE OF ) 3. That the Treasurer's Affidavit concerning the
I, ____________________, being duly sworn, depose and amount of capital stock subscribed and/or paid is false;
say: 4. That the required percentage of ownership of the
That I have been elected by the subscribers of the capital stock to be owned by citizens of the Philippines
corporation as Treasurer thereof, to act as such until my has not been complied with as required by existing laws
successor has been duly elected and qualified in or the Constitution.
accordance with the bylaws of the corporation, and that No articles of incorporation or amendment to articles
as such Treasurer, I hereby certify under oath that at least of incorporation of banks, banking and quasi-banking
25% of the authorized capital stock of the corporation has institutions, building and loan associations, trust
been subscribed and at least 25% of the total subscription companies and other financial intermediaries, insurance
has been paid, and received by me, in cash or property, in companies, public utilities, educational institutions, and
the amount of not less than P5,000.00, in accordance other corporations governed by special laws shall be
with the Corporation Code. accepted or approved by the Commission unless
____________________ accompanied by a favorable recommendation of the
(Signature of Treasurer) appropriate government agency to the effect that such
articles or amendment is in accordance with law. (n)
SUBSCRIBED AND SWORN to before me, a Notary
Public, for and in the City/Municipality of ________________, SECTION 18. Corporate Name. — No corporate name
Province of __________________, this _______ day of may be allowed by the Securities and Exchange
___________, 19___; by _____________ with Res. Cert. No. Commission if the proposed name is identical or
___________ issued at ____________________ on ____________, deceptively or confusingly similar to that of any existing
19____. corporation or to any other name already protected by
law or is patently deceptive, confusing or contrary to
NOTARY PUBLIC existing laws. When a change in the corporate name is
My commission expires on approved, the Commission shall issue an amended
certificate of incorporation under the amended name. (n)
_________, 19____
SECTION 19. Commencement of Corporate
Doc. No. _________; Existence. — A private corporation formed or organized
Page No. _________; under this Code commences to have corporate existence
and juridical personality and is deemed incorporated
Book No. ________; from the date the Securities and Exchange Commission
Series of 19____ (7a) issues a certificate of incorporation under its official seal;
and thereupon the incorporators, stockholders/members
and their successors shall constitute a body politic and
SECTION 16. Amendment of Articles of corporate under the name stated in the articles of
Incorporation. — Unless otherwise prescribed by this incorporation for the period of time mentioned therein,
Code or by special law, and for legitimate purposes, any unless said period is extended or the corporation is
provision or matter stated in the articles of incorporation sooner dissolved in accordance with law. (n)
may be amended by a majority vote of the board of
directors or trustees and the vote or written assent of the



SECTION 20. De facto Corporations. — The due shares shall equal, or he may distribute them on the same

incorporation of any corporation claiming in good faith to principle among as many candidates as he shall see fit:
be a corporation under this Code, and its right to exercise Provided, That the total number of votes cast by him shall
corporate powers, shall not be inquired into collaterally in not exceed the number of shares owned by him as shown
any private suit to which such corporation may be a party. in the books of the corporation multiplied by the whole
Such inquiry may be made by the Solicitor General in a number of directors to be elected: Provided, however,
quo warranto proceeding. (n) That no delinquent stock shall be voted. Unless otherwise
SECTION 21. Corporation by Estoppel. — All persons provided in the articles of incorporation or in the bylaws,
who assume to act as a corporation knowing it to be members of corporations which have no capital stock
without authority to do so shall be liable as general may cast as many votes as there are trustees to be
partners for all debts, liabilities and damages incurred or elected but may not cast more than one vote for one
arising as a result thereof: Provided, however, That when candidate. Candidates receiving the highest number of
any such ostensible corporation is sued on any votes shall be declared elected. Any meeting of the
transaction entered by it as a corporation or on any tort stockholders or members called for an election may
committed by it as such, it shall not be allowed to use as a adjourn from day to day or from time to time but not sine
defense its lack of corporate personality. die or indefinitely if, for any reason, no election is held, or
if there are not present or represented by proxy, at the
On who assumes an obligation to an ostensible meeting, the owners of a majority of the outstanding
corporation as such, cannot resist performance thereof capital stock, or if there be no capital stock, a majority of
on the ground that there was in fact no corporation. (n) the member entitled to vote. (31a)
SECTION 22. Effects of Non-use of Corporate SECTION 25. Corporate Officers, Quorum. —
Charter and Continuous Inoperation of a Corporation. Immediately after their election, the directors of a
— If a corporation does not formally organize and corporation must formally organize by the election of a
commence the transaction of its business or the president, who shall be a director, a treasurer who may or
construction of its works within two (2) years from date of may not be a director, a secretary who shall be a resident
its incorporation, its corporate powers cease and the and citizen of the Philippines, and such other officers as
corporation shall be deemed dissolved. However, if a may be provided for in the bylaws. Any two (2) or more
corporation has commenced the transaction of its positions may be held concurrently by the same person,
business but subsequently becomes continuously except that no one shall act as president and secretary or
inoperative for a period of at least five (5) years, the same as president and treasurer at the same time.
shall be a ground for the suspension or revocation of its
corporate franchise or certificate of incorporation. (19a) The directors or trustees and officers to be elected
shall perform the duties enjoined on them by law and the
This provision shall not apply if the failure to organize, bylaws of the corporation. Unless the articles of
commence the transaction of its business or the incorporation or the bylaws provide for a greater majority,
construction of its works, or to continuously operate is a majority of the number of directors or trustees as fixed
due to causes beyond the control of the corporation as in the articles of incorporation shall constitute a quorum
may be determined by the Securities and Exchange for the transaction of corporate business, and every
Commission. decision of at least a majority of the directors or trustees
present at a meeting at which there is a quorum shall be
valid as a corporate act, except for the election of officers
TITLE III Board of Directors/Trustees/Officers which shall require the vote of a majority of all the
SECTION 23. The Board of Directors or Trustees. — members of the board.
Unless otherwise provided in this Code, the corporate Directors or trustees cannot attend or vote by proxy at
powers of all corporations formed under this Code shall board meetings. (33a)
be exercised, all business conducted and all property of
SECTION 26. Report of Election of Directors,
such corporations controlled and held by the board of
Trustees and Officers. — Within thirty (30) days after the
directors or trustees to be elected from among the
election of the directors, trustees and officers of the
holders of stocks, or where there is no stock, from among
corporation, the secretary, or any other officer of the
the members of the corporation, who shall hold office for
corporation, shall submit to the Securities and Exchange
one (1) year until their successors are elected and
Commission, the names, nationalities and residences of
qualified. (28a)
the directors, trustees and officers elected. Should a
Every director must own at least one (1) share of the director, trustee or officer die, resign or in any manner
capital stock of the corporation of which he is a director, cease to hold office, his heirs in case of his death, the
which share shall stand in his name on the books of the secretary, or any other officer of the corporation, or the
corporation. Any director who ceases to be the owner of director, trustee or officer himself, shall immediately
at least one (1) share of the capital stock of the report such fact to the Securities and Exchange
corporation of which he is a director shall thereby cease Commission. (n)
to be a director. Trustees of non-stock corporations must
SECTION 27. Disqualification of Directors, Trustees
be members thereof. A majority of the directors or
or Officers. — No person convicted by final judgment of
trustees of all corporations organized under this Code
an offense punishable by imprisonment for a period
must be residents of the Philippines. (30a)
exceeding six (6) years, or a violation of this Code,
SECTION 24. Election of Directors or Trustees. — At committed within five (5) years prior to the date of his
all elections of directors or trustees, there must be election or appointment, shall qualify as a director,
present, either in person or by representative authorized trustee or officer of any corporation. (n)
to act by written proxy, the owners of a majority of the
SECTION 28. Removal of Directors or Trustees. —
outstanding capital stock, or if there be no capital stock, a
Any director or trustee of a corporation may be removed
majority of the members entitled to vote. The election
from office by a vote of the stockholders holding or
must be by ballot if requested by any voting stockholder
representing at least two-thirds (2/3) of the outstanding
or member. In stock corporations, every stockholder
capital stock or if the corporation be a non-stock
entitled to vote shall have the right to vote in person or by
corporation, by a vote of at least two-thirds (2/3) of the
proxy the number of shares of stock standing, at the time
members entitled to vote: Provided, That such removal
fixed in the bylaws, in his own name on the stock books of
shall take place either at a regular meeting of the
the corporation, or where the bylaws are silent, at the
corporation or at a special meeting called for the purpose,
time of the election; and said stockholder may vote such
and in either case, after previous notice to stockholders or
number of shares for as many persons as there are
members of the corporation of the intention to propose
directors to be elected or he may cumulate said shares
such removal at the meeting. A special meeting of the
and give one candidate as many votes as the number of
stockholders or members of a corporation for the purpose
directors to be elected multiplied by the number of his



of removal of directors or trustees, or any of them, must or officers is voidable, at the option of such corporation,
be called by the secretary on order of the president or on unless all the following conditions are present:
the written demand of the stockholders representing or 1. That the presence of such director or trustee in the
holding at least a majority of the outstanding capital board meeting in which the contract was approved was
stock, or, if it be a non-stock corporation, on the written not necessary to constitute a quorum for such meeting;
demand of a majority of the members entitled to vote.
Should the secretary fail or refuse to call the special 2. That the vote of such director or trustee was not
meeting upon such demand or fail or refuse to give the necessary for the approval of the contract;
notice, or if there is no secretary, the call for the meeting 3. That the contract is fair and reasonable under the
may be addressed directly to the stockholders or circumstances; and
members by any stockholder or member of the
corporation signing the demand. Notice of the time and 4. That in the case of an officer, the contract with the
place of such meeting, as well as of the intention to officer has been previously authorized by the Board of
propose such removal, must be given by publication or by Directors.
written notice as prescribed in this Code. The vacancy Where any of the first two conditions set forth in the
resulting from removal pursuant to this section may be preceding paragraph is absent, in the case of a contract
filled by election at the same meeting without further with a director or trustee, such contract may be ratified
notice, or at any regular or at any special meeting called by the vote of the stockholders representing at least
for the purpose, after giving notice as prescribed by this two-thirds (2/3) of the outstanding capital stock or of
Code. Removal may be with or without cause: Provided, two-thirds (2/3) of the members in a meeting called for
That removal without cause may not be used to deprive the purpose: Provided, That full disclosure of the adverse
minority stockholders or members of the right of interest of the directors or trustees involved is made at
representation to which they may be entitled under such meeting: Provided, however, That the contract is fair
Section 24 of this Code. (n) and reasonable under the circumstances. (n)
SECTION 29. Vacancies in the Office of Director or SECTION 33. Contracts Between Corporations with
Trustee. — Any vacancy occurring in the board of Interlocking Directors. — Except in cases of fraud, and
directors or trustees other than by removal by the provided the contract is fair and reasonable under the
stockholders or members or by expiration of term, may circumstances, a contract between two or more
be filled by the vote of at least a majority of the remaining corporations having interlocking directors shall not be
directors or trustees, if still constituting a quorum; invalidated on that ground alone: Provided, That if the
otherwise, said vacancies must be filled by the interest of the interlocking director in one corporation is
stockholders in a regular or special meeting called for substantial and his interest in the other corporation or
that purpose. A director or trustee so elected to fill a corporations is merely nominal, he shall be subject to the
vacancy shall be elected only for the unexpired term of provisions of the preceding section insofar as the latter
his predecessor in office. corporation or corporations are concerned.
Any directorship or trusteeship to be filled by reason Stockholdings exceeding twenty (20%) percent of the
of an increase in the number of directors or trustees shall outstanding capital stock shall be considered substantial
be filled only by an election at a regular or at a special for purposes of interlocking directors. (n)
meeting of stockholders or members duly called for the
purpose, or in the same meeting authorizing the increase SECTION 34. Disloyalty of a Director. — Where a
of directors or trustees if so stated in the notice of the director, by virtue of his office, acquires for himself a
meeting. (n) business opportunity which should belong to the
corporation, thereby obtaining profits to the prejudice of
SECTION 30. Compensation of Directors. — In the such corporation, he must account to the latter for all
absence of any provision in the bylaws fixing their such profits by refunding the same, unless his act has
compensation, the directors shall not receive any been ratified by a vote of the stockholders, owning or
compensation, as such directors, except for reasonable representing at least two-thirds (2/3) of the outstanding
per diems: Provided, however, That any such capital stock. This provision shall be applicable,
compensation (other than per diems) may be granted to notwithstanding the fact that the director risked his own
directors by the vote of the stockholders representing at funds in the venture. (n)
least a majority of the outstanding capital stock at a
regular or special stockholders' meeting. In no case shall SECTION 35. Executive Committee. — The bylaws of a
the total yearly compensation of directors, as such corporation may create an executive committee,
directors, exceed ten (10%) percent of the net income composed of not less than three members of the board,
before income tax of the corporation during the to be appointed by the board. Said committee may act,
preceding year. (n) by majority vote of all its members, on such specific
matters within the competence of the board, as may be
SECTION 31. Liability of Directors, Trustees or delegated to it in the bylaws or on a majority vote of the
Officers. — Directors or trustees who willfully and board, except with respect to: (1) approval of any action for
knowingly vote for or assent to patently unlawful acts of which shareholders' approval is also required; (2) the
the corporation or who are guilty of gross negligence or filling of vacancies in the board; (3) the amendment or
bad faith in directing the affairs of the corporation or repeal of bylaws or the adoption of new bylaws; (4) the
acquire any personal or pecuniary interest in conflict with amendment or repeal of any resolution of the board
their duty as such directors, or trustees shall be liable which by its express terms is not so amendable or
jointly and severally for all damages resulting therefrom repealable; and (5) a distribution of cash dividends to the
suffered by the corporation, its stockholders or members shareholders.
and other persons.
When a director, trustee or officer attempts to
acquire or acquires, in violation of his duty, any interest TITLE IV Powers of Corporations
adverse to the corporation in respect of any matter which SECTION 36. Corporate Powers and Capacity. —
has been reposed in him in confidence, as to which Every corporation incorporated under this Code has the
equity imposes a disability upon him to deal in his own power and capacity:
behalf, he shall be liable as a trustee for the corporation
and must account for the profits which otherwise would 1. To sue and be sued in its corporate name;
have accrued to the corporation. (n) 2. Of succession by its corporate name for the period
SECTION 32. Dealings of Directors, Trustees or of time stated in the articles of incorporation and the
Officers with the Corporation. — A contract of the certificate of incorporation;
corporation with one or more of its directors or trustees 3. To adopt and use a corporate seal;


4. To amend its articles of incorporation in (3) If an increase of the capital stock, the amount of
accordance with the provisions of this Code; capital stock or number of shares of no-par stock thereof
5. To adopt bylaws, not contrary to law, morals, or actually subscribed, the names, nationalities and
public policy, and to amend or repeal the same in residences of the persons subscribing, the amount of
accordance with this Code; capital stock or number of shares of no-par stock
subscribed by each, and the amount paid by each on his
6. In case of stock corporations, to issue or sell stocks subscription in cash or property, or the amount of capital
to subscribers and to sell treasury stocks in accordance stock or number of shares of no-par stock allotted to each
with the provisions of this Code; and to admit members stockholder if such increase is for the purpose of making
to the corporation if it be a non-stock corporation; effective stock dividend therefor authorized;
7. To purchase, receive, take or grant, hold, convey, (4) Any bonded indebtedness to be incurred, created,
sell, lease, pledge, mortgage and otherwise deal with or increased;
such real and personal property, including securities and
bonds of other corporations, as the transaction of the (5) The actual indebtedness of the corporation on the
lawful business of the corporation may reasonably and day of the meeting;
necessarily require, subject to the limitations prescribed (6) The amount of stock represented at the meeting;
by law and the Constitution; and
8. To adopt any plan of merger or consolidation as (7) The vote authorizing the increase or diminution of
provided in this Code; the capital stock, or the incurring, creating or increasing
9. To make reasonable donations, including those for of any bonded indebtedness.
the public welfare or for hospital, charitable, cultural, Any increase or decrease in the capital stock or the
scientific, civic, or similar purposes:Provided, that no incurring, creating or increasing of any bonded
corporation, domestic or foreign, shall give donations in indebtedness shall require prior approval of the Securities
aid of any political party or candidate or for purposes of and Exchange Commission.
partisan political activity; One of the duplicate certificates shall be kept on file
10. To establish pension, retirement, and other plans in the office of the corporation and the other shall be filed
for the benefit of its directors, trustees, officers and with the Securities and Exchange Commission and
employees; and attached to the original articles of incorporation. From
11. To exercise such other powers as may be essential and after approval by the Securities and Exchange
or necessary to carry out its purpose or purposes as Commission and the issuance by the Commission of its
stated in its articles of incorporation. (13a) certificate of filing, the capital stock shall stand increased
or decreased and the incurring, creating or increasing of
SECTION 37. Power to Extend or Shorten Corporate any bonded indebtedness authorized, as the certificate of
Term. — A private corporation may extend or shorten its filing may declare: Provided, That the Securities and
term as stated in the articles of incorporation when Exchange Commission shall not accept for filing any
approved by a majority vote of the board of directors or certificate of increase of capital stock unless
trustees and ratified at a meeting by the stockholders accompanied by the sworn statement of the treasurer of
representing at least two-thirds (2/3) of the outstanding the corporation lawfully holding office at the time of the
capital stock or by at least two-thirds (2/3) of the filing of the certificate, showing that at least twenty-five
members in case of non-stock corporations. Written (25%) percent of such increased capital stock has been
notice of the proposed action and of the time and place subscribed and that at least twenty-five (25%) percent of
of the meeting shall be addressed to each stockholder or the amount subscribed has been paid either in actual
member at his place of residence as shown on the books cash to the corporation or that there has been transferred
of the corporation and deposited to the addressee in the to the corporation property the valuation of which is
post office with postage prepaid or served personally: equal to twenty-five (25%) percent of the subscription:
Provided, That in case of extension of corporate term, any Provided, further, That no decrease of the capital stock
dissenting stockholder may exercise his appraisal right shall be approved by the Commission, if its effect shall
under the conditions provided in this Code. (n) prejudice the rights of corporate creditors.
SECTION 38. Power to Increase or Decrease Capital Non-stock corporations may incur or create bonded
Stock; Incur, Create or Increase Bonded Indebtedness. indebtedness, or increase the same, with the approval by
— No corporation shall increase or decrease its capital a majority vote of the board of trustees and of at least
stock or incur, create or increase any bonded two-thirds (2/3) of the members in a meeting duly called
indebtedness unless approved by a majority vote of the for the purpose.
board of directors and, at a stockholder's meeting duly
called for the purpose, two-thirds (2/3) of the outstanding Bonds issued by a corporation shall be registered
capital stock shall favor the increase or diminution of the with the Securities and Exchange Commission which
capital stock, or the incurring, creating or increasing of shall have the authority to determine the sufficiency of
any bonded indebtedness. Written notice of the proposed the terms thereof. (17a)
increase or diminution of the capital stock or of the SECTION 39. Power to Deny Pre-emptive Right. — All
incurring, creating, or increasing of any bonded stockholders of a stock corporation shall enjoy
indebtedness and of the time and place of the pre-emptive right to subscribe to all issues or disposition
stockholder's meeting at which the proposed increase or of shares of any class, in proportion to their respective
diminution of the capital stock or the incurring or shareholdings, unless such right is denied by the articles
increasing of any bonded indebtedness is to be of incorporation or an amendment thereto: Provided,
considered, must be addressed to each stockholder at his That such pre-emptive right shall not extend to shares to
place of residence as shown on the books of the be issued in compliance with laws requiring stock
corporation and deposited to the addressee in the post offerings or minimum stock ownership by the public; or
office with postage prepaid, or served personally. to shares to be issued in good faith with the approval of
A certificate in duplicate must be signed by a the stockholders representing two-thirds (2/3) of the
majority of the directors of the corporation and outstanding capital stock, in exchange for property
countersigned by the chairman and secretary of the needed for corporate purposes or in payment of a
stockholders' meeting, setting forth: previously contracted debt.
(1) That the requirements of this section have been SECTION 40. Sale or Other Disposition of Assets. —
complied with; Subject to the provisions of existing laws on illegal
combinations and monopolies, a corporation may, by a
(2) The amount of the increase or diminution of the majority vote of its board of directors or trustees, sell,
capital stock; lease, exchange, mortgage, pledge or otherwise dispose


of all or substantially all of its property and assets, member at his place of residence as shown on the books
including its goodwill, upon such terms and conditions of the corporation and deposited to the addressee in the
and for such consideration, which may be money, stocks, post office with postage prepaid, or served personally:
bonds or other instruments for the payment of money or Provided, That any dissenting stockholder shall have
other property or consideration, as its board of directors appraisal right as provided in this Code: Provided,
or trustees may deem expedient, when authorized by the however, That where the investment by the corporation is
vote of the stockholders representing at least two-thirds reasonably necessary to accomplish its primary purpose
(2/3) of the outstanding capital stock; or in case of as stated in the articles of incorporation, the approval of
non-stock corporation, by the vote of at least two-thirds the stockholders or members shall not be necessary.
(2/3) of the members, in a stockholders' or members' (17-1/2a)
meeting duly called for the purpose. Written notice of the SECTION 43. Power to Declare Dividends. — The
proposed action and of the time and place of the board of directors of a stock corporation may declare
meeting shall be addressed to each stockholder or dividends out of the unrestricted retained earnings which
member at his place of residence as shown on the books shall be payable in cash, in property, or in stock to all
of the corporation and deposited to the addressee in the stockholders on the basis of outstanding stock held by
post office with postage prepaid, or served personally: them: Provided, That any cash dividends due on
Provided, That any dissenting stockholder may exercise delinquent stock shall first be applied to the unpaid
his appraisal right under the conditions provided in this balance on the subscription plus costs and expenses,
Code. while stock dividends shall be withheld from the
A sale or other disposition shall be deemed to cover delinquent stockholder until his unpaid subscription is
substantially all the corporate property and assets if fully paid: Provided, further, That no stock dividend shall
thereby the corporation would be rendered incapable of be issued without the approval of stockholders
continuing the business or accomplishing the purpose representing not less than two-thirds (2/3) of the
for which it was incorporated. outstanding capital stock at a regular or special meeting
After such authorization or approval by the duly called for the purpose. (16a)
stockholders or members, the board of directors or Stock corporations are prohibited from retaining
trustees may, nevertheless, in its discretion, abandon surplus profits in excess of one hundred (100%) percent of
such sale, lease, exchange, mortgage, pledge or other their paid-in capital stock, except: (1) when justified by
disposition of property and assets, subject to the rights of definite corporate expansion projects or programs
third parties under any contract relating thereto, without approved by the Board of Directors; or (2) when the
further action or approval by the stockholders or corporation is prohibited under any loan agreement with
members. any financial institution or creditor, whether local or
Nothing in this section is intended to restrict the foreign, from declaring dividends without its/his consent,
power of any corporation, without the authorization by and such consent has not yet been secured; or (3) when it
the stockholders or members, to sell, lease, exchange, can be clearly shown that such retention is necessary
mortgage, pledge or otherwise dispose of any of its under special circumstances obtaining in the corporation,
property and assets if the same is necessary in the usual such as when there is a need for special reserve for
and regular course of business of said corporation or if probable contingencies. (n)
the proceeds of the sale or other disposition of such SECTION 44. Power to Enter into Management
property and assets be appropriated for the conduct of its Contract. — No corporation shall conclude a
remaining business. management contract with another corporation unless
In non-stock corporations, where there are no such contract shall have been approved by the Board of
members with voting rights, the vote of at least a majority Directors and by stockholders owning at least the
of the trustees in office will be sufficient authorization for majority of the outstanding capital stock, or by at least a
the corporation to enter into any transaction authorized majority of the members in the case of a non-stock
by this section. (28-1/2a) corporation, of both the managing and the managed
corporation, at a meeting duly called for the
SECTION 41. Power to Acquire Own Shares. — A purpose:Provided, That (a) where a stockholder or
stock corporation shall have the power to purchase or stockholders representing the same interest of both the
acquire its own shares for a legitimate corporate purpose managing and the managed corporations own and
or purposes including but not limited to the following control more than one-third (1/3) of the total outstanding
cases: Provided, That the corporation has unrestricted capital stock entitled to vote of the managing
retained earnings in its books to cover the shares to be corporation; or (b) where a majority of the members of
purchased or acquired: the Board of Directors of the managing corporation also
1. To eliminate fractional shares arising out of stock constitute a majority of the members of the Board of
dividends; Directors of the managed corporation, then the
management contract must be approved by the
2. To collect or compromise an indebtedness to the stockholders of the managed corporation owning at least
corporation, arising out of unpaid subscription, in a two-thirds (2/3) of the total outstanding capital stock
delinquency sale, and to purchase delinquent shares sold entitled to vote, or by at least two-thirds (2/3) of the
during said sale; and members in case of a non-stock corporation. No
3. To pay dissenting or withdrawing stockholders management contract shall be entered into for a period
entitled to payment for their shares under the provisions longer than five years for any one term.
of this Code. (n)
SECTION 42. Power to Invest Corporate Funds in The provisions of the next preceding paragraph shall
Another Corporation or Business or for Any Other apply to any contract whereby a corporation undertakes
Purpose. — Subject to the provisions of this Code, a to manage or operate all or substantially all of the
private corporation may invest its funds in any other business of another corporation whether such contracts
corporation or business or for any purpose other than the are called service contracts, operating agreements or
primary purpose for which it was organized when otherwise: Provided, however, that such service contracts
approved by a majority of the board of directors or or operating agreements which relate to the exploration,
trustees and ratified by the stockholders representing at development, exploitation or utilization of natural
least two-thirds (2/3) of the outstanding capital stock, or resources may be entered into for such periods as may be
by at least two-thirds (2/3) of the members in the case of provided by the pertinent laws or regulations. (n)
non-stock corporations, at a stockholders' or members'
meeting duly called for the purpose. Written notice of the SECTION 45. Ultra vires Acts of Corporations. — No
proposed investment and the time and place of the corporation under this Code shall possess or exercise any
meeting shall be addressed to each stockholder or corporate powers except those conferred by this Code or


by its articles of incorporation and except such as are SECTION 48. Amendments to bylaws. — The board
necessary or incidental to the exercise of the powers so of directors or trustees, by a majority vote thereof, and the
conferred. (n) owners of at least a majority of the outstanding capital
stock, or at least a majority of the members of a non-stock
corporation, at a regular or special meeting duly called for
TITLE V Bylaws the purpose, may amend or repeal any bylaws or adopt
new bylaws. The owners of two-thirds (2/3) of the
SECTION 46. Adoption of bylaws. — Every
outstanding capital stock or two-thirds (2/3) of the
corporation formed under this Code must, within one (1)
members in a non-stock corporation may delegate to the
month after receipt of official notice of the issuance of its
board of directors or trustees the power to amend or
certificate of incorporation by the Securities and
repeal any bylaws or adopt new bylaws: Provided, That
Exchange Commission, adopt a code of bylaws for its
any power delegated to the board of directors or trustees
government not inconsistent with this Code. For the
to amend or repeal any bylaws or adopt new bylaws shall
adoption of bylaws by the corporation, the affirmative
be considered as revoked whenever stockholders owning
vote of the stockholders representing at least a majority
or representing a majority of the outstanding capital
of the outstanding capital stock, or of at least a majority of
stock or a majority of the members in non-stock
the members, in the case of non-stock corporations, shall
corporations, shall so vote at a regular or special meeting.
be necessary. The bylaws shall be signed by the
stockholders or members voting for them and shall be Whenever any amendment or new bylaws is adopted,
kept in the principal office of the corporation, subject to such amendment or new bylaws shall be attached to the
the inspection of the stockholders or members during original bylaws in the office of the corporation, and a copy
office hours; and a copy thereof, duly certified to by a thereof, duly certified under oath by the corporate
majority of the directors or trustees and countersigned by secretary and a majority of the directors or trustees, shall
the secretary of the corporation, shall be filed with the be filed with the Securities and Exchange Commission,
Securities and Exchange Commission which shall be the same to be attached to the original articles of
attached to the original articles of incorporation. incorporation and original bylaws.
Notwithstanding the provisions of the preceding The amended or new bylaws shall only be effective
paragraph, bylaws may be adopted and filed prior to upon the issuance by the Securities and Exchange
incorporation; in such case, such bylaws shall be Commission of a certification that the same are not
approved and signed by all the incorporators and inconsistent with this Code. (22a and 23a)
submitted to the Securities and Exchange Commission,
together with the articles of incorporation.
In all cases, bylaws shall be effective only upon the
TITLE VI Meetings
issuance by the Securities and Exchange Commission of a SECTION 49. Kinds of Meetings. — Meetings of
certification that the bylaws are not inconsistent with this directors, trustees, stockholders, or members may be
Code. regular or special. (n)
The Securities and Exchange Commission shall not SECTION 50. Regular and Special Meetings of
accept for filing the bylaws or any amendment thereto of Stockholders or Members. — Regular meetings of
any bank, banking institution, building and loan stockholders or members shall be held annually on a date
association, trust company, insurance company, public fixed in the bylaws, or if not so fixed, on any date in April
utility, educational institution or other special of every year as determined by the board of directors or
corporations governed by special laws, unless trustees: Provided, That written notice of regular
accompanied by a certificate of the appropriate meetings shall be sent to all stockholders or members of
government agency to the effect that such bylaws or record at least two (2) weeks prior to the meeting, unless
amendments are in accordance with law. (20a) a different period is required by the bylaws.
SECTION 47. Contents of bylaws. — Subject to the Special meetings of stockholders or members shall
provisions of the Constitution, this Code, other special be held at any time deemed necessary or as provided in
laws, and the articles of incorporation, a private the bylaws: Provided, however, That at least one (1) week
corporation may provide in its bylaws for: written notice shall be sent to all stockholders or
1. The time, place and manner of calling and members, unless otherwise provided in the bylaws.
conducting regular or special meetings of the directors or Notice of any meeting may be waived, expressly or
trustees; impliedly, by any stockholder or member.
2. The time and manner of calling and conducting Whenever, for any cause, there is no person
regular or special meetings of the stockholders or authorized to call a meeting, the Securities and Exchange
members; Commission, upon petition of a stockholder or member,
3. The required quorum in meetings of stockholders and on the showing of good cause therefor, may issue an
or members and the manner of voting therein; order to the petitioning stockholder or member directing
him to call a meeting of the corporation by giving proper
4. The form for proxies of stockholders and members notice required by this Code or by the bylaws. The
and the manner of voting them; petitioning stockholder or member shall preside thereat
5. The qualifications, duties and compensation of until at least a majority of the stockholders or members
directors or trustees, officers and employees; present have chosen one of their number as presiding
officer. (24, 26)
6. The time for holding the annual election of
directors or trustees and the mode or manner of giving SECTION 51. Place and Time of Meetings of
notice thereof; Stockholders or Members. — Stockholders' or members'
meetings, whether regular or special, shall be held in the
7. The manner of election or appointment and the city or municipality where the principal office of the
term of office of all officers other than directors or corporation is located, and if practicable in the principal
trustees; office of the corporation: Provided, That Metro Manila
8. The penalties for violation of the bylaws; shall, for the purposes of this section, be considered a city
or municipality.
9. In the case of stock corporations, the manner of
issuing stock certificates; and Notice of meetings shall be in writing, and the time
and place thereof stated therein.
10. Such other matters as may be necessary for the
proper or convenient transaction of its corporate business All proceedings had and any business transacted at
and affairs. (21a) any meeting of the stockholders or members, if within
the powers or authority of the corporation, shall be valid


even if the meeting be improperly held or called, Exchange Commission; otherwise said agreement is
provided all the stockholders or members of the ineffective and unenforceable. The certificate or
corporation are present or duly represented at the certificates of stock covered by the voting trust
meeting. (24 and 25) agreement shall be cancelled and new ones shall be
SECTION 52. Quorum in Meetings. — Unless issued in the name of the trustee or trustees stating that
otherwise provided for in this Code or in the bylaws, a they are issued pursuant to said agreement. In the books
quorum shall consist of the stockholders representing a of the corporation, it shall be noted that the transfer in
majority of the outstanding capital stock or a majority of the name of the trustee or trustees is made pursuant to
the members in case of non-stock corporations. (n) said voting trust agreement.
SECTION 53. Regular and Special Meetings of The trustee or trustees shall execute and deliver to
Directors or Trustees. — Regular meetings of the board the transferors voting trust certificates, which shall be
of directors or trustees of every corporation shall be held transferable in the same manner and with the same
monthly, unless the bylaws provide otherwise. effect as certificates of stock.
Special meetings of the board of directors or trustees The voting trust agreement filed with the corporation

may be held at any time upon the call of the president or shall be subject to examination by any stockholder of the
as provided in the bylaws. corporation in the same manner as any other corporate
book or record: Provided, That both the transferor and the
Meetings of directors or trustees of corporations may trustee or trustees may exercise the right of inspection of
be held anywhere in or outside of the Philippines, unless all corporate books and records in accordance with the
the bylaws provide otherwise. Notice of regular or special provisions of this Code.
meetings stating the date, time and place of the meeting
must be sent to every director or trustee at least one (1) Any other stockholder may transfer his shares to the
day prior to the scheduled meeting, unless otherwise same trustee or trustees upon the terms and conditions
provided by the bylaws. A director or trustee may waive stated in the voting trust agreement, and thereupon shall
this requirement, either expressly or impliedly. (n) be bound by all the provisions of said agreement.
SECTION 54. Who Shall Preside at Meetings. — The No voting trust agreement shall be entered into for
president shall preside at all meetings of the directors or the purpose of circumventing the law against
trustees as well as of the stockholders or members, unless monopolies and illegal combinations in restraint of trade
the bylaws provide otherwise. (n) or used for purposes of fraud.
SECTION 55. Right to Vote of Pledgors, Mortgagors, Unless expressly renewed, all rights granted in a
and Administrators. — In case of pledged or mortgaged voting trust agreement shall automatically expire at the
shares in stock corporations, the pledgor or mortgagor end of the agreed period, and the voting trust certificates
shall have the right to attend and vote at meetings of as well as the certificates of stock in the name of the
stockholders, unless the pledgee or mortgagee is trustee or trustees shall thereby be deemed cancelled
expressly given such right in writing which is recorded on and new certificates of stock shall be reissued in the
the appropriate corporate books by the pledgor or name of the transferors.
mortgagor. (n) The voting trustee or trustees may vote by proxy
Executors, administrators, receivers, and other legal unless the agreement provides otherwise. (36a)
representatives duly appointed by the court may attend
and vote in behalf of the stockholders or members
without need of any written proxy. (27a) TITLE VII Stocks and Stockholders
SECTION 56. Voting in Case of Joint Ownership of SECTION 60. Subscription Contract. — Any contract
Stock. — In case of shares of stock owned jointly by two or for the acquisition of unissued stock in an existing
more persons, in order to vote the same, the consent of all corporation or a corporation still to be formed shall be
the co-owners shall be necessary, unless there is a written deemed a subscription within the meaning of this Title,
proxy, signed by all the co-owners, authorizing one or notwithstanding the fact that the parties refer to it as a
some of them or any other person to vote such share or purchase or some other contract. (n)
shares: Provided, That when the shares are owned in an SECTION 61. Pre-Incorporation Subscription. — A
"and/or" capacity by the holders thereof, any one of the subscription for shares of stock of a corporation still to be
joint owners can vote said shares or appoint a proxy formed shall be irrevocable for a period of at least six (6)
therefor. (n) months from the date of subscription, unless all of the
SECTION 57. Voting Right for Treasury Shares. — other subscribers consent to the revocation, or unless the
Treasury shares shall have no voting right as long as such incorporation of said corporation fails to materialize
stock remains in the Treasury. (n) within said period or within a longer period as may be
stipulated in the contract of subscription: Provided, That
SECTION 58. Proxies. — Stockholders and members no pre-incorporation subscription may be revoked after
may vote in person or by proxy in all meetings of the submission of the articles of incorporation to the
stockholders or members. Proxies shall be in writing, Securities and Exchange Commission. (n)
signed by the stockholder or member and filed before
the scheduled meeting with the corporate secretary. SECTION 62. Consideration for Stocks. — Stocks shall
Unless otherwise provided in the proxy, it shall be valid not be issued for a consideration less than the par or
only for the meeting for which it is intended. No proxy issued price thereof. Consideration for the issuance of
shall be valid and effective for a period longer than five (5) stock may be any or a combination of any two or more of
years at any one time. (n) the following:
SECTION 59. Voting Trusts. — One or more 1. Actual cash paid to the corporation;
stockholders of a stock corporation may create a voting 2. Property, tangible or intangible, actually received
trust for the purpose of conferring upon a trustee or by the corporation and necessary or convenient for its use
trustees the right to vote and other rights pertaining to and lawful purposes at a fair valuation equal to the par or
the shares for a period not exceeding five (5) years at any issued value of the stock issued;
one time: Provided, That in the case of a voting trust
3. Labor performed for or services actually rendered
specifically required as a condition in a loan agreement,
to the corporation;
said voting trust may be for a period exceeding five (5)
years but shall automatically expire upon full payment of 4. Previously incurred indebtedness of the
the loan. A voting trust agreement must be in writing and corporation;
notarized, and shall specify the terms and conditions 5. Amounts transferred from unrestricted retained
thereof. A certified copy of such agreement shall be filed earnings to stated capital; and
with the corporation and with the Securities and



6. Outstanding shares exchanged for stocks in the entire balance due and payable and shall make the
event of reclassification or conversion. stockholder liable for interest at the legal rate on such
Where the consideration is other than actual cash, or balance, unless a different rate of interest is provided in
consists of intangible property such as patents of the bylaws, computed from such date until full payment.
copyrights, the valuation thereof shall initially be If within thirty (30) days from the said date no payment is
determined by the incorporators or the board of directors, made, all stocks covered by said subscription shall
subject to approval by the Securities and Exchange thereupon become delinquent and shall be subject to
Commission. sale as hereinafter provided, unless the board of directors
orders otherwise. (38)
Shares of stock shall not be issued in exchange for
promissory notes or future service. SECTION 68. Delinquency Sale. — The board of
directors may, by resolution, order the sale of delinquent
The same considerations provided for in this section, stock and shall specifically state the amount due on each
insofar as they may be applicable, may be used for the subscription plus all accrued interest, and the date, time
issuance of bonds by the corporation. and place of the sale which shall not be less than thirty
The issued price of no-par value shares may be fixed (30) days nor more than sixty (60) days from the date the
in the articles of incorporation or by the board of directors stocks become delinquent.
pursuant to authority conferred upon it by the articles of Notice of said sale, with a copy of the resolution, shall
incorporation or the bylaws, or in the absence thereof, by be sent to every delinquent stockholder either personally
the stockholders at a meeting duly called for the purpose or by registered mail. The same shall furthermore be
representing at least a majority of the outstanding capital published once a week for two (2) consecutive weeks in a
stock. (5 and 16) newspaper of general circulation in the province or city
SECTION 63. Certificate of Stock and Transfer of where the principal office of the corporation is located.
Shares. — The capital stock of stock corporations shall be Unless the delinquent stockholder pays to the
divided into shares for which certificates signed by the corporation, on or before the date specified for the sale of
president or vice-president, countersigned by the the delinquent stock, the balance due on his subscription,
secretary or assistant secretary, and sealed with the seal plus accrued interest, costs of advertisement and
of the corporation shall be issued in accordance with the expenses of sale, or unless the board of directors
bylaws. Shares of stock so issued are personal property otherwise orders, said delinquent stock shall be sold at
and may be transferred by delivery of the certificate or public auction to such bidder who shall offer to pay the
certificates indorsed by the owner or his attorney-in-fact full amount of the balance on the subscription together
or other person legally authorized to make the transfer. with accrued interest, costs of advertisement and
No transfer, however, shall be valid, except as between expenses of sale, for the smallest number of shares or
the parties, until the transfer is recorded in the books of fraction of a share. The stock so purchased shall be
the corporation so as to show the names of the parties to transferred to such purchaser in the books of the
the transaction, the date of the transfer, the number of corporation and a certificate for such stock shall be issued
the certificate or certificates and the number of shares in his favor. The remaining shares, if any, shall be credited
transferred. in favor of the delinquent stockholder who shall likewise
No shares of stock against which the corporation be entitled to the issuance of a certificate of stock
holds any unpaid claim shall be transferable in the books covering such shares.
of the corporation. (35) Should there be no bidder at the public auction who
SECTION 64. Issuance of Stock Certificates. — No offers to pay the full amount of the balance on the
certificate of stock shall be issued to a subscriber until the subscription together with accrued interest, costs of
full amount of his subscription together with interest and advertisement and expenses of sale, for the smallest
expenses (in case of delinquent shares), if any is due, has number of shares or fraction of a share, the corporation
been paid. (37) may, subject to the provisions of this Code, bid for the
same, and the total amount due shall be credited as paid
SECTION 65. Liability of Directors for Watered in full in the books of the corporation. Title to all the
Stocks. — Any director or officer of a corporation shares of stock covered by the subscription shall be
consenting to the issuance of stocks for a consideration vested in the corporation as treasury shares and may be
less than its par or issued value or for a consideration in disposed of by said corporation in accordance with the
any form other than cash, valued in excess of its fair value, provisions of this Code. (39a-46a)
or who, having knowledge thereof, does not forthwith
express his objection in writing and file the same with the SECTION 69. When Sale May Be Questioned. — No
corporate secretary, shall be solidarily liable with the action to recover delinquent stock sold can be sustained
stockholder concerned to the corporation and its upon the ground of irregularity or defect in the notice of
creditors for the difference between the fair value sale, or in the sale itself of the delinquent stock, unless the
received at the time of issuance of the stock and the par party seeking to maintain such action first pays or
or issued value of the same. (n) tenders to the party holding the stock the sum for which
the same was sold, with interest from the date of sale at
SECTION 66. Interest on Unpaid Subscriptions. — the legal rate; and no such action shall be maintained
Subscribers for stock shall pay to the corporation interest unless it is commenced by the filing of a complaint
on all unpaid subscriptions from the date of subscription, within six (6) months from the date of sale. (47a)
if so required by, and at the rate of interest fixed in, the
bylaws. If no rate of interest is fixed in the bylaws, such SECTION 70. Court Action to Recover Unpaid
rate shall be deemed to be the legal rate. (37) Subscription. — Nothing in this Code shall prevent the
corporation from collecting by action in a court of proper
SECTION 67. Payment of Balance of Subscription. — jurisdiction the amount due on any unpaid subscription,
Subject to the provisions of the contract of subscription, with accrued interest, costs and expenses. (49a)
the board of directors of any stock corporation may at any
time declare due and payable to the corporation unpaid SECTION 71. Effect of Delinquency. — No delinquent
subscriptions to the capital stock and may collect the stock shall be voted for or be entitled to vote or to
same or such percentage of said unpaid subscriptions, in representation at any stockholders' meeting, nor shall the
either case with interest accrued, if any, as it may deem holder thereof be entitled to any of the rights of a
necessary. stockholder except the right to dividends in accordance
with the provisions of this Code, until and unless he pays
Payment of any unpaid subscription or any the amount due on his subscription with accrued
percentage thereof, together with the interest accrued, if interest, and the costs and expenses of advertisement, if
any, shall be made on the date specified in the contract any. (50a)
of subscription or on the date stated in the call made by
the board. Failure to pay on such date shall render the



SECTION 72. Rights of Unpaid Shares. — Holders of open to the inspection of any director, trustee,
subscribed shares not fully paid which are not delinquent stockholder or member of the corporation at reasonable
shall have all the rights of a stockholder. (n) hours on business days and he may demand, in writing,
SECTION 73. Lost or Destroyed Certificates. — The for a copy of excerpts from said records or minutes, at his
following procedure shall be followed for the issuance by expense.
a corporation of new certificate(s) of stock in lieu of those Any officer or agent of the corporation who shall
which have been lost, stolen or destroyed: refuse to allow any director, trustee, stockholder or
1. The registered owner of certificate(s) of stock in a member of the corporation to examine and copy excerpts
corporation or his legal representative shall file with the from its records or minutes, in accordance with the
corporation an affidavit in triplicate setting forth, if provisions of this Code, shall be liable to such director,
possible, the circumstances as to how the certificate(s) trustee, stockholder or member for damages, and in
were lost, stolen or destroyed, the number of shares addition, shall be guilty of an offense which shall be
represented by each certificate, the serial number(s) of punishable under Section 144 of this Code: Provided, That
the certificate(s) and the name of the corporation which if such refusal is pursuant to a resolution or order of the
issued the same. He shall also submit such other Board of Directors or Trustees, the liability under this
information and evidence which he may deem necessary; section for such action shall be imposed upon the
directors or trustees who voted for such refusal: and
2. After verifying the affidavit and other information Provided, further, That it shall be a defense to any action
and evidence with the books of the corporation, said under this section that the person demanding to
corporation shall publish a notice in a newspaper of examine and copy excerpts from the corporation's
general circulation published in the place where the records and minutes has improperly used any
corporation has its principal office, once a week for three information secured through any prior examination of the
(3) consecutive weeks at the expense of the registered records or minutes of such corporation or of any other
owner of the certificate(s) of stock which have been lost, corporation, or was not acting in good faith or for a
stolen or destroyed. The notice shall state the name of legitimate purpose in making his demand.
said corporation, the name of the registered owner and
the serial number(s) of said certificate(s), and the number Stock corporations must also keep a book to be
of shares represented by such certificate(s), and that after known as the "stock and transfer book", in which must be
the expiration of one (1) year from the date of the last kept a record of all stocks in the names of the
publication, if no contest has been presented to said stockholders alphabetically arranged; the installments
corporation regarding said certificate(s) of stock, the right paid and unpaid on all stock for which subscription has
to make such contest shall be barred and said been made, and the date of payment of any installment;
corporation shall cancel in its books the certificate(s) of a statement of every alienation, sale or transfer of stock
stock which has been lost, stolen or destroyed and issue made, the date thereof, and by and to whom made; and
in lieu thereof new certificate(s) of stock, unless the such other entries as the bylaws may prescribe. The stock
registered owner files a bond or other security in lieu and transfer book shall be kept in the principal office of
thereof as may be required, running for a period of one (1) the corporation or in the office of its stock transfer agent
year for a sum and in such form and with such sureties as and shall be open for inspection of any director or
may be satisfactory to the board of directors, in which stockholder of the corporation at reasonable hours on
case a new certificate may be issued even before the business days.
expiration of the one (1) year period provided herein: No stock transfer agent or one engaged principally in
Provided, That if a contest has been presented to said the business of registering transfers of stocks in behalf of
corporation or if an action is pending in court regarding a stock corporation shall be allowed to operate in the
the ownership of said certificate(s) of stock which have Philippines unless he secures a license from the
been lost, stolen or destroyed, the issuance of the new Securities and Exchange Commission and pays a fee as
certificate(s) of stock in lieu thereof shall be suspended may be fixed by the Commission, which shall be renewed
until the final decision by the court regarding the annually: Provided, That a stock corporation is not
ownership of said certificate(s) of stock which have been precluded from performing or making transfer of its own
lost, stolen or destroyed. stocks, in which case all the rules and regulations
Except in case of fraud, bad faith, or negligence on imposed on stock transfer agents, except the payment of
the part of the corporation and its officers, no action may a license fee herein provided, shall be applicable. (51a and
be brought against any corporation which shall have 32a; P.B. No. 268.)
issued certificate(s) of stock in lieu of those lost, stolen or SECTION 75. Right to Financial Statements. —
destroyed pursuant to the procedure above-described. Within ten (10) days from receipt of a written request of
(R.A. 201a) any stockholder or member, the corporation shall furnish
to him its most recent financial statement, which shall
include a balance sheet as of the end of the last taxable
TITLE VIII Corporate Books and Records year and a profit or loss statement for said taxable year,
showing in reasonable detail its assets and liabilities and
SECTION 74. Books to be Kept; Stock Transfer
the result of its operations.
Agent. — Every corporation shall, at its principal office,
keep and carefully preserve a record of all business At the regular meeting of stockholders or members,
transactions, and minutes of all meetings of stockholders the board of directors or trustees shall present to such
or members, or of the board of directors or trustees, in stockholders or members a financial report of the
which shall be set forth in detail the time and place of operations of the corporation for the preceding year,
holding the meeting, how authorized, the notice given, which shall include financial statements, duly signed and
whether the meeting was regular or special, if special its certified by an independent certified public accountant.
object, those present and absent, and every act done or However, if the paid-up capital of the corporation is
ordered done at the meeting. Upon the demand of any less than P50,000.00, the financial statements may be
director, trustee, stockholder or member, the time when certified under oath by the treasurer or any responsible
any director, trustee, stockholder or member entered or officer of the corporation. (n)
left the meeting must be noted in the minutes; and on a
similar demand, the yeas and nays must be taken on any
motion or proposition, and a record thereof carefully TITLE IX Merger and Consolidation
made. The protest of any director, trustee, stockholder or
member on any action or proposed action must be SECTION 76. Plan of Merger or Consolidation. — Two
recorded in full on his demand. or more corporations may merge into a single
corporation which shall be one of the constituent
The records of all business transactions of the
corporation and the minutes of any meetings shall be



corporations or may consolidate into a new single companies, insurance companies, public utilities,
corporation which shall be the consolidated corporation. educational institutions and other special corporations
The board of directors or trustees of each corporation, governed by special laws, the favorable recommendation
party to the merger or consolidation, shall approve a plan of the appropriate government agency shall first be
of merger or consolidation setting forth the following: obtained. Where the Commission is satisfied that the
merger or consolidation of the corporations concerned is
1. The names of the corporations proposing to merge not inconsistent with the provisions of this Code and
or consolidate, hereinafter referred to as the constituent existing laws, it shall issue a certificate of merger or of
corporations; consolidation, as the case may be, at which time the
2. The terms of the merger or consolidation and the merger or consolidation shall be effective.
mode of carrying the same into effect; If, upon investigation, the Securities and Exchange
3. A statement of the changes, if any, in the articles of Commission has reason to believe that the proposed
incorporation of the surviving corporation in case of merger or consolidation is contrary to or inconsistent with
merger; and, with respect to the consolidated corporation the provisions of this Code or existing laws, it shall set a
in case of consolidation, all the statements required to be hearing to give the corporations concerned the
set forth in the articles of incorporation for corporations opportunity to be heard. Written notice of the date, time
organized under this Code; and and place of said hearing shall be given to each
constituent corporation at least two (2) weeks before said
4. Such other provisions with respect to the proposed hearing. The Commission shall thereafter proceed as
merger or consolidation as are deemed necessary or provided in this Code. (n)
desirable. (n)
SECTION 80. Effects of Merger or Consolidation. —
SECTION 77. Stockholders' or Members' Approval. — The merger or consolidation, as provided in the preceding
Upon approval by majority vote of each of the board of sections shall have the following effects:
directors or trustees of the constituent corporations of
the plan of merger or consolidation, the same shall be 1. The constituent corporations shall become a single
submitted for approval by the stockholders or members corporation which, in case of merger, shall be the
of each of such corporations at separate corporate surviving corporation designated in the plan of merger;
meetings duly called for the purpose. Notice of such and, in case of consolidation, shall be the consolidated
meetings shall be given to all stockholders or members of corporation designated in the plan of consolidation;
the respective corporations, at least two (2) weeks prior to 2. The separate existence of the constituent
the date of the meeting, either personally or by registered corporations shall cease, except that of the surviving or
mail. Said notice shall state the purpose of the meeting the consolidated corporation;
and shall include a copy or a summary of the plan of
merger or consolidation, as the case may be. The 3. The surviving or the consolidated corporation shall
affirmative vote of stockholders representing at least possess all the rights, privileges, immunities and powers
two-thirds (2/3) of the outstanding capital stock of each and shall be subject to all the duties and liabilities of a
corporation in case of stock corporations or at least corporation organized under this Code;
two-thirds (2/3) of the members in case of non-stock 4. The surviving or the consolidated corporation shall
corporations, shall be necessary for the approval of such thereupon and thereafter possess all the rights, privileges,
plan. Any dissenting stockholder in stock corporations immunities and franchises of each of the constituent
may exercise his appraisal right in accordance with this corporations; and all property, real or personal, and all
Code: Provided, That if after the approval by the receivables due on whatever account, including
stockholders of such plan, the board of directors should subscriptions to shares and other choses in action, and all
decide to abandon the plan, the appraisal right shall be and every other interest of, or belonging to, or due to
extinguished. each constituent corporation, shall be taken and deemed
Any amendment to the plan of merger or to be transferred to and vested in such surviving or
consolidation may be made, provided such amendment consolidated corporation without further act or deed; and
is approved by majority vote of the respective boards of 5. The surviving or consolidated corporation shall be
directors or trustees of all the constituent corporations responsible and liable for all the liabilities and obligations
and ratified by the affirmative vote of stockholders of each of the constituent corporations in the same
representing at least two-thirds (2/3) of the outstanding manner as if such surviving or consolidated corporation
capital stock or of two-thirds (2/3) of the members of each had itself incurred such liabilities or obligations; and any
of the constituent corporations. Such plan, together with claim, action or proceeding pending by or against any of
any amendment, shall be considered as the agreement of such constituent corporations may be prosecuted by or
merger or consolidation. (n) against the surviving or consolidated corporation, as the
SECTION 78. Articles of Merger or Consolidation. — case may be. Neither the rights of creditors nor any lien
After the approval by the stockholders or members as upon the property of any of such constituent
required by the preceding section, articles of merger or corporations shall be impaired by such merger or
articles of consolidation shall be executed by each of the consolidation. (n)
constituent corporations, to be signed by the president or
vice-president and certified by the secretary or assistant
secretary of each corporation setting forth: TITLE X Appraisal Right
1.The plan of the merger or the plan of consolidation; SECTION 81. Instances of Appraisal Right. — Any
stockholder of a corporation shall have the right to
2.As to stock corporations, the number of shares dissent and demand payment of the fair value of his
outstanding, or in case of non-stock corporations, the shares in the following instances:
number of members; and
1. In case any amendment to the articles of
3.As to each corporation, the number of shares or incorporation has the effect of changing or restricting the
members voting for and against such plan, respectively. rights of any stockholders or class of shares, or of
(n) authorizing preferences in any respect superior to those
SECTION 79. Securities and Exchange Commission's of outstanding shares of any class, or of extending or
Approval and Effectivity of Merger or Consolidation. — shortening the term of corporate existence;
The articles of merger or of consolidation, signed and 2. In case of sale, lease, exchange, transfer, mortgage,
certified as hereinabove required, shall be submitted to pledge or other disposition of all or substantially all of the
the Securities and Exchange Commission in corporate property and assets as provided in the Code;
quadruplicate for its approval: Provided, That in the case and
of merger or consolidation of banks or banking
institutions, building and loan associations, trust



3. In case of merger or consolidation. (n) such notation are transferred, and the certificate(s)
SECTION 82. How Right is Exercised. — The appraisal consequently cancelled, the rights of the transferor as a
right may be exercised by any stockholder who shall have dissenting stockholder under this Title shall cease and the
voted against the proposed corporate action, by making a transferee shall have all the rights of a regular
written demand on the corporation within thirty (30) days stockholder; and all dividend distributions which would
after the date on which the vote was taken for payment have accrued on such shares shall be paid to the
of the fair value of his shares:Provided, That failure to transferee. (n)
make the demand within such period shall be deemed a
waiver of the appraisal right. If the proposed corporate
action is implemented or affected, the corporation shall TITLE XI Non-Stock Corporations
pay to such stockholder, upon surrender of the SECTION 87. Definition. — For the purposes of this
certificate(s) of stock representing his shares, the fair Code, a non-stock corporation is one where no part of its
value thereof as of the day prior to the date on which the income is distributable as dividends to its members,
vote was taken, excluding any appreciation or trustees, or officers, subject to the provisions of this Code
depreciation in anticipation of such corporate action. on dissolution: Provided, That any profit which a
If within a period of sixty (60) days from the date the non-stock corporation may obtain as an incident to its
corporate action was approved by the stockholders, the operations shall, whenever necessary or proper, be used
withdrawing stockholder and the corporation cannot for the furtherance of the purpose or purposes for which
agree on the fair value of the shares, it shall be the corporation was organized, subject to the provisions
determined and appraised by three (3) disinterested of this Title.
persons, one of whom shall be named by the stockholder, The provisions governing stock corporation, when
another by the corporation and the third by the two thus pertinent, shall be applicable to non-stock corporations,
chosen. The findings of the majority of the appraisers except as may be covered by specific provisions of this
shall be final, and their award shall be paid by the Title. (n)
corporation within thirty (30) days after such award is
SECTION 88. Purposes. — Non-stock corporations
made: Provided, That no payment shall be made to any
may be formed or organized for charitable, religious,
dissenting stockholder unless the corporation has
educational, professional, cultural, fraternal, literary,
unrestricted retained earnings in its books to cover such
scientific, social, civic service, or similar purposes, like
payment: and Provided, further, That upon payment by
trade, industry, agricultural and like chambers, or any
the corporation of the agreed or awarded price, the
combination thereof, subject to the special provisions of
stockholder shall forthwith transfer his shares to the
this Title governing particular classes of non-stock
corporation. (n)
corporations. (n)
SECTION 83. Effect of Demand and Termination of
Right. — From the time of demand for payment of the
fair value of a stockholder's shares until either the CHAPTER I Members
abandonment of the corporate action involved or the SECTION 89. Right to Vote. — The right of the
purchase of the said shares by the corporation, all rights members of any class or classes to vote may be limited,
accruing to such shares, including voting and dividend broadened or denied to the extent specified in the
rights shall be suspended in accordance with the articles of incorporation or the bylaws. Unless so limited,
provisions of this Code, except the right of such broadened or denied, each member, regardless of class,
stockholder to receive payment of the fair value thereof: shall be entitled to one vote.
Provided, That if the dissenting stockholder is not paid
the value of his shares within 30 days after the award, his Unless otherwise provided by the articles of
voting and dividend rights shall immediately be restored. incorporation or the bylaws, a member may vote by proxy
(n) in accordance with the provisions of this Code. (n)
SECTION 84. When Right to Payment Ceases. — No Voting by mail or other similar means by members of
demand for payment under this Title may be withdrawn non-stock corporations may be authorized by the bylaws
unless the corporation consents thereto. If, however, such of non-stock corporations with the approval of, and under
demand for payment is withdrawn with the consent of such conditions which may be, prescribed by, the
the corporation, or if the proposed corporate action is Securities and Exchange Commission.
abandoned or rescinded by the corporation or SECTION 90. Non-transferability of Membership. —
disapproved by the Securities and Exchange Commission Membership in a non-stock corporation, and all rights
where such approval is necessary, or if the Securities and arising therefrom, are personal and non-transferable,
Exchange Commission determines that such stockholder unless the articles of incorporation or the bylaws
is not entitled to the appraisal right, then the right of said otherwise provide. (n)
stockholder to be paid the fair value of his shares shall SECTION 91. Termination of Membership. —
cease, his status as a stockholder shall thereupon be Membership shall be terminated in the manner and for
restored, and all dividend distributions which would have the causes provided in the articles of incorporation or the
accrued on his shares shall be paid to him. (n) bylaws. Termination of membership shall have the effect
SECTION 85. Who Bears Costs of Appraisal. — The of extinguishing all rights of a member in the corporation
costs and expenses of appraisal shall be borne by the or in its property, unless otherwise provided in the articles
corporation, unless the fair value ascertained by the of incorporation or the bylaws. (n)
appraisers is approximately the same as the price which
the corporation may have offered to pay the stockholder,
in which case they shall be borne by the latter. In case of CHAPTER II Trustees and Officers
an action to recover such fair value, all costs and expenses SECTION 92. Election and Term of Trustees. —
shall be assessed against the corporation, unless the Unless otherwise provided in the articles of incorporation
refusal of the stockholder to receive payment was or the bylaws, the board of trustees of non-stock
unjustified. (n) corporations, which may be more than fifteen (15) in
SECTION 86. Notation on Certificate(s); Right of number as may be fixed in their articles of incorporation
Transferee. — Within ten (10) days after demanding or bylaws, shall, as soon as organized, so classify
payment for his shares, a dissenting stockholder shall themselves that the term of office of one-third (1/3) of
submit the certificate(s) of stock representing his shares their number shall expire every year; and subsequent
to the corporation for notation thereon that such shares elections of trustees comprising one-third (1/3) of the
are dissenting shares. His failure to do so shall, at the board of trustees shall be held annually and trustees so
option of the corporation, terminate his rights under this elected shall have a term of three (3) years. Trustees
Title. If shares represented by the certificate(s) bearing thereafter elected to fill vacancies occurring before the


expiration of a particular term shall hold office only for one whose articles of incorporation provide that: (1) All of
the unexpired period. the corporation's issued stock of all classes, exclusive of
No person shall be elected as trustee unless he is a treasury shares, shall be held of record by not more than a
member of the corporation. specified number of persons, not exceeding twenty (20);
(2) All of the issued stock of all classes shall be subject to
Unless otherwise provided for in the articles of one or more specified restrictions on transfer permitted
incorporation or the bylaws, officers of a non-stock by this Title; and (3) The corporation shall not list in any
corporation may be directly elected by the members. (n) stock exchange or make any public offering of any of its
SECTION 93. Place of Meetings. — The bylaws may stock of any class. Notwithstanding the foregoing, a
provide that the members of a non-stock corporation corporation shall be deemed not a close corporation
may hold their regular or special meetings at any place when at least two-thirds (2/3) of its voting stock or voting
even outside the place where the principal office of the rights is owned or controlled by another corporation
corporation is located: Provided, That proper notice is sent which is not a close corporation within the meaning of
to all members indicating the date, time and place of the this Code.
meeting: and Provided, further, That the place of meeting Any corporation may be incorporated as a close
shall be within the Philippines. (n) corporation, except mining or oil companies, stock
exchanges, banks, insurance companies, public utilities,
educational institutions and corporations declared to be
CHAPTER III Distribution of Assets in Non-Stock
vested with public interest in accordance with the
Corporations provisions of this Code.
SECTION 94. Rules of Distribution. — In case of The provisions of this Title shall primarily govern close
dissolution of a non-stock corporation in accordance with corporations: Provided, That the provisions of other Titles
the provisions of this Code, its assets shall be applied and of this Code shall apply suppletorily except insofar as this
distributed as follows: Title otherwise provides.
1. All liabilities and obligations of the corporation shall SECTION 97. Articles of Incorporation. — The articles
be paid, satisfied and discharged, or adequate provision of incorporation of a close corporation may provide:
shall be made therefor;
1. For a classification of shares or rights and the
2. Assets held by the corporation upon a condition qualifications for owning or holding the same and
requiring return, transfer or conveyance, and which restrictions on their transfers as may be stated therein,
condition occurs by reason of the dissolution, shall be subject to the provisions of the following section;
returned, transferred or conveyed in accordance with
such requirements; 2. For a classification of directors into one or more
classes, each of which may be voted for and elected solely
3. Assets received and held by the corporation subject by a particular class of stock; and
to limitations permitting their use only for charitable,
religious, benevolent, educational or similar purposes, but 3. For a greater quorum or voting requirements in
not held upon a condition requiring return, transfer or meetings of stockholders or directors than those
conveyance by reason of the dissolution, shall be provided in this Code.
transferred or conveyed to one or more corporations, The articles of incorporation of a close corporation
societies or organizations engaged in activities in the may provide that the business of the corporation shall be
Philippines substantially similar to those of the dissolving managed by the stockholders of the corporation rather
corporation pursuant to a plan of distribution adopted as than by a board of directors. So long as this provision
provided in this Chapter; continues in effect:
4. Assets other than those mentioned in the 1. No meeting of stockholders need be called to elect
preceding paragraphs, if any, shall be distributed in directors;
accordance with the provisions of the articles of
incorporation or the bylaws, to the extent that the articles 2. Unless the context clearly requires otherwise, the
of incorporation or the bylaws, determine the distributive stockholders of the corporation shall be deemed to be
rights of members, or any class or classes of members, or directors for purposes of applying provisions of this Code;
provide for distribution; and and
5. In any other case, assets may be distributed to such 3. The stockholders of the corporation shall be subject

persons, societies, organizations or corporations, whether to all liabilities of directors.
or not organized for profit, as may be specified in a plan The articles of incorporation may likewise provide
of distribution as provided in this Chapter. (n) that all officers or employees or that specified officers or
SECTION 95. Plan of Distribution of Assets. — A plan employees shall be elected or appointed by the
providing for the distribution of assets, not inconsistent stockholders, instead of by the board of directors.
with the provisions of this Title, may be adopted by a SECTION 98. Validity of Restrictions on Transfer of
non-stock corporation in the process of dissolution in the Shares. — Restrictions on the right to transfer shares
following manner: must appear in the articles of incorporation and in the
The board of trustees shall, by majority vote, adopt a bylaws as well as in the certificate of stock; otherwise, the
resolution recommending a plan of distribution and same shall not be binding on any purchaser thereof in
directing the submission thereof to a vote at a regular or good faith. Said restrictions shall not be more onerous
special meeting of members having voting rights. than granting the existing stockholders or the
Written notice setting forth the proposed plan of corporation the option to purchase the shares of the
distribution or a summary thereof; and the date, time and transferring stockholder with such reasonable terms,
place of such meeting shall be given to each member conditions or period stated therein. If upon the expiration
entitled to vote, within the time and in the manner of said period, the existing stockholders or the
provided in this Code for the giving of notice of meetings corporation fails to exercise the option to purchase, the
to members. Such plan of distribution shall be adopted transferring stockholder may sell his shares to any third
upon approval of at least two-thirds (2/3) of the members person.
having voting rights present or represented by proxy at SECTION 99. Issuance or Transfer of Stock of a Close
such meeting. (n) Corporation in Breach of Qualifying Conditions. —
1. If stock of a close corporation is issued or transferred
to any person who is not entitled under any provision of
TITLE XII Close Corporations the articles of incorporation to be a holder of record of
SECTION 96. Definition and Applicability of Title. — stock, and if the certificate for such stock conspicuously
A close corporation, within the meaning of this Code, is shows the qualifications of the persons entitled to be



holders of record thereof, such person is conclusively stockholders shall be held to strict fiduciary duties to
presumed to have notice of the fact of his ineligibility to each other and among themselves. Said stockholders
be a stockholder. shall be personally liable for corporate torts unless the
2. If the articles of incorporation of a close corporation corporation has obtained reasonably adequate liability
states the number of persons, not in excess of twenty (20), insurance.
who are entitled to be holders of record of its stock, and if SECTION 101. When Board Meeting is Unnecessary
the certificate for such stock conspicuously states such or Improperly Held. — Unless the bylaws provide
number, and if the issuance or transfer of stock to any otherwise, any action by the directors of a close
person would cause the stock to be held by more than corporation without a meeting shall nevertheless be
such number of persons, the person to whom such stock deemed valid if:
is issued or transferred is conclusively presumed to have 1. Before or after such action is taken, written consent
notice of this fact. thereto is signed by all the directors; or
3. If a stock certificate of any close corporation 2. All the stockholders have actual or implied
conspicuously shows a restriction on transfer of stock of knowledge of the action and make no prompt objection
the corporation, the transferee of the stock is conclusively thereto in writing; or
presumed to have notice of the fact that he has acquired
stock in violation of the restriction, if such acquisition 3. The directors are accustomed to take informal
violates the restriction. action with the express or implied acquiescence of all the
stockholders; or
4. Whenever any person to whom stock of a close
corporation has been issued or transferred has, or is 4. All the directors have express or implied knowledge
conclusively presumed under this section to have, notice of the action in question and none of them makes
either (i) that he is a person not eligible to be a holder of prompt objection thereto in writing.
stock of the corporation, or (ii) that transfer of stock to If a director's meeting is held without proper call or
him would cause the stock of the corporation to be held notice, an action taken therein within corporate powers is
by more than the number of persons permitted by its deemed ratified by a director who failed to attend, unless
articles of incorporation to hold stock of the corporation, he promptly files his written objection with the secretary
or (iii) that the transfer of stock is in violation of a of the corporation after having knowledge thereof.
restriction on transfer of stock, the corporation may, at its
option, refuse to register the transfer of the stock in the SECTION 102. Pre-emptive Right in Close
name of the transferee. Corporations. — The pre-emptive right of stockholders in
close corporations shall extend to all stock to be issued,
5. The provisions of subsection (4) shall not be including reissuance of treasury shares, whether for
applicable if the transfer of stock, even though otherwise money or for property or personal services, or in payment
contrary to subsections (1), (2) or (3), has been consented of corporate debts, unless the articles of incorporation
to by all the stockholders of the close corporation, or if the provide otherwise.
close corporation has amended its articles of
incorporation in accordance with this Title. SECTION 103. Amendment of Articles of
Incorporation. — Any amendment to the articles of
6. The term "transfer", as used in this section, is not incorporation which seeks to delete or remove any
limited to a transfer for value. provision required by this Title to be contained in the
7. The provisions of this section do not in any way articles of incorporation or to reduce a quorum or voting
impair any right of a transferee regarding any right to requirement stated in said articles of incorporation shall
rescind the transaction or to recover under any applicable not be valid or effective unless approved by the
warranty, express or implied. affirmative vote of at least two-thirds (2/3) of the
outstanding capital stock, whether with or without voting
SECTION 100. Agreements by Stockholders. — rights, or of such greater proportion of shares as may be
1. Agreements by and among stockholders executed specifically provided in the articles of incorporation for
before the formation and organization of a close amending, deleting or removing any of the aforesaid
corporation, signed by all stockholders, shall survive the provisions, at a meeting duly called for the purpose.
incorporation of such corporation and shall continue to SECTION 104. Deadlocks. — Notwithstanding any
be valid and binding between and among such contrary provision in the articles of incorporation or
stockholders, if such be their intent, to the extent such bylaws or agreement of stockholders of a close
agreements are not inconsistent with the articles of corporation, if the directors or stockholders are so divided
incorporation, irrespective of where the provisions of such respecting the management of the corporation's
agreements are contained, except those required by this business and affairs that the votes required for any
Title to be embodied, in said articles of incorporation. corporate action cannot be obtained, with the
2. An agreement between two or more stockholders, consequence that the business and affairs of the
if in writing and signed by the parties thereto, may corporation can no longer be conducted to the
provide that in exercising any voting rights, the shares advantage of the stockholders generally, the Securities
held by them shall be voted as therein provided, or as and Exchange Commission, upon written petition by any
they may agree, or as determined in accordance with a stockholder, shall have the power to arbitrate the dispute.
procedure agreed upon by them. In the exercise of such power, the Commission shall have
3. No provision in any written agreement signed by authority to make such order as it deems appropriate,
the stockholders, relating to any phase of the corporate including an order: (1) cancelling or altering any provision
affairs, shall be invalidated as between the parties on the contained in the articles of incorporation, bylaws, or any
ground that its effect is to make them partners among stockholders' agreement; (2) cancelling, altering or
themselves. enjoining any resolution or other act of the corporation or
its board of directors, stockholders, or officers; (3)
4. A written agreement among some or all of the directing or prohibiting any act of the corporation or its
stockholders in a close corporation shall not be board of directors, stockholders, officers, or other persons
invalidated on the ground that it so relates to the conduct party to the action; (4) requiring the purchase at their fair
of the business and affairs of the corporation as to restrict value of shares of any stockholder, either by the
or interfere with the discretion or powers of the board of corporation regardless of the availability of unrestricted
directors: Provided, That such agreement shall impose on retained earnings in its books, or by the other
the stockholders who are parties thereto the liabilities for stockholders; (5) appointing a provisional director; (6)
managerial acts imposed by this Code on directors. dissolving the corporation; or (7) granting such other
5. To the extent that the stockholders are actively relief as the circumstances may warrant.
engaged in the management or operation of the
business and affairs of a close corporation, the



A provisional director shall be an impartial person more persons. Such corporations may be classified into
who is neither a stockholder nor a creditor of the corporations sole and religious societies.
corporation or of any subsidiary or affiliate of the Religious corporations shall be governed by this
corporation, and whose further qualifications, if any, may Chapter and by the general provisions on non-stock
be determined by the Commission. A provisional director corporations insofar as they may be applicable. (n)
is not a receiver of the corporation and does not have the
title and powers of a custodian or receiver. A provisional SECTION 110. Corporation Sole. — For the purpose of
director shall have all the rights and powers of a duly administering and managing, as trustee, the affairs,
elected director of the corporation, including the right to property and temporalities of any religious denomination,
notice of and to vote at meetings of directors, until such sect or church, a corporation sole may be formed by the
time as he shall be removed by order of the Commission chief archbishop, bishop, priest, minister, rabbi or other
or by all the stockholders. His compensation shall be presiding elder of such religious denomination, sect or
determined by agreement between him and the church. (154a)
corporation subject to approval of the Commission, which SECTION 111. Articles of Incorporation. — In order to
may fix his compensation in the absence of agreement or become a corporation sole, the chief archbishop, bishop,
in the event of disagreement between the provisional priest, minister, rabbi or presiding elder of any religious
director and the corporation. denomination, sect or church must file with the
Securities and Exchange Commission articles of
incorporation setting forth the following:
SECTION 105. Withdrawal of Stockholder or
Dissolution of Corporation. — In addition and without 1. That he is the chief archbishop, bishop, priest,
prejudice to the other rights and remedies available to a minister, rabbi or presiding elder of his religious
stockholder under this Title, any stockholder of a close denomination, sect or church and that he desires to
corporation may, for any reason, compel the said become a corporation sole;
corporation to purchase his shares at their fair value, 2. That the rules, regulations and discipline of his
which shall not be less than their par or issued value, religious denomination, sect or church are not
when the corporation has sufficient assets in its books to inconsistent with his becoming a corporation sole and do
cover its debts and liabilities exclusive of capital not forbid it;
stock:Provided, That any stockholder of a close
corporation may, by written petition to the Securities and 3. That as such chief archbishop, bishop, priest,
Exchange Commission, compel the dissolution of such minister, rabbi or presiding elder, he is charged with the
corporation whenever any of the acts of the directors, administration of the temporalities and the management
officers or those in control of the corporation is illegal, or of the affairs, estate and properties of his religious
fraudulent, or dishonest, or oppressive or unfairly denomination, sect or church within his territorial
prejudicial to the corporation or any stockholder, or jurisdiction, describing such territorial jurisdiction;
whenever corporate assets are being misapplied or 4. The manner in which any vacancy occurring in the
wasted. office of chief archbishop, bishop, priest, minister, rabbi or
presiding elder is required to be filled, according to the
rules, regulations or discipline of the religious
TITLE XIII Special Corporations denomination, sect or church to which he belongs; and
5. The place where the principal office of the
CHAPTER I Educational Corporations corporation sole is to be established and located, which
place must be within the Philippines.
SECTION 106. Incorporation. — Educational
corporations shall be governed by special laws and by the The articles of incorporation may include any other
general provisions of this Code. (n) provision not contrary to law for the regulation of the
affairs of the corporation. (n)
SECTION 107. Prerequisites to Incorporation. —
Except upon favorable recommendation of the Ministry of SECTION 112. Submission of Articles of
Education and Culture, the Securities and Exchange Incorporation. — The articles of incorporation must be
Commission shall not accept or approve the articles of verified, before filing, by affidavit or affirmation of the
incorporation and bylaws of any educational institution. chief archbishop, bishop, priest, minister, rabbi or
(168a) presiding elder, as the case may be, and accompanied by
a copy of the commission, certificate of election or letter
SECTION 108. Board of Trustees. — Trustees of of appointment of such chief archbishop, bishop, priest,
educational institutions organized as non-stock minister, rabbi or presiding elder, duly certified to be
corporations shall not be less than five (5) nor more than correct by any notary public.
fifteen (15): Provided, however, That the number of
trustees shall be in multiples of five (5). From and after the filing with the Securities and
Exchange Commission of the said articles of
Unless otherwise provided in the articles of incorporation, verified by affidavit or affirmation, and
incorporation or the bylaws, the board of trustees of accompanied by the documents mentioned in the
incorporated schools, colleges, or other institutions of preceding paragraph, such chief archbishop, bishop,
learning shall, as soon as organized, so classify themselves priest, minister, rabbi or presiding elder as the case may
that the term of office of one-fifth (1/5) of their number be, shall become a corporation sole, and all temporalities,
shall expire every year. Trustees thereafter elected to fill estate and properties of the religious denomination, sect
vacancies, occurring before the expiration of a particular or church theretofore administered or managed by him
term, shall hold office only for the unexpired period. as such chief archbishop, bishop, priest, minister, rabbi or
Trustees elected thereafter to fill vacancies caused by presiding elder shall be held in trust by him as a
expiration of term shall hold office for five (5) years. A corporation sole, for the use, purpose, behalf and sole
majority of the trustees shall constitute a quorum for the benefit of his religious denomination, sect or church,
transaction of business. The powers and authority of including hospitals, schools, colleges, orphan asylums,
trustees shall be defined in the bylaws. parsonages and cemeteries thereof. (n)
For institutions organized as stock corporations, the SECTION 113. Acquisition and Alienation of Property.
number and term of directors shall be governed by the — Any corporation sole may purchase and hold real
provisions on stock corporations. (169a) estate and personal property for its church, charitable,
benevolent or educational purposes, and may receive
CHAPTER II Religious Corporations bequests or gifts for such purposes. Such corporation
may mortgage or sell real property held by it upon
SECTION 109. Classes of Religious Corporations. — obtaining an order for that purpose from the Court of
Religious corporations may be incorporated by one or First Instance of the province where the property is



situated; but before the order is issued; proof must be organization of some religious denomination, sect, or
made to the satisfaction of the court that notice of the church;
application for leave to mortgage or sell has been given 2.That two-thirds (2/3) of its membership have given
by publication or otherwise in such manner and for such their written consent or have voted to incorporate at a
time as said court may have directed, and that it is to the duly convened meeting of the body;
interest of the corporation that leave to mortgage or sell
should be granted. The application for leave to mortgage 3. That the incorporation of the religious society or
or sell must be made by petition, duly verified, by the religious order, or diocese, synod, or district organization
chief archbishop, bishop, priest, minister, rabbi or desiring to incorporate is not forbidden by competent
presiding elder acting as corporation sole, and may be authority or by the constitution, rules, regulations or
opposed by any member of the religious denomination, discipline of the religious denomination, sect, or church of
sect or church represented by the corporation sole: which it forms a part;
Provided, That in cases where the rules, regulations and 4. That the religious society or religious order, or
discipline of the religious denomination, sect or church diocese, synod, or district organization desires to
religious society or order concerned represented by such incorporate for the administration of its affairs, properties
corporation sole regulate the method of acquiring, and estate;
holding, selling and mortgaging real estate and personal
property, such rules, regulations and discipline shall 5. The place where the principal office of the
control and the intervention of the courts shall not be corporation is to be established and located, which place
necessary. (159a) must be within the Philippines; and
SECTION 114. Filling of Vacancies. — The successors 6. The names, nationalities, and residences of the
in office of any chief archbishop, bishop, priest, minister, trustees elected by the religious society or religious order,
rabbi or presiding elder in a corporation sole shall or the diocese, synod or district organization to serve for
become the corporation sole on their accession to office; the first year or such other period as may be prescribed
and shall be permitted to transact business as such on by the laws of the religious society or religious order, or of
the filing with the Securities and Exchange Commission the diocese, synod, or district organization, the board of
of a copy of their commission, certificate of election, or trustees to be not less than five (5) nor more than fifteen
letters of appointment duly certified by any notary public. (15). (160a)
During any vacancy in the office of chief archbishop,
bishop, priest, minister, rabbi or presiding elder of any TITLE XIV Dissolution
religious denomination, sect, or church incorporated as a
corporation sole, the person or persons authorized and SECTION 117. Methods of Dissolution. — A
empowered by the rules, regulations or discipline of the corporation formed or organized under the provisions of
religious denomination, sect or church represented by this Code may be dissolved voluntarily or involuntarily. (n)
the corporation sole to administer the temporalities and SECTION 118. Voluntary Dissolution where no
manage the affairs, estate and properties of the Creditors are Affected. — In case dissolution of a
corporation sole during the vacancy shall exercise all the corporation does not prejudice the rights of any creditor
powers and authority of the corporation sole during such having a claim against such corporation, then such
vacancy. (158a) dissolution may be effected by majority vote of the board
SECTION 115. Dissolution. — A corporation sole may of directors or trustees, and by a resolution duly adopted
be dissolved and its affairs settled voluntarily by by the affirmative vote of the stockholders owning at
submitting to the Securities and Exchange Commission a least two-thirds (2/3) of the outstanding capital stock or of
verified declaration of dissolution. at least two-thirds (2/3) of the members at a meeting to
be held on the call of the directors or trustees after
The declaration of dissolution shall set forth: publishing the notice of the time, place and object of the
1. The name of the corporation; meeting for three (3) consecutive weeks in a newspaper
published in the place where the principal office of said
2. The reason for dissolution and winding up;
corporation is located; and if no newspaper is published
3. The authorization for the dissolution of the in such place, then in a newspaper of general circulation
corporation by the particular religious denomination, sect in the Philippines, and after sending such notice to each
or church; stockholder or member either by registered mail or
4. The names and addresses of the persons who are personal delivery at least thirty (30) days prior to said
to supervise the winding up of the affairs of the meeting. A copy of the resolution authorizing the
corporation. dissolution shall be certified by a majority of the board of
directors or trustees and countersigned by the secretary
Upon approval of such declaration of dissolution by of the corporation. The Securities and Exchange
the Securities and Exchange Commission, the Commission shall thereupon issue the certificate of
corporation shall cease to carry on its operations except dissolution. (62a)
for the purpose of winding up its affairs. (n)
SECTION 119. Voluntary Dissolution where Creditors
SECTION 116. Religious Societies. — Any religious are Affected. — Where the dissolution of a corporation
society or religious order, or any diocese, synod, or district may prejudice the rights of any creditor, a petition for
organization of any religious denomination, sect, or dissolution of a corporation shall be filed with the
church, unless forbidden by the constitution, rules, Securities and Exchange Commission. The petition shall
regulations, or discipline of the religious denomination, be signed by a majority of its board of directors or
sect or church of which it is a part, or by competent trustees or other officers having the management of its
authority, may, upon written consent and/or by an affairs, verified by its president or secretary or one of its
affirmative vote at a meeting called for the purpose of directors or trustees, and shall set forth all claims and
two-thirds (2/3) of its membership, incorporate for the demands against it, and that its dissolution was resolved
administration of its temporalities or for the upon by the affirmative vote of the stockholders
management of its affairs, properties and estate by filing representing at least two-thirds (2/3) of the outstanding
with the Securities and Exchange Commission, articles of capital stock or by at least two-thirds (2/3) of the
incorporation verified by the affidavit of the presiding members at a meeting of its stockholders or members
elder, secretary, or clerk or other member of such called for that purpose.
religious society or religious order, or diocese, synod, or
district organization of the religious denomination, sect, If the petition is sufficient in form and substance, the
or church, setting forth the following: Commission, by an order reciting the purpose of the
petition, shall fix a date on or before which objections
1. That the religious society or religious order, or thereto may be filed by any person, which date shall not
diocese, synod, or district organization is a religious be less than thirty (30) days nor more than sixty (60) days



after the entry of the order. Before such date, a copy of business in its own country or state. It shall have the right
the order shall be published at least once a week for three to transact business in the Philippines after it shall have
(3) consecutive weeks in a newspaper of general obtained a license to transact business in this country in
circulation published in the municipality or city where the accordance with this Code and a certificate of authority
principal office of the corporation is situated, or if there be from the appropriate government agency. (n)
no such newspaper, then in a newspaper of general SECTION 124. Application to Existing Foreign
circulation in the Philippines, and a similar copy shall be Corporations. — Every foreign corporation which on the
posted for three (3) consecutive weeks in three (3) public date of the effectivity of this Code is authorized to do
places in such municipality or city. business in the Philippines under a license theretofore
Upon five (5) days notice, given after the date on issued to it, shall continue to have such authority under
which the right to file objections as fixed in the order has the terms and condition of its license, subject to the
expired, the Commission shall proceed to hear the provisions of this Code and other special laws. (n)
petition and try any issue made by the objections filed; SECTION 125. Application for a License. — A foreign
and if no such objection is sufficient, and the material corporation applying for a license to transact business in
allegations of the petition are true, it shall render the Philippines shall submit to the Securities and
judgment dissolving the corporation and directing such Exchange Commission a copy of its articles of
disposition of its assets as justice requires, and may incorporation and bylaws, certified in accordance with
appoint a receiver to collect such assets and pay the law, and their translation to an official language of the
debts of the corporation. (Rule 104, RCa) Philippines, if necessary. The application shall be under
SECTION 120. Dissolution by Shortening Corporate oath and shall specifically set forth the following, unless
Term. — A voluntary dissolution may be effected by already stated in its articles of incorporation:
amending the articles of incorporation to shorten the 1. The date and term of incorporation;
corporate term pursuant to the provisions of this Code. A
copy of the amended articles of incorporation shall be 2. The address, including the street number, of the
submitted to the Securities and Exchange Commission in principal office of the corporation in the country or state
accordance with this Code. Upon approval of the of incorporation;
amended articles of incorporation or the expiration of the 3. The name and address of its resident agent
shortened term, as the case may be, the corporation shall authorized to accept summons and process in all legal
be deemed dissolved without any further proceedings, proceedings and, pending the establishment of a local
subject to the provisions of this Code on liquidation. (n) office, all notices affecting the corporation;
SECTION 121. Involuntary Dissolution. — A 4. The place in the Philippines where the corporation
corporation may be dissolved by the Securities and intends to operate;
Exchange Commission upon filing of a verified complaint
and after proper notice and hearing on grounds provided 5. The specific purpose or purposes of the corporation
by existing laws, rules and regulations. (n) which it intends to pursue in the transaction of its
business in the Philippines: Provided, That said purpose
SECTION 122. Corporate Liquidation. — Every or purposes are those specifically stated in the certificate
corporation whose charter expires by its own limitation or of authority issued by the appropriate government
is annulled by forfeiture or otherwise, or whose corporate agency;
existence for other purposes is terminated in any other
manner, shall nevertheless be continued as a body 6. The names and addresses of the present directors
corporate for three (3) years after the time when it would and officers of the corporation;
have been so dissolved, for the purpose of prosecuting 7. A statement of its authorized capital stock and the
and defending suits by or against it and enabling it to aggregate number of shares which the corporation has
settle and close its affairs, to dispose of and convey its authority to issue, itemized by classes, par value of shares,
property and to distribute its assets, but not for the shares without par value, and series, if any;
purpose of continuing the business for which it was
established. 8. A statement of its outstanding capital stock and
the aggregate number of shares which the corporation
At any time during said three (3) years, said has issued, itemized by classes, par value of shares, shares
corporation is authorized and empowered to convey all of without par value, and series, if any;
its property to trustees for the benefit of stockholders,
members, creditors, and other persons in interest. From 9. A statement of the amount actually paid in; and
and after any such conveyance by the corporation of its 10. Such additional information as may be necessary
property in trust for the benefit of its stockholders, or appropriate in order to enable the Securities and
members, creditors and others in interest, all interest Exchange Commission to determine whether such
which the corporation had in the property terminates, the corporation is entitled to a license to transact business in
legal interest vests in the trustees, and the beneficial the Philippines, and to determine and assess the fees
interest in the stockholders, members, creditors or other payable.
persons in interest. Attached to the application for license shall be a duly
Upon the winding up of the corporate affairs, any executed certificate under oath by the authorized official
asset distributable to any creditor or stockholder or or officials of the jurisdiction of its incorporation, attesting
member who is unknown or cannot be found shall be to the fact that the laws of the country or state of the
escheated to the city or municipality where such assets applicant allow Filipino citizens and corporations to do
are located. business therein, and that the applicant is an existing
Except by decrease of capital stock and as otherwise corporation in good standing. If such certificate is in a
allowed by this Code, no corporation shall distribute any foreign language, a translation thereof in English under
of its assets or property except upon lawful dissolution oath of the translator shall be attached thereto.
and after payment of all its debts and liabilities. (77a, 89a, The application for a license to transact business in
16a) the Philippines shall likewise be accompanied by a
statement under oath of the president or any other
person authorized by the corporation, showing to the
TITLE XV Foreign Corporations satisfaction of the Securities and Exchange Commission
and other governmental agency in the proper cases that
SECTION 123. Definition and Rights of Foreign
the applicant is solvent and in sound financial condition,
Corporations. — For the purposes of this Code, a foreign
and setting forth the assets and liabilities of the
corporation is one formed, organized or existing under
corporation as of the date not exceeding one (1) year
any laws other than those of the Philippines and whose
immediately prior to the filing of the application.
laws allow Filipino citizens and corporations to do


Foreign banking, financial and insurance transact business in the Philippines by any foreign
corporations shall, in addition to the above requirements, corporation that such corporation file with the Securities
comply with the provisions of existing laws applicable to and Exchange Commission a written power of attorney
them. In the case of all other foreign corporations, no designating some person who must be a resident of the
application for license to transact business in the Philippines, on whom any summons and other legal
Philippines shall be accepted by the Securities and processes may be served in all actions or other legal
Exchange Commission without previous authority from proceedings against such corporation, and consenting
the appropriate government agency, whenever required that service upon such resident agent shall be admitted
by law. (68a) and held as valid as if served upon the duly authorized
SECTION 126. Issuance of a License. — Where the officers of the foreign corporation at its home office. Any
Securities and Exchange Commission is satisfied that the such foreign corporation shall likewise execute and file
applicant has complied with all the requirements of this with the Securities and Exchange Commission an
Code and other special laws, rules and regulations, the agreement or stipulation, executed by the proper
Commission shall issue a license to the applicant to authorities of said corporation, in form and substance as
transact business in the Philippines for the purpose or follows:
purposes specified in such license. Upon issuance of the "The (name of foreign corporation) does hereby
license, such foreign corporation may commence to stipulate and agree, in consideration of its being granted
transact its business in the Philippines and continue to do by the Securities and Exchange Commission a license to
so for as long as it retains its authority to act as a transact business in the Philippines, that if at any time
corporation under the laws of the country or state of its said corporation shall cease to transact business in the
incorporation, unless such license is sooner surrendered, Philippines, or shall be without any resident agent in the
revoked, suspended or annulled in accordance with this Philippines on whom any summons or other legal
Code or other special laws. processes may be served, then in any action or
Within sixty (60) days after the issuance of the license proceeding arising out of any business or transaction
to transact business in the Philippines, the licensee, which occurred in the Philippines, service of any
except a foreign banking or insurance corporation, shall summons or other legal process may be made upon the
deposit with the Securities and Exchange Commission for Securities and Exchange Commission and that such
the benefit of present and future creditors of the licensee service shall have the same force and effect as if made
in the Philippines, securities satisfactory to the Securities upon the duly-authorized officers of the corporation at its
and Exchange Commission, consisting of bonds or other home office."
evidence of indebtedness of the Government of the Whenever such service of summons or other process
Philippines, its political subdivisions and shall be made upon the Securities and Exchange
instrumentalities, or of government-owned or controlled Commission, it must, within ten (10) days thereafter,
corporations and entities, shares of stock in "registered transmit by mail a copy of such summons or other legal
enterprises" as this term is defined in Republic Act No. process to the corporation at its home or principal office.
5186, shares of stock in domestic corporations registered The sending of such copy by the Commission shall be a
in the stock exchange, or shares of stock in domestic necessary part of and shall complete such service. All
insurance companies and banks, or any combination of expenses incurred by the Commission for such service
these kinds of securities, in the actual market value of at shall be paid in advance by the party at whose instance
least one hundred thousand (P100,000.00) pesos; the service is made.
Provided, however, That within six (6) months after each In case of a change of address of the resident agent, it
fiscal year of the licensee, the Securities and Exchange shall be his or its duty to immediately notify in writing the
Commission shall require the licensee to deposit Securities and Exchange Commission of the new address.
additional securities equivalent in actual market value to (72a; and n)
two (2%) percent of the amount by which the licensee's
gross income for that fiscal year exceeds five million SECTION 129. Law Applicable. — Any foreign
(P5,000,000.00) pesos. The Securities and Exchange corporation lawfully doing business in the Philippines
Commission shall also require deposit of additional shall be bound by all laws, rules and regulations
securities if the actual market value of the securities on applicable to domestic corporations of the same class,
deposit has decreased by at least ten (10%) percent of save and except such only as provide for the creation,
their actual market value at the time they were formation, organization or dissolution of corporations or
deposited. The Securities and Exchange Commission may such as fix the relations, liabilities, responsibilities, or
at its discretion release part of the additional securities duties of stockholders, members, or officers of
deposited with it if the gross income of the licensee has corporations to each other or to the corporation. (73a)
decreased, or if the actual market value of the total SECTION 130. Amendments to Articles of
securities on deposit has increased, by more than ten Incorporation or bylaws of Foreign Corporations. —
(10%) percent of the actual market value of the securities Whenever the articles of incorporation or the bylaws of a
at the time they were deposited. The Securities and foreign corporation authorized to transact business in the
Exchange Commission may, from time to time, allow the Philippines are amended, such foreign corporation shall,
licensee to substitute other securities for those already on within sixty (60) days after such amendment becomes
deposit as long as the licensee is solvent. Such licensee effective, file with the Securities and Exchange
shall be entitled to collect the interest or dividends on the Commission, and in the proper cases with the
securities deposited. In the event the licensee ceases to appropriate government agency, a duly authenticated
do business in the Philippines, the securities deposited as copy of the articles of incorporation or bylaws, as
aforesaid shall be returned, upon the licensee's making amended, indicating clearly in capital letters or by
application therefor and proving to the satisfaction of the underscoring the change or changes made, duly certified
Securities and Exchange Commission that the licensee by the authorized official or officials of the country or
has no liability to Philippine residents, including the state of incorporation. The filing thereof shall not of itself
Government of the Republic of the Philippines. (n) enlarge or alter the purpose or purposes for which such
SECTION 127. Who May Be a Resident Agent. — A corporation is authorized to transact business in the
resident agent may be either an individual residing in the Philippines. (n)
Philippines or a domestic corporation lawfully transacting SECTION 131. Amended License. — A foreign
business in the Philippines: Provided, That in the case of corporation authorized to transact business in the
an individual, he must be of good moral character and of Philippines shall obtain an amended license in the event
sound financial standing. (n) it changes its corporate name, or desires to pursue in the
SECTION 128. Resident Agent; Service of Process. — Philippines other or additional purposes, by submitting
The Securities and Exchange Commission shall require as an application therefor to the Securities and Exchange
a condition precedent to the issuance of the license to



Commission, favorably endorsed by the appropriate Commission shall issue a corresponding certificate of
government agency in the proper cases. (n) revocation, furnishing a copy thereof to the appropriate
SECTION 132. Merger or Consolidation Involving a government agency in the proper cases.
Foreign Corporation Licensed in the Philippines. — One The Securities and Exchange Commission shall also
or more foreign corporations authorized to transact mail to the corporation at its registered office in the
business in the Philippines may merge or consolidate Philippines a notice of such revocation accompanied by a
with any domestic corporation or corporations if such is copy of the certificate of revocation. (n)
permitted under Philippine laws and by the law of its SECTION 136. Withdrawal of Foreign Corporations.
incorporation: Provided, That the requirements on — Subject to existing laws and regulations, a foreign
merger or consolidation as provided in this Code are corporation licensed to transact business in the
followed. Philippines may be allowed to withdraw from the
Whenever a foreign corporation authorized to Philippines by filing a petition for withdrawal of license.
transact business in the Philippines shall be a party to a No certificate of withdrawal shall be issued by the
merger or consolidation in its home country or state as Securities and Exchange Commission unless all the
permitted by the law of its incorporation, such foreign following requirements are met:
corporation shall, within sixty (60) days after such merger 1. All claims which have accrued in the Philippines
or consolidation becomes effective, file with the have been paid, compromised or settled;
Securities and Exchange Commission, and in proper
cases with the appropriate government agency, a copy of 2. All taxes, imposts, assessments, and penalties, if
the articles of merger or consolidation duly authenticated any, lawfully due to the Philippine Government or any of
by the proper official or officials of the country or state its agencies or political subdivisions have been paid; and
under the laws of which such merger or consolidation 3. The petition for withdrawal of license has been
was effected: Provided, however, That if the absorbed published once a week for three (3) consecutive weeks in
corporation is the foreign corporation doing business in a newspaper of general circulation in the Philippines.
the Philippines, the latter shall at the same time file a
petition for withdrawal of its license in accordance with
this Title. (n) TITLE XVI Miscellaneous Provisions
SECTION 133. Doing Business Without License. — No SECTION 137. Outstanding Capital Stock Defined. —
foreign corporation transacting business in the The term "outstanding capital stock", as used in this Code,
Philippines without a license, or its successors or assigns, means the total shares of stock issued to subscribers or
shall be permitted to maintain or intervene in any action, stockholders, whether or not fully or partially paid (as long
suit or proceeding in any court or administrative agency as there is a binding subscription agreement), except
of the Philippines; but such corporation may be sued or treasury shares. (n)
proceeded against before Philippine courts or
administrative tribunals on any valid cause of action SECTION 138. Designation of Governing Boards. —
recognized under Philippine laws. (69a) The provisions of specific provisions of this Code to the
contrary notwithstanding, non-stock or special
SECTION 134. Revocation of License. — Without corporations may, through their articles of incorporation
prejudice to other grounds provided by special laws, the or their bylaws, designate their governing boards by any
license of a foreign corporation to transact business in the name other than as board of trustees. (n)
Philippines may be revoked or suspended by the
Securities and Exchange Commission upon any of the SECTION 139. Incorporation and Other Fees. — The
following grounds: Securities and Exchange Commission is hereby
authorized to collect and receive fees as authorized by
1. Failure to file its annual report or pay any fees as law or by rules and regulations promulgated by the
required by this Code; Commission. (n)
2. Failure to appoint and maintain a resident agent in SECTION 140. Stock Ownership in Certain
the Philippines as required by this Title; Corporations. — Pursuant to the duties specified by
3. Failure, after change of its resident agent or of his Article XIV of the Constitution, the National Economic and
address, to submit to the Securities and Exchange Development Authority shall, from time to time, make a
Commission a statement of such change as required by determination of whether the corporate vehicle has been
this Title; used by any corporation or by business or industry to
frustrate the provisions thereof or of applicable laws, and
4. Failure to submit to the Securities and Exchange
shall submit to the Batasang Pambansa, whenever
Commission an authenticated copy of any amendment
deemed necessary, a report of its findings, including
to its articles of incorporation or bylaws or of any articles
recommendations for their prevention or correction.
of merger or consolidation within the time prescribed by
this Title; Maximum limits may be set by the Batasang
Pambansa for stockholdings in corporations declared by
5. A misrepresentation of any material matter in any
it to be vested with a public interest pursuant to the
application, report, affidavit or other document
provisions of this section, belonging to individuals or
submitted by such corporation pursuant to this Title;
groups of individuals related to each other by
6. Failure to pay any and all taxes, imposts, consanguinity or affinity or by close business interests, or
assessments or penalties, if any, lawfully due to the whenever it is necessary to achieve national objectives,
Philippine Government or any of its agencies or political prevent illegal monopolies or combinations in restraint of
subdivisions; trade, or to implement national economic policies
7. Transacting business in the Philippines outside of declared in laws, rules and regulations designed to
the purpose or purposes for which such corporation is promote the general welfare and foster economic
authorized under its license; development.
8. Transacting business in the Philippines as agent of In recommending to the Batasang Pambansa
or acting for and in behalf of any foreign corporation or corporations, businesses or industries to be declared
entity not duly licensed to do business in the Philippines; vested with a public interest and in formulating proposals
or for limitations on stock ownership, the National Economic
and Development Authority shall consider the type and
9. Any other ground as would render it unfit to nature of the industry, the size of the enterprise, the
transact business in the Philippines. (n) economies of scale, the geographic location, the extent of
SECTION 135. Issuance of Certificate of Revocation. Filipino ownership, the labor intensity of the activity, the
— Upon the revocation of any such license to transact export potential, as well as other factors which are
business in the Philippines, the Securities and Exchange



germane to the realization and promotion of business provisions hereof: Provided, That where any such
and industry. corporation is affected by the new requirements of this
SECTION 141. Annual Report of Corporations. — Code, said corporation shall, unless otherwise herein
Every corporation, domestic or foreign, lawfully doing provided, be given a period of not more than two (2) years
business in the Philippines, shall submit to the Securities from the effectivity of this Code within which to comply
and Exchange Commission an annual report of its with the same. (n)
operations, together with a financial statement of its SECTION 149. Effectivity. — This Code shall take effect
assets and liabilities, certified by any independent immediately upon its approval.
certified public accountant in appropriate cases, covering Approved: May 1, 1980
the preceding fiscal year and such other requirements as
the Securities and Exchange Commission may require. Published in the Official Gazette, Vol. 76 No. 29 Page
Such report shall be submitted within such period as may 4955 on July 21, 1980.
be prescribed by the Securities and Exchange (Corporation Code of the Philippines, Batas
Commission. (n) i Pambansa Blg. 68, [May 1, 1980])
SECTION 142. Confidential Nature of Examination
Results. — All interrogatories propounded by the
Securities and Exchange Commission and the answers RA No 10607 | The Insurance Code
thereto, as well as the results of any examination made by
the Commission or by any other official authorized by law
to make an examination of the operations, books and August 15, 2013
records of any corporation, shall be kept strictly REPUBLIC ACT NO. 10607
confidential, except insofar as the law may require the
same to be made public or where such interrogatories, AN ACT STRENGTHENING THE INSURANCE
answers or results are necessary to be presented as INDUSTRY, FURTHER AMENDING PRESIDENTIAL
evidence before any court. (n) DECREE NO. 612, OTHERWISE KNOWN AS THE
INSURANCE CODE, AS AMENDED BY PRESIDENTIAL
SECTION 143. Rule-making Power of the Securities DECREE NOS. 1141, 1280, 1455, 1460, 1814 AND 1981, AND
and Exchange Commission. — The Securities and BATAS PAMBANSA BLG. 874, AND FOR OTHER
Exchange Commission shall have the power and PURPOSES
authority to implement the provisions of this Code, and to
promulgate rules and regulations reasonably necessary General Provisions
to enable it to perform its duties hereunder, particularly in SECTION 1. This Decree shall be known as 'The
the prevention of fraud and abuses on the part of the Insurance Code'.
controlling stockholders, members, directors, trustees or
officers. (n) SECTION 2. Whenever used in this Code, the following
terms shall have the respective meanings hereinafter set
SECTION 144. Violations of the Code. — Violations of forth or indicated, unless the context otherwise requires:
any of the provisions of this Code or its amendments not
otherwise specifically penalized therein shall be (a) A contract of insurance is an agreement whereby
punished by a fine of not less than one thousand one undertakes for a consideration to indemnify another
(P1,000.00) pesos but not more than ten thousand against loss, damage or liability arising from an unknown
(P10,000.00) pesos or by imprisonment for not less than or contingent event.
thirty (30) days but not more than five (5) years, or both, A contract of suretyship shall be deemed to be an
in the discretion of the court. If the violation is committed insurance contract, within the meaning of this Code, only
by a corporation, the same may, after notice and if made by a surety who or which, as such, is doing an
hearing, be dissolved in appropriate proceedings before insurance business as hereinafter provided.
the Securities and Exchange Commission: Provided, That
such dissolution shall not preclude the institution of (b) The term doing an insurance business or
appropriate action against the director, trustee or officer transacting an insurance business, within the meaning
of the corporation responsible for said violation: Provided, of this Code, shall include:
further, That nothing in this section shall be construed to (1) Making or proposing to make, as insurer, any
repeal the other causes for dissolution of a corporation insurance contract;
provided in this Code. (190-1/2a) (2) Making or proposing to make, as surety, any
SECTION 145. Amendment or Repeal. — No right or contract of suretyship as a vocation and not as merely
remedy in favor of or against any corporation, its incidental to any other legitimate business or activity of
stockholders, members, directors, trustees, or officers, nor the surety;
any liability incurred by any such corporation, (3) Doing any kind of business, including a
stockholders, members, directors, trustees, or officers, reinsurance business, specifically recognized as
shall be removed or impaired either by the subsequent constituting the doing of an insurance business within
dissolution of said corporation or by any subsequent the meaning of this Code;
amendment or repeal of this Code or of any part thereof.
(n) (4) Doing or proposing to do any business in
substance equivalent to any of the foregoing in a manner
SECTION 146. Repealing Clause. — Except as designed to evade the provisions of this Code.
expressly provided by this Code, all laws or parts thereof
inconsistent with any provision of this Code shall be In the application of the provisions of this Code, the
deemed repealed. (n) fact that no profit is derived from the making of
insurance contracts, agreements or transactions or that
SECTION 147. Separability of Provisions. — Should no separate or direct consideration is received therefor,
any provision of this Code or any part thereof be declared shall not be deemed conclusive to show that the making
invalid or unconstitutional, the other provisions, so far as thereof does not constitute the doing or transacting of an
they are separable, shall remain in force. (n) insurance business.
SECTION 148. Applicability to Existing Corporations. (c) As used in this Code, the term Commissioner
— All corporations lawfully existing and doing business in means the Insurance Commissioner.
the Philippines on the date of the effectivity of this Code
and heretofore authorized, licensed or registered by the
Securities and Exchange Commission, shall be deemed to
have been authorized, licensed or registered under the
provisions of this Code, subject to the terms and
conditions of its license, and shall be governed by the


does not change the beneficiary during his lifetime, the

designation shall be deemed irrevocable.
CHAPTER I The Contract of Insurance
SECTION 12. The interest of a beneficiary in a life
insurance policy shall be forfeited when the beneficiary is
TITLE 1 What May be Insured the principal, accomplice, or accessory in willfully
SECTION 3. Any contingent or unknown event, bringing about the death of the insured. In such a case,
whether past or future, which may damnify a person the share forfeited shall pass on to the other beneficiaries,
having an insurable interest, or create a liability against unless otherwise disqualified. In the absence of other
him, may be insured against, subject to the provisions of beneficiaries, the proceeds shall be paid in accordance
this chapter. with the policy contract. If the policy contract is silent, the
proceeds shall be paid to the estate of the insured.
The consent of the spouse is not necessary for the
validity of an insurance policy taken out by a married SECTION 13. Every interest in property, whether real or
person on his or her life or that of his or her children. personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might
All rights, title and interest in the policy of insurance directly damnify the insured, is an insurable interest.
taken out by an original owner on the life or health of the
person insured shall automatically vest in the latter upon SECTION 14. An insurable interest in property may
the death of the original owner, unless otherwise consist in:
provided for in the policy. (a) An existing interest;
SECTION 4. The preceding section does not authorize (b) An inchoate interest founded on an existing
an insurance for or against the drawing of any lottery, or interest; or
for or against any chance or ticket in a lottery drawing a
prize. (c) An expectancy, coupled with an existing interest in
that out of which the expectancy arises.
SECTION 5. All kinds of insurance are subject to the
provisions of this chapter so far as the provisions can SECTION 15. A carrier or depository of any kind has an
apply. insurable interest in a thing held by him as such, to the
extent of his liability but not to exceed the value thereof.
SECTION 16. A mere contingent or expectant interest
TITLE 2 Parties to the Contract in any thing, not founded on an actual right to the thing,
SECTION 6. Every corporation, partnership, or nor upon any valid contract for it, is not insurable.
association, duly authorized to transact insurance SECTION 17. The measure of an insurable interest in
business as elsewhere provided in this Code, may be an property is the extent to which the insured might be
insurer. damnified by loss or injury thereof.
SECTION 7. Anyone except a public enemy may be SECTION 18. No contract or policy of insurance on
insured. property shall be enforceable except for the benefit of
SECTION 8. Unless the policy otherwise provides, some person having an insurable interest in the property
where a mortgagor of property effects insurance in his insured.
own name providing that the loss shall be payable to the SECTION 19. An interest in property insured must exist
mortgagee, or assigns a policy of insurance to a when the insurance takes effect, and when the loss
mortgagee, the insurance is deemed to be upon the occurs, but need not exist in the meantime; and interest
interest of the mortgagor, who does not cease to be a in the life or health of a person insured must exist when
party to the original contract, and any act of his, prior to the insurance takes effect, but need not exist thereafter
the loss, which would otherwise avoid the insurance, will or when the loss occurs.
have the same effect, although the property is in the
hands of the mortgagee, but any act which, under the SECTION 20. Except in the cases specified in the next
contract of insurance, is to be performed by the four sections, and in the cases of life, accident, and health
mortgagor, may be performed by the mortgagee therein insurance, a change of interest in any part of a thing
named, with the same effect as if it had been performed insured unaccompanied by a corresponding change of
by the mortgagor. interest in the insurance, suspends the insurance to an
equivalent extent, until the interest in the thing and the
SECTION 9. If an insurer assents to the transfer of an interest in the insurance are vested in the same person.
insurance from a mortgagor to a mortgagee, and, at the
time of his assent, imposes further obligations on the SECTION 21. A change of interest in a thing insured,
assignee, making a new contract with him, the acts of the after the occurrence of an injury which results in a loss,
mortgagor cannot affect the rights of said assignee. does not affect the right of the insured to indemnity for
the loss.
TITLE 3 Insurable Interest SECTION 22. A change of interest in one or more of
several distinct things, separately insured by one policy,
SECTION 10. Every person has an insurable interest in does not avoid the insurance as to the others.
the life and health:
SECTION 23. A change of interest, by will or
(a) Of himself, of his spouse and of his children; succession, on the death of the insured, does not avoid an
(b) Of any person on whom he depends wholly or in insurance; and his interest in the insurance passes to the
part for education or support, or in whom he has a person taking his interest in the thing insured.
pecuniary interest; SECTION 24. A transfer of interest by one of several
(c) Of any person under a legal obligation to him for partners, joint owners, or owners in common, who are
the payment of money, or respecting property or services, jointly insured, to the others, does not avoid an insurance
of which death or illness might delay or prevent the even though it has been agreed that the insurance shall
performance; and cease upon an alienation of the thing insured.
(d) Of any person upon whose life any estate or SECTION 25. Every stipulation in a policy of insurance
interest vested in him depends. for the payment of loss whether the person insured has
or has not any interest in the property insured, or that the
SECTION 11. The insured shall have the right to policy shall be received as proof of such interest, and
change the beneficiary he designated in the policy, every policy executed by way of gaming or wagering, is
unless he has expressly waived this right in said policy. void.
Notwithstanding the foregoing, in the event the insured


SECTION 41. A representation may be altered or

TITLE 4 Concealment withdrawn before the insurance is effected, but not
afterwards.
SECTION 26. A neglect to communicate that which a
party knows and ought to communicate, is called a SECTION 42. A representation must be presumed to
concealment. refer to the date on which the contract goes into effect.
SECTION 27. A concealment whether intentional or SECTION 43. When a person insured has no personal
unintentional entitles the injured party to rescind a knowledge of a fact, he may nevertheless repeat
contract of insurance. information which he has upon the subject, and which he
believes to be true, with the explanation that he does so
SECTION 28. Each party to a contract of insurance on the information of others; or he may submit the
must communicate to the other, in good faith, all facts information, in its whole extent, to the insurer; and in
within his knowledge which are material to the contract neither case is he responsible for its truth, unless it
and as to which he makes no warranty, and which the proceeds from an agent of the insured, whose duty it is to
other has not the means of ascertaining. give the information.
SECTION 29. An intentional and fraudulent omission, SECTION 44. A representation is to be deemed false
on the part of one insured, to communicate information when the facts fail to correspond with its assertions or
of matters proving or tending to prove the falsity of a stipulations.
warranty, entitles the insurer to rescind.
SECTION 45. If a representation is false in a material
SECTION 30. Neither party to a contract of insurance point, whether affirmative or promissory, the injured
is bound to communicate information of the matters party is entitled to rescind the contract from the time
following, except in answer to the inquiries of the other: when the representation becomes false.
(a) Those which the other knows; SECTION 46. The materiality of a representation is
(b) Those which, in the exercise of ordinary care, the determined by the same rules as the materiality of a
other ought to know, and of which the former has no concealment.
reason to suppose him ignorant; SECTION 47. The provisions of this chapter apply as
(c) Those of which the other waives communication; well to a modification of a contract of insurance as to its
original formation.
(d) Those which prove or tend to prove the existence
of a risk excluded by a warranty, and which are not SECTION 48. Whenever a right to rescind a contract
otherwise material; and of insurance is given to the insurer by any provision of this
chapter, such right must be exercised previous to the

commencement of an action on the contract.
(e) Those which relate to a risk excepted from the
After a policy of life insurance made payable on the
policy and which are not otherwise material.
death of the insured shall have been in force during the
SECTION 31. Materiality is to be determined not by the lifetime of the insured for a period of two (2) years from
event, but solely by the probable and reasonable the date of its issue or of its last reinstatement, the insurer
influence of the facts upon the party to whom the cannot prove that the policy is void ab initio or is
communication is due, in forming his estimate of the rescindable by reason of the fraudulent concealment or
disadvantages of the proposed contract, or in making his misrepresentation of the insured or his agent.
inquiries.
SECTION 32. Each party to a contract of insurance is TITLE 6 The Policy
bound to know all the general causes which are open to
his inquiry, equally with that of the other, and which may SECTION 49. The written instrument in which a
affect the political or material perils contemplated; and all contract of insurance is set forth, is called a policy of
general usages of trade. insurance.
SECTION 33. The right to information of material facts SECTION 50. The policy shall be in printed form which
may be waived, either by the terms of insurance or by may contain blank spaces; and any word, phrase, clause,
neglect to make inquiry as to such facts, where they are mark, sign, symbol, signature, number, or word necessary
distinctly implied in other facts of which information is to complete the contract of insurance shall be written on
communicated. the blank spaces provided therein.
SECTION 34. Information of the nature or amount of Any rider, clause, warranty or endorsement
the interest of one insured need not be communicated purporting to be part of the contract of insurance and
unless in answer to an inquiry, except as prescribed by which is pasted or attached to said policy is not binding
Section 51. on the insured, unless the descriptive title or name of the
rider, clause, warranty or endorsement is also mentioned
SECTION 35. Neither party to a contract of insurance and written on the blank spaces provided in the policy.
is bound to communicate, even upon inquiry, information
of his own judgment upon the matters in question. Unless applied for by the insured or owner, any rider,
clause, warranty or endorsement issued after the original
policy shall be countersigned by the insured or owner,
TITLE 5 Representation which countersignature shall be taken as his agreement
SECTION 36. A representation may be oral or written. to the contents of such rider, clause, warranty or
endorsement.
SECTION 37. A representation may be made at the
time of, or before, issuance of the policy. Notwithstanding the foregoing, the policy may be in
electronic form subject to the pertinent provisions of
SECTION 38. The language of a representation is to be Republic Act No. 8792, otherwise known as the 'Electronic
interpreted by the same rules as the language of Commerce Act' and to such rules and regulations as may
contracts in general. be prescribed by the Commissioner.
SECTION 39. A representation as to the future is to be SECTION 51. A policy of insurance must specify:
deemed a promise, unless it appears that it was merely a
statement of belief or expectation. (a) The parties between whom the contract is made;
SECTION 40. A representation cannot qualify an (b) The amount to be insured except in the cases of
express provision in a contract of insurance, but it may open or running policies;
qualify an implied warranty. (c) The premium, or if the insurance is of a character
where the exact premium is only determinable upon the


termination of the contract, a statement of the basis and SECTION 64. No policy of insurance other than life
rates upon which the final premium is to be determined; shall be cancelled by the insurer except upon prior notice
(d) The property or life insured; thereof to the insured, and no notice of cancellation shall
be effective unless it is based on the occurrence, after the
(e) The interest of the insured in property insured, if effective date of the policy, of one or more of the
he is not the absolute owner thereof; following:
(f) The risks insured against; and (a) Nonpayment of premium;
(g) The period during which the insurance is to (b) Conviction of a crime arising out of acts increasing
continue. the hazard insured against;
SECTION 52. Cover notes may be issued to bind (c) Discovery of fraud or material misrepresentation;
insurance temporarily pending the issuance of the policy.
Within sixty (60) days after issue of a cover note, a policy (d) Discovery of willful or reckless acts or omissions
shall be issued in lieu thereof, including within its terms increasing the hazard insured against;
the identical insurance bound under the cover note and (e) Physical changes in the property insured which
the premium therefor. result in the property becoming uninsurable;
Cover notes may be extended or renewed beyond (f) Discovery of other insurance coverage that makes
such sixty (60) days with the written approval of the the total insurance in excess of the value of the property
Commissioner if he determines that such extension is not insured; or
contrary to and is not for the purpose of violating any (g) A determination by the Commissioner that the
provisions of this Code. The Commissioner may continuation of the policy would violate or would place
promulgate rules and regulations governing such the insurer in violation of this Code.
extensions for the purpose of preventing such violations
and may by such rules and regulations dispense with the SECTION 65. All notices of cancellation mentioned in
requirement of written approval by him in the case of the preceding section shall be in writing, mailed or
extension in compliance with such rules and regulations. delivered to the named insured at the address shown in
the policy, or to his broker provided the broker is
SECTION 53. The insurance proceeds shall be applied authorized in writing by the policy owner to receive the
exclusively to the proper interest of the person in whose notice of cancellation on his behalf, and shall state:
name or for whose benefit it is made unless otherwise
specified in the policy. (a) Which of the grounds set forth in Section 64 is
relied upon; and
SECTION 54. When an insurance contract is executed
with an agent or trustee as the insured, the fact that his (b) That, upon written request of the named insured,
principal or beneficiary is the real party in interest may be the insurer will furnish the facts on which the cancellation
indicated by describing the insured as agent or trustee, or is based.
by other general words in the policy.
SECTION 55. To render an insurance effected by one SECTION 66. In case of insurance other than life,
partner or part-owner, applicable to the interest, of his unless the insurer at least forty-five (45) days in advance
co-partners or other part-owners, it is necessary that the of the end of the policy period mails or delivers to the
terms of the policy should be such as are applicable to named insured at the address shown in the policy notice
the joint or common interest. of its intention not to renew the policy or to condition its
SECTION 56. When the description of the insured in a renewal upon reduction of limits or elimination of
policy is so general that it may comprehend any person coverages, the named insured shall be entitled to renew
or any class of persons, only he who can show that it was the policy upon payment of the premium due on the
intended to include him, can claim the benefit of the effective date of the renewal. Any policy written for a term
policy. of less than one (1) year shall be considered as if written
for a term of one (1) year. Any policy written for a term
SECTION 57. A policy may be so framed that it will longer than one (1) year or any policy with no fixed
inure to the benefit of whomsoever, during the expiration date shall be considered as if written for
continuance of the risk, may become the owner of the successive policy periods or terms of one (1) year.
interest insured.
SECTION 58. The mere transfer of a thing insured
does not transfer the policy, but suspends it until the TITLE 7 Warranties
same person becomes the owner of both the policy and SECTION 67. A warranty is either expressed or implied.
the thing insured.
SECTION 68. A warranty may relate to the past, the
SECTION 59. A policy is either open, valued or present, the future, or to any or all of these.
running.
SECTION 69. No particular form of words is necessary
SECTION 60. An open policy is one in which the value to create a warranty.
of the thing insured is not agreed upon, and the amount
SECTION 70. Without prejudice to Section 51, every
of the insurance merely represents the insurer's
express warranty, made at or before the execution of a
maximum liability. The value of such thing insured shall
policy, must be contained in the policy itself, or in another
be ascertained at the time of the loss.
instrument signed by the insured and referred to in the
SECTION 61. A valued policy is one which expresses on policy as making a part of it.
its face an agreement that the thing insured shall be
SECTION 71. A statement in a policy, of a matter
valued at a specific sum.
relating to the person or thing insured, or to the risk, as
SECTION 62. A running policy is one which fact, is an express warranty thereof.
contemplates successive insurances, and which provides
SECTION 72. A statement in a policy, which imparts
that the object of the policy may be from time to time
that it is intended to do or not to do a thing which
defined, especially as to the subjects of insurance, by
materially affects the risk, is a warranty that such act or
additional statements or indorsements.
omission shall take place.
SECTION 63. A condition, stipulation, or agreement in
SECTION 73. When, before the time arrives for the
any policy of insurance, limiting the time for
performance of a warranty relating to the future, a loss
commencing an action thereunder to a period of less
insured against happens, or performance becomes
than one (1) year from the time when the cause of action
unlawful at the place of the contract, or impossible, the
accrues, is void.
omission to fulfill the warranty does not avoid the policy.


SECTION 74. The violation of a material warranty, or actual fraud, the insurer never incurred any liability under
other material provision of a policy, on the part of either the policy.
party thereto, entitles the other to rescind. A person insured is not entitled to a return of
SECTION 75. A policy may declare that a violation of premium if the policy is annulled, rescinded or if a claim is
specified provisions thereof shall avoid it, otherwise the denied by reason of fraud.
breach of an immaterial provision does not avoid the SECTION 83. In case of an over insurance by several
policy. insurers other than life, the insured is entitled to a ratable
SECTION 76. A breach of warranty without fraud return of the premium, proportioned to the amount by
merely exonerates an insurer from the time that it occurs, which the aggregate sum insured in all the policies
or where it is broken in its inception, prevents the policy exceeds the insurable value of the thing at risk.
from attaching to the risk. SECTION 84. An insurer may contract and accept
payments, in addition to regular premium, for the
TITLE 8 Premium purpose of paying future premiums on the policy or to
increase the benefits thereof.
SECTION 77. An insurer is entitled to payment of the
premium as soon as the thing insured is exposed to the
peril insured against. Notwithstanding any agreement to TITLE 9 Loss
the contrary, no policy or contract of insurance issued by SECTION 85. An agreement not to transfer the claim
an insurance company is valid and binding unless and of the insured against the insurer after the loss has
until the premium thereof has been paid, except in the happened, is void if made before the loss except as
case of a life or an industrial life policy whenever the otherwise provided in the case of life insurance.
grace period provision applies, or whenever under the
broker and agency agreements with duly licensed SECTION 86. Unless otherwise provided by the policy,
intermediaries, a ninety (90)-day credit extension is given. an insurer is liable for a loss of which a peril insured
No credit extension to a duly licensed intermediary against was the proximate cause, although a peril not
should exceed ninety (90) days from date of issuance of contemplated by the contract may have been a remote
the policy. cause of the loss; but he is not liable for a loss of which
the peril insured against was only a remote cause.
SECTION 78. Employees of the Republic of the
Philippines, including its political subdivisions and SECTION 87. An insurer is liable where the thing
instrumentalities, and government-owned or -controlled insured is rescued from a peril insured against that would
corporations, may pay their insurance premiums and loan otherwise have caused a loss, if, in the course of such
obligations through salary deduction: Provided, That the rescue, the thing is exposed to a peril not insured against,
treasurer, cashier, paymaster or official of the entity which permanently deprives the insured of its possession,
employing the government employee is authorized, in whole or in part; or where a loss is caused by efforts to
notwithstanding the provisions of any existing law, rules rescue the thing insured from a peril insured against.
and regulations to the contrary, to make deductions from SECTION 88. Where a peril is especially excepted in a
the salary, wage or income of the latter pursuant to the contract of insurance, a loss, which would not have
agreement between the insurer and the government occurred but for such peril, is thereby excepted although
employee and to remit such deductions to the insurer the immediate cause of the loss was a peril which was not
concerned, and collect such reasonable fee for its excepted.
services.
SECTION 89. An insurer is not liable for a loss caused
SECTION 79. An acknowledgment in a policy or by the willful act or through the connivance of the
contract of insurance or the receipt of premium is insured; but he is not exonerated by the negligence of the
conclusive evidence of its payment, so far as to make the insured, or of the insurance agents or others.
policy binding, notwithstanding any stipulation therein
that it shall not be binding until the premium is actually
paid. TITLE 10 Notice of Loss
SECTION 80. A person insured is entitled to a return of SECTION 90. In case of loss upon an insurance against
premium, as follows: fire, an insurer is exonerated, if written notice thereof be
not given to him by an insured, or some person entitled
(a) To the whole premium if no part of his interest in
to the benefit of the insurance, without unnecessary
the thing insured be exposed to any of the perils insured
delay. For other non-life insurance, the Commissioner
against;
may specify the period for the submission of the notice of
(b) Where the insurance is made for a definite period loss.
of time and the insured surrenders his policy, to such
SECTION 91. When a preliminary proof of loss is
portion of the premium as corresponds with the
required by a policy, the insured is not bound to give such
unexpired time, at a pro rata rate, unless a short period
proof as would be necessary in a court of justice; but it is
rate has been agreed upon and appears on the face of
sufficient for him to give the best evidence which he has
the policy, after deducting from the whole premium any
in his power at the time.
claim for loss or damage under the policy which has
previously accrued: Provided, That no holder of a life SECTION 92. All defects in a notice of loss, or in
insurance policy may avail himself of the privileges of this preliminary proof thereof, which the insured might
paragraph without sufficient cause as otherwise provided remedy, and which the insurer omits to specify to him,
by law. without unnecessary delay, as grounds of objection, are
waived.
SECTION 81. If a peril insured against has existed, and
the insurer has been liable for any period, however short, SECTION 93. Delay in the presentation to an insurer of
the insured is not entitled to return of premiums, so far as notice or proof of loss is waived if caused by any act of
that particular risk is concerned. him, or if he omits to take objection promptly and
specifically upon that ground.
SECTION 82. A person insured is entitled to a return of
the premium when the contract is voidable, and SECTION 94. If the policy requires, by way of
subsequently annulled under the provisions of the Civil preliminary proof of loss, the certificate or testimony of a
Code; or on account of the fraud or misrepresentation of person other than the insured, it is sufficient for the
the insurer, or of his agent, or on account of facts, or the insured to use reasonable diligence to procure it, and in
existence of which the insured was ignorant of without case of the refusal of such person to give it, then to
his fault, or when by any default of the insured other than furnish reasonable evidence to the insurer that such


refusal was not induced by any just grounds of disbelief in (2) Person or property in connection with or

the facts necessary to be certified or testified. appertaining to a marine, inland marine, transit or
transportation insurance, including liability for loss of or
damage arising out of or in connection with the
TITLE 11 Double Insurance construction, repair, operation, maintenance or use of the
SECTION 95. A double insurance exists where the subject matter of such insurance (but not including life
same person is insured by several insurers separately in insurance or surety bonds nor insurance against loss by
respect to the same subject and interest. reason of bodily injury to any person arising out of
ownership, maintenance, or use of automobiles);
SECTION 96. Where the insured in a policy other than
life is over insured by double insurance. (3) Precious stones, jewels, jewelry, precious metals,
whether in course of transportation or otherwise; and
(a) The insured, unless the policy otherwise provides,
may claim payment from the insurers in such order as he (4) Bridges, tunnels and other instrumentalities of
may select, up to the amount for which the insurers are transportation and communication (excluding buildings,
severally liable under their respective contracts; their furniture and furnishings, fixed contents and
supplies held in storage); piers, wharves, docks and slips,
(b) Where the policy under which the insured claims
and other aids to navigation and transportation,
is a valued policy, any sum received by him under any
including dry docks and marine railways, dams and
other policy shall be deducted from the value of the
appurtenant facilities for the control of waterways.
policy without regard to the actual value of the subject
matter insured; (b) Marine protection and indemnity insurance,
meaning insurance against, or against legal liability of the
(c) Where the policy under which the insured claims
insured for loss, damage, or expense incident to
is an unvalued policy, any sum received by him under any
ownership, operation, chartering, maintenance, use,
policy shall be deducted against the full insurable value,
repair, or construction of any vessel, craft or
for any sum received by him under any policy;
instrumentality in use of ocean or inland waterways,
including liability of the insured for personal injury, illness
(d) Where the insured receives any sum in excess of or death or for loss of or damage to the property of
the valuation in the case of valued policies, or of the another person.
insurable value in the case of unvalued policies, he must
hold such sum in trust for the insurers, according to their SUB-TITLE 1-B Insurable Interest
right of contribution among themselves;
SECTION 102. The owner of a ship has in all cases an
(e) Each insurer is bound, as between himself and the insurable interest in it, even when it has been chartered
other insurers, to contribute ratably to the loss in by one who covenants to pay him its value to case of loss:
proportion to the amount for which he is liable under his Provided, That in this case the insurer shall be liable for
contract. only that part of the loss which the insured cannot
recover from the charterer.
TITLE 12 Reinsurance SECTION 103. The insurable interest of the owner of
the ship hypothecated by bottomry is only the excess of
SECTION 97. A contract of reinsurance is one by which
its value over the amount secured by bottomry.
an insurer procures a third person to insure him against
loss or liability by reason of such original insurance. SECTION 104. Freightage, in the sense of a policy of
marine insurance, signifies all the benefits derived by the
SECTION 98. Where an insurer obtains reinsurance,
owner, either from the chartering of the ship or its
except under automatic reinsurance treaties, he must
employment for the carriage of his own goods or those of
communicate all the representations of the original
others.
insured, and also all the knowledge and information he
possesses, whether previously or subsequently acquired, SECTION 105. The owner of a ship has an insurable
which are material to the risk. interest in expected freightage which according to the
ordinary and probable course of things he would have
SECTION 99. A reinsurance is presumed to be a
earned but for the intervention of a peril insured against
contract of indemnity against liability, and not merely
or other peril incident to the voyage.
against damage.
SECTION 106. The interest mentioned in the last
SECTION 100. The original insured has no interest in a
section exists, in case of a charter party, when the ship
contract of reinsurance.
has broken ground on the chartered voyage. If a price is
to be paid for the carriage of goods it exists when they are
actually on board, or there is some contract for putting
CHAPTER II Classes of Insurance them on board, and both ship and goods are ready for
the specified voyage.
TITLE 1 Marine Insurance SECTION 107. One who has an interest in the thing
from which profits are expected to proceed has an
SUB-TITLE 1-A Definition insurable interest in the profits.
SECTION 101. Marine Insurance includes: SECTION 108. The charterer of a ship has an insurable
interest in it, to the extent that he is liable to be
(a) Insurance against loss of or damage to: damnified by its loss.
(1) Vessels, craft, aircraft, vehicles, goods, freights,
cargoes, merchandise, effects, disbursements, profits, SUB-TITLE 1-C Concealment
moneys, securities, choses in action, instruments of debts,
valuable papers, bottomry, and respondentia interests SECTION 109. In marine insurance, each party is
and all other kinds of property and interests therein, in bound to communicate, in addition to what is required by
respect to, appertaining to or in connection with any and Section 28, all the information which he possesses,
all risks or perils of navigation, transit or transportation, or material to the risk, except such as is mentioned in
while being assembled, packed, crated, baled, Section 30, and to state the exact and whole truth in
compressed or similarly prepared for shipment or while relation to all matters that he represents, or upon inquiry
awaiting shipment, or during any delays, storage, discloses or assumes to disclose.
transhipment, or reshipment incident thereto, including SECTION 110. In marine insurance, information of the
war risks, marine builder's risks, and all personal property belief or expectation of a third person, in reference to a
floater risks; material fact, is material.


SECTION 111. A person insured by a contract of marine SECTION 121. A ship which is seaworthy for the
insurance is presumed to have knowledge, at the time of purpose of an insurance upon the ship may, nevertheless,
insuring, of a prior loss, if the information might possibly by reason of being unfitted to receive the cargo, be
have reached him in the usual mode of transmission and unseaworthy for the purpose of insurance upon the
at the usual rate of communication. cargo.
SECTION 112. A concealment in a marine insurance, in SECTION 122. Where the nationality or neutrality of a
respect to any of the following matters, does not vitiate ship or cargo is expressly warranted, it is implied that the
the entire contract, but merely exonerates the insurer ship will carry the requisite documents to show such
from a loss resulting from the risk concealed: nationality or neutrality and that it will not carry any
(a) The national character of the insured; documents which cast reasonable suspicion thereon.
(b) The liability of the thing insured to capture and
detention; SUB-TITLE 1-F The Voyage and Deviation
(c) The liability to seizure from breach of foreign laws SECTION 123. When the voyage contemplated by a
of trade; marine insurance policy is described by the places of
beginning and ending, the voyage insured is one which
(d) The want of necessary documents; and conforms to the course of sailing fixed by mercantile
(e) The use of false and simulated papers. usage between those places.
SECTION 124. If the course of sailing is not fixed by
SUB-TITLE 1-D Representation mercantile usage, the voyage insured by a marine
insurance policy is that way between the places specified,
SECTION 113. If a representation by a person insured which to a master of ordinary skill and discretion, would
by a contract of marine insurance, is intentionally false in mean the most natural, direct and advantageous.
any material respect, or in respect of any fact on which
the character and nature of the risk depends, the insurer SECTION 125. Deviation is a departure from the
may rescind the entire contract. course of the voyage insured, mentioned in the last two
(2) sections, or an unreasonable delay in pursuing the
SECTION 114. The eventual falsity of a representation voyage or the commencement of an entirely different
as to expectation does not, in the absence of fraud, avoid voyage.
a contract of marine insurance.
SECTION 126. A deviation is proper:
SUB-TITLE 1-E Implied Warranties (a) When caused by circumstances over which
neither the master nor the owner of the ship has any
SECTION 115. In every marine insurance upon a ship or control;
freight, or freightage, or upon any thing which is the
subject of marine insurance, a warranty is implied that (b) When necessary to comply with a warranty, or to
the ship is seaworthy. avoid a peril, whether or not the peril is insured against;
SECTION 116. A ship is seaworthy when reasonably fit (c) When made in good faith, and upon reasonable
to perform the service and to encounter the ordinary grounds of belief in its necessity to avoid a peril; or
perils of the voyage contemplated by the parties to the (d) When made in good faith, for the purpose of
policy. saving human life or relieving another vessel in distress.
SECTION 117. An implied warranty of seaworthiness is SECTION 127. Every deviation not specified in the last
complied with if the ship be seaworthy at the time of the section is improper.
commencement of the risk, except in the following cases:
SECTION 128. An insurer is not liable for any loss
(a) When the insurance is made for a specified length happening to the thing insured subsequent to an
of time, the implied warranty is not complied with unless improper deviation.
the ship be seaworthy at the commencement of every
voyage it undertakes during that time;
SUB-TITLE 1-G Loss
(b) When the insurance is upon the cargo which, by
the terms of the policy, description of the voyage, or SECTION 129. A loss may be either total or partial.
established custom of the trade, is to be transhipped at SECTION 130. Every loss which is not total is partial.
an intermediate port, the implied warranty is not SECTION 131. A total loss may be either actual or
complied with unless each vessel upon which the cargo is constructive.
shipped, or transhipped, be seaworthy at the
commencement of each particular voyage. SECTION 132. An actual total loss is caused by:
SECTION 118. A warranty of seaworthiness extends not (a) total destruction of the thing insured;
only to the condition of the structure of the ship itself, but (b) The irretrievable loss of the thing by sinking, or by
requires that it be properly laden, and provided with a being broken up;
competent master, a sufficient number of competent
officers and seamen, and the requisite appurtenances (c) Any damage to the thing which renders it
and equipment, such as ballasts, cables and anchors, valueless to the owner for the purpose for which he held
cordage and sails, food, water, fuel and lights, and other it; or
necessary or proper stores and implements for the (d) Any other event which effectively deprives the
voyage. owner of the possession, at the port of destination, of the
SECTION 119. Where different portions of the voyage thing insured.
contemplated by a policy differ in respect to the things SECTION 133. A constructive total loss is one which
requisite to make the ship seaworthy therefor, a warranty gives to a person insured a right to abandon, under
of seaworthiness is complied with if, at the Section 141.
commencement of each portion, the ship is seaworthy
with reference to that portion. SECTION 134. An actual loss may be presumed from
the continued absence of a ship without being heard of.
SECTION 120. When the ship becomes unseaworthy The length of time which is sufficient to raise this
during the voyage to which an insurance relates, an presumption depends on the circumstances of the case.
unreasonable delay in repairing the defect exonerates the
insurer on ship or shipowner's interest from liability from SECTION 135. When a ship is prevented, at an
any loss arising therefrom. intermediate port, from completing the voyage, by the
perils insured against, the liability of a marine insurer on
the cargo continues after they are thus reshipped.


Nothing in this section shall prevent an insurer from SECTION 145. Abandonment is made by giving notice
requiring an additional premium if the hazard be thereof to the insurer, which may be done orally, or in
increased by this extension of liability. writing: Provided, That if the notice be done orally, a
SECTION 136. In addition to the liability mentioned in written notice of such abandonment shall be submitted
the last section, a marine insurer is bound for damages, within seven (7) days from such oral notice.
expenses of discharging, storage, reshipment, extra SECTION 146. A notice of abandonment must be
freightage, and all other expenses incurred in saving explicit, and must specify the particular cause of the
cargo reshipped pursuant to the last section, up to the abandonment, but need state only enough to show that
amount insured. there is probable cause therefor, and need not be
Nothing in this or in the preceding section shall accompanied with proof of interest or of loss.
render a marine insurer liable for any amount in excess of SECTION 147. An abandonment can be sustained only
the insured value or, if there be none, of the insurable upon the cause specified in the notice thereof.
value. SECTION 148. An abandonment is equivalent to a
SECTION 137. Upon an actual total loss, a person transfer by the insured of his interest to the insurer, with
insured is entitled to payment without notice of all the chances of recovery and indemnity.
abandonment. SECTION 149. If a marine insurer pays for a loss as if it
SECTION 138. Where it has been agreed that an were an actual total loss, he is entitled to whatever may
insurance upon a particular thing, or class of things, shall remain of the thing insured, or its proceeds or salvage, as
be free from particular average, a marine insurer is not if there had been a formal abandonment.
liable for any particular average loss not depriving the SECTION 150. Upon an abandonment, acts done in
insured of the possession, at the port of destination, of good faith by those who were agents of the insured in
the whole of such thing, or class of things, even though it respect to the thing insured, subsequent to the loss, are
becomes entirely worthless; but such insurer is liable for at the risk of the insurer, and for his benefit.
his proportion of all general average loss assessed upon
the thing insured. SECTION 151. Where notice of abandonment is
properly given, the rights of the insured are not
SECTION 139. An insurance confined in terms to an prejudiced by the fact that the insurer refuses to accept
actual loss does not cover a constructive total loss, but the abandonment.
covers any loss, which necessarily results in depriving the
insured of the possession, at the port of destination, of SECTION 152. The acceptance of an abandonment
the entire thing insured. may be either express or implied from the conduct of the
insurer. The mere silence of the insurer for an
unreasonable length of time after notice shall be
SUB-TITLE 1-H Abandonment construed as an acceptance.
SECTION 140. Abandonment, in marine insurance, is SECTION 153. The acceptance of an abandonment,
the act of the insured by which, after a constructive total whether express or implied, is conclusive upon the
loss, he declares the relinquishment to the insurer of his parties, and admits the loss and the sufficiency of the
interest in the thing insured. abandonment.
SECTION 141. A person insured by a contract of marine SECTION 154. An abandonment once made and
insurance may abandon the thing insured, or any accepted is irrevocable, unless the ground upon which it
particular portion thereof separately valued by the policy, was made proves to be unfounded.
or otherwise separately insured, and recover for a total
loss thereof, when the cause of the loss is a peril insured SECTION 155. On an accepted abandonment of a ship,
against: freightage earned previous to the loss belongs to the
insurer of said freightage; but freightage subsequently
(a) If more than three-fourths (3/4) thereof in value is earned belongs to the insurer of the ship.
actually lost, or would have to be expended to recover it
from the peril; SECTION 156. If an insurer refuses to accept a valid
abandonment, he is liable as upon an actual total loss,
(b) If it is injured to such an extent as to reduce its deducting from the amount any proceeds of the thing
value more than three-fourths (3/4); insured which may have come to the hands of the
(c) If the thing insured is a ship, and the insured.
contemplated voyage cannot be lawfully performed SECTION 157. If a person insured omits to abandon, he
without incurring either an expense to the insured of may nevertheless recover his actual loss.
more than three-fourths (3/4) the value of the thing
abandoned or a risk which a prudent man would not take
under the circumstances; or SUB-TITLE 1-I Measure of Indemnity
(d) If the thing insured, being cargo or freightage, SECTION 158. A valuation in a policy of marine
and the voyage cannot be performed, nor another ship insurance is conclusive between the parties thereto in the
procured by the master, within a reasonable time and adjustment of either a partial or total loss, if the insured
with reasonable diligence, to forward the cargo, without has some interest at risk, and there is no fraud on his part;
incurring the like expense or risk mentioned in the except that when a thing has been hypothecated by
preceding subparagraph. But freightage cannot in any bottomry or respondentia, before its insurance, and
case be abandoned unless the ship is also abandoned. without the knowledge of the person actually procuring
the insurance, he may show the real value. But a
SECTION 142. An abandonment must be neither valuation fraudulent in fact, entitles the insurer to rescind
partial nor conditional. the contract.
SECTION 143. An abandonment must be made within SECTION 159. A marine insurer is liable upon a partial
a reasonable time after receipt of reliable information of loss, only for such proportion of the amount insured by
the loss, but where the information is of a doubtful him as the loss bears to the value of the whole interest of
character, the insured is entitled to a reasonable time to the insured in the property insured.
make inquiry.
SECTION 160. Where profits are separately insured in
SECTION 144. Where the information upon which an a contract of marine insurance, the insured is entitled to
abandonment has been made proves incorrect, or the recover, in case of loss, a proportion of such profits
thing insured was so far restored when the abandonment equivalent to the proportion which the value of the
was made that there was then in fact no total loss, the property lost bears to the value of the whole.
abandonment becomes ineffectual.


SECTION 161. In case of a valued policy of marine SECTION 170. An alteration in the use or condition of a
insurance on freightage or cargo, if a part only of the thing insured from that to which it is limited by the policy
subject is exposed to risk, the valuation applies only in made without the consent of the insurer, by means
proportion to such part. within the control of the insured, and increasing the risks,
SECTION 162. When profits are valued and insured by entitles an insurer to rescind a contract of fire insurance.
a contract of marine insurance, a loss of them is SECTION 171. An alteration in the use or condition of a
conclusively presumed from a loss of the property out of thing insured from that to which it is limited by the policy,
which they are expected to arise, and the valuation fixes which does not increase the risk, does not affect a
their amount. contract of fire insurance.
SECTION 163. In estimating a loss under an open SECTION 172. A contract of fire insurance is not
policy of marine insurance the following rules are to be affected by any act of the insured subsequent to the
observed: execution of the policy, which does not violate its
(a) The value of a ship is its value at the beginning of provisions, even though it increases the risk and is the
the risk, including all articles or charges which add to its cause of the loss.
permanent value or which are necessary to prepare it for SECTION 173. If there is no valuation in the policy, the
the voyage insured; measure of indemnity in an insurance against fire is the
(b) The value of the cargo is its actual cost to the expense it would be to the insured at the time of the
insured, when laden on board, or where the cost cannot commencement of the fire to replace the thing lost or
be ascertained, its market value at the time and place of injured in the condition in which it was at the time of the
lading, adding the charges incurred in purchasing and injury; but if there is a valuation in a policy of fire
placing it on board, but without reference to any loss insurance, the effect shall be the same as in a policy of
incurred in raising money for its purchase, or to any marine insurance.
drawback on its exportation, or to the fluctuation of the SECTION 174. Whenever the insured desires to have a
market at the port of destination, or to expenses incurred valuation named in his policy, insuring any building or
on the way or on arrival; structure against fire, he may require such building or
(c) The value of freightage is the gross freightage, structure to be examined by an independent appraiser
exclusive of primage, without reference to the cost of and the value of the insured's interest therein may then
earning it; and be fixed as between the insurer and the insured. The cost
of such examination shall be paid for by the insured. A
(d) The cost of insurance is in each case to be added clause shall be inserted in such policy stating
to the value thus estimated. substantially that the value of the insured's interest in
SECTION 164. If cargo insured against partial loss such building or structure has been thus fixed. In the
arrives at the port of destination in a damaged condition, absence of any change increasing the risk without the
the loss of the insured is deemed to be the same consent of the insurer or of fraud on the part of the
proportion of the value which the market price at that insured, then in case of a total loss under such policy, the
port, of the thing so damaged, bears to the market price whole amount so insured upon the insured's interest in
it would have brought if sound. such building or structure, as stated in the policy upon
which the insurers have received a premium, shall be
SECTION 165. A marine insurer is liable for all the paid, and in case of a partial loss the full amount of the
expenses attendant upon a loss which forces the ship into partial loss shall be so paid, and in case there are two (2)
port to be repaired; and where it is stipulated in the policy or more policies covering the insured's interest therein,
that the insured shall labor for the recovery of the each policy shall contribute pro rata to the payment of
property, the insurer is liable for the expense incurred such whole or partial loss. But in no case shall the insurer
thereby, such expense, in either case, being in addition to be required to pay more than the amount thus stated in
a total loss, if that afterwards occurs. such policy. This section shall not prevent the parties
SECTION 166. A marine insurer is liable for a loss from stipulating in such policies concerning the
falling upon the insured, through a contribution in repairing, rebuilding or replacing of buildings or
respect to the thing insured, required to be made by him structures wholly or partially damaged or destroyed.
towards a general average loss called for by a peril SECTION 175. No policy of fire insurance shall be
insured against: Provided, That the liability of the insurer pledged, hypothecated, or transferred to any person, firm
shall be limited to the proportion of contribution or company who acts as agent for or otherwise
attaching to his policy value where this is less than the represents the issuing company, and any such pledge,
contributing value of the thing insured. hypothecation, or transfer hereafter made shall be void
SECTION 167. When a person insured by a contract of and of no effect insofar as it may affect other creditors of
marine insurance has a demand against others for the insured.
contribution, he may claim the whole loss from the
insurer, subrogating him to his own right to contribution.
TITLE 3 Casualty Insurance
But no such claim can be made upon the insurer after
the separation of the interests liable to contribution, nor SECTION 176. Casualty insurance is insurance
when the insured, having the right and opportunity to covering loss or liability arising from accident or mishap,
enforce contribution from others, has neglected or excluding certain types of loss which by law or custom are
waived the exercise of that right. considered as falling exclusively within the scope of other
types of insurance such as fire or marine. It includes, but
SECTION 168. In the case of a partial loss of ship or its
is not limited to, employer's liability insurance, motor
equipment, the old materials are to be applied towards
vehicle liability insurance, plate glass insurance, burglary
payment for the new. Unless otherwise stipulated in the
and theft insurance, personal accident and health
policy, a marine insurer is liable for only two-thirds (2/3) of
insurance as written by non-life insurance companies,
the remaining cost of repairs after such deduction, except
and other substantially similar kinds of insurance.
that anchors must be paid in full.
TITLE 4 Suretyship
TITLE 2 Fire Insurance
SECTION 177. A contract of suretyship is an
SECTION 169. As used in this Code, the term fire
agreement whereby a party called the surety guarantees
insurance shall include insurance against loss by fire,
the performance by another party called the principal or
lightning, windstorm, tornado or earthquake and other
obligor of an obligation or undertaking in favor of a third
allied risks, when such risks are covered by extension to
party called the obligee. It includes official recognizances,
fire insurance policies or under separate policies.
stipulations, bonds or undertakings issued by any


company by virtue of and under the provisions of Act No. this section shall relieve such insurer of any liability under
536, as amended by Act No. 2206. the contract.
SECTION 178. The liability of the surety or sureties SECTION 183. The insurer in a life insurance contract
shall be joint and several with the obligor and shall be shall be liable in case of suicide only when it is committed
limited to the amount of the bond. It is determined after the policy has been in force for a period of two (2)
strictly by the terms of the contract of suretyship in years from the date of its issue or of its last reinstatement,
relation to the principal contract between the obligor and unless the policy provides a shorter period: Provided,
the obligee. however, That suicide committed in the state of insanity
SECTION 179. The surety is entitled to payment of the shall be compensable regardless of the date of
premium as soon as the contract of suretyship or bond is commission.
perfected and delivered to the obligor. No contract of
suretyship or bonding shall be valid and binding unless SECTION 184. A policy of insurance upon life or health
and until the premium therefor has been paid, except may pass by transfer, will or succession to any person,
where the obligee has accepted the bond, in which case whether he has an insurable interest or not, and such
the bond becomes valid and enforceable irrespective of person may recover upon it whatever the insured might
whether or not the premium has been paid by the have recovered.
obligor to the surety: Provided, That if the contract of
suretyship or bond is not accepted by, or filed with the SECTION 185. Notice to an insurer of a transfer or
obligee, the surety shall collect only a reasonable amount, bequest thereof is not necessary to preserve the validity
not exceeding fifty percent (50%) of the premium due of a policy of insurance upon life or health, unless thereby
thereon as service fee plus the cost of stamps or other expressly required.
taxes imposed for the issuance of the contract or bond: SECTION 186. Unless the interest of a person insured
Provided, however, That if the non-acceptance of the is susceptible of exact pecuniary measurement, the
bond be due to the fault or negligence of the surety, no measure of indemnity under a policy of insurance upon
such service fee, stamps or taxes shall be collected. life or health is the sum fixed in the policy.
In the case of a continuing bond, the obligor shall pay
the subsequent annual premium as it falls due until the
TITLE 6 Microinsurance
contract of suretyship is cancelled by the obligee or by
the Commissioner or by a court of competent jurisdiction, SECTION 187. Microinsurance is a financial product or
as the case may be. service that meets the risk protection needs of the poor
where:
SECTION 180. Pertinent provisions of the Civil Code of
the Philippines shall be applied in a suppletory character (a) The amount of contributions, premiums, fees or
whenever necessary in interpreting the provisions of a charges, computed on a daily basis, does not exceed
contract of suretyship. seven and a half percent (7.5%) of the current daily
minimum wage rate for nonagricultural workers in Metro
Manila; and
TITLE 5 Life Insurance
(b) The maximum sum of guaranteed benefits is not
SECTION 181. Life insurance is insurance on human more than one thousand (1,000) times of the current daily
lives and insurance appertaining thereto or connected minimum wage rate for nonagricultural workers in Metro
therewith. Manila.
Every contract or undertaking for the payment of SECTION 188. No insurance company or mutual
annuities including contracts for the payment of lump benefit association shall engage in the business of
sums under a retirement program where a life insurance microinsurance unless it possesses all the requirements
company manages or acts as a trustee for such as may be prescribed by the Commissioner. The
retirement program shall be considered a life insurance Commissioner shall issue such rules and regulations
contract for purposes of this Code. governing microinsurance.
SECTION 182. An insurance upon life may be made
payable on the death of the person, or on his surviving a
specified period, or otherwise contingently on the CHAPTER II-A Financial Reporting Framework
continuance or cessation of life. SECTION 189. All companies regulated by the
Every contract or pledge for the payment of Commission, unless otherwise required by law, should
endowments or annuities shall be considered a life comply with the financial reporting frameworks adopted
insurance contract for purposes of this Code. by the Commission for purposes of creating the statutory
financial reports and the annual statements to be
In the absence of a judicial guardian, the father, or in
submitted to the Commission. Financial reporting
the latter's absence or incapacity, the mother, of any
framework means a set of accounting and reporting
minor, who is an insured or a beneficiary under a contract
principles, standards, interpretations and
of life, health, or accident insurance, may exercise, in
pronouncements that must be adopted in the
behalf of said minor, any right under the policy, without
preparation and submission of the statutory financial
necessity of court authority or the giving of a bond, where
statements and reports required by the Commission. This
the interest of the minor in the particular act involved
financial reporting framework is not the same as the
does not exceed Five hundred thousand pesos
financial reporting framework used to prepare the
(P500,000.00) or in such reasonable amount as may be
financial statements that the Securities and Exchange
determined by the Commissioner. Such right may
Commission may require. The main purpose of the
include, but shall not be limited to, obtaining a policy
statutory statements is to present important information
loan, surrendering the policy, receiving the proceeds of
about the level of risk and solvency situation of insurers.
the Policy, and giving the minor's consent to any
In prescribing the applicable statutory financial reporting
transaction on the policy.
framework, the Commissioner shall take into account
In the absence or in case of the incapacity of the international standards concerning solvency and
father or mother, the grandparent, the eldest brother or insurance company reporting as well as generally
sister at least eighteen (18) years of age, or any relative accepted actuarial principles concerning financial
who has actual custody of the minor insured or reporting promulgated by the Actuarial Society of the
beneficiary, shall act as a guardian without need of a Philippines.
court order or judicial appointment as such guardian, as
The assets and investments discussed in Sections 204
long as such person is not otherwise disqualified or
to 215 shall be accounted for in accordance with this
incapacitated. Payment made by the insurer pursuant to
section.


The valuation of reserves shall be accounted for in No person shall concurrently be a Director and/or
accordance with Title 5 of this Code. Officer of an insurance company and an adjustment
company.
Before issuing such certificate of authority, the
CHAPTER III The Business of Insurance Commissioner must be satisfied that the name of the
company is not that of any other known company
TITLE 1 Insurance Companies, Organization, transacting a similar business in the Philippines, or a
Capitalization and Authorization name so similar as to be calculated to mislead the public.
The Commissioner may issue rules and regulations on the
SECTION 190. For purposes of this Code, the term use of names of insurance companies and other
insurer or insurance company shall include all supervised persons or entities.
partnerships, associations, cooperatives or corporations,
including government-owned or -controlled corporations The certificate of authority issued by the
or entities, engaged as principals in the insurance Commissioner shall expire on the last day of December,
business, excepting mutual benefit associations. Unless three (3) years following its date of issuance, and shall be
the context otherwise requires, the term shall also include renewable every three (3) years thereafter, subject to the
professional reinsurers defined in Section 288. Domestic company's continuing compliance with the provisions of
company shall include companies formed, organized or this Code, circulars, instructions, rulings or decisions of
existing under the laws of the Philippines. Foreign the Commission.
company when used without limitation shall include Every company receiving any such certificates of
companies formed, organized, or existing under any laws authority shall be subject to the provisions of this Code
other than those of the Philippines. and other related laws and to the jurisdiction and
SECTION 191. The provisions of the Corporation Code, supervision of the Commissioner.
as amended, shall apply to all insurance corporations now No insurance company may be authorized to transact
or hereafter engaged in business in the Philippines in the Philippines the business of life and non-life
insofar as they do not conflict with the provisions of this insurance concurrently, unless specifically authorized to
chapter. do so by the Commissioner: Provided, That the terms life
SECTION 192. No corporation, partnership, or and non-life insurance shall be deemed to include health,
association of persons shall transact any insurance accident and disability insurance.
business in the Philippines except as agent of a No insurance company shall have equity in an
corporation, partnership or association authorized to do adjustment company and neither shall an adjustment
the business of insurance in the Philippines, unless company have equity in an insurance company.
possessed of the capital and assets required of an No insurance company issued with a valid certificate
insurance corporation doing the same kind of business in of authority to transact insurance business anywhere in
the Philippines and invested in the same manner; unless the Philippines by the Insurance Commissioner, shall be
the Commissioner shall have granted it a certificate to barred, prevented, or disenfranchised from issuing any
the effect that it has complied with all the provisions of insurance policy or from transacting any insurance
this Code. business within the scope or coverage of its certificate of
Every entity receiving any such certificate of authority authority, anywhere in the Philippines, by any local
shall be subject to the insurance and other applicable government unit or authority, for whatever guise or
laws of the Philippines and to the jurisdiction and reason whatsoever, including under any kind of
supervision of the Commissioner. ordinance, accreditation system, or scheme. Any local
SECTION 193. No insurance company shall transact ordinance or local government unit regulatory issuance
any insurance business in the Philippines until after it imposing such restriction or disenfranchisement on any
shall have obtained a certificate of authority for that insurance company shall be deemed null and void ab
purpose from the Commissioner upon application initio.
therefor and payment by the company concerned of the SECTION 194. Except as provided in Section 289, no
fees hereinafter prescribed. new domestic life or non-life insurance company shall, in
The Commissioner may refuse to issue a certificate of a stock corporation, engage in business in the Philippines
authority to any insurance company if, in his judgment, unless possessed of a paid-up capital equal to at least
such refusal will best promote the interest of the people One billion pesos (P1,000,000,000.00): Provided, That a
of this country. No such certificate of authority shall be domestic insurance company already doing business in
granted to any such company until the Commissioner the Philippines shall have a net worth by June 30, 2013 of
shall have satisfied himself by such examination as he Two hundred fifty million pesos (P250,000,000.00).
may make and such evidence as he may require that Furthermore, said company must have by December 31,
such company is qualified by the laws of the Philippines 2016, an additional Three hundred million pesos
to transact business therein, that the grant of such (P300,000,000.00) in net worth; by December 31, 2019, an
authority appears to be justified in the light of local additional Three hundred fifty million pesos
economic requirements, and that the direction and (P350,000,000.00) in net worth; and by December 31,
administration, as well as the integrity and responsibility 2022, an additional Four hundred million pesos
of the organizers and administrators, the financial (P400,000,000.00) in net worth.
organization and the amount of capital, reasonably The Commissioner may, as a pre-licensing
assure the safety of the interests of the policyholders and requirement of a new insurance company, in addition to
the public. the paid-up capital stock, require the stockholders to pay
In order to maintain the quality of the management in cash to the company in proportion to their subscription
of the insurance companies and afford better protection interests a contributed surplus fund of not less than One
to policyholders and the public in general, any person of hundred million pesos (P100,000,000.00). He may also
good moral character, unquestioned integrity and require such company to submit to him a business plan
recognized competence may be elected or appointed showing the company's estimated receipts and
director or officer of insurance companies in accordance disbursements, as well as the basis therefor, for the next
with the pertinent provisions contained in the corporate succeeding three (3) years.
governance circulars prescribed by the Commissioner. In If organized as a mutual company, in lieu of such net
addition hereto, the Commissioner shall prescribe the worth, it must have available total members equity in an
qualifications of directors, executive officers and other amount to be determined by the Insurance Commission
key officials of insurance companies for purposes of this above all liabilities for losses reported; expenses, taxes,
section. legal reserve, and reinsurance of all outstanding risks, and
the contributed surplus fund equal to the amounts



required of stock corporations. A stock insurance character of the business, the location of the principal
company doing business in the Philippines may, subject office, the name of the individual or names of the persons
to the pertinent law and regulation which now or composing the partnership or association, the amount of
hereafter may be in force, alter its organization and actual capital employed or to be employed therein, and
transform itself into a mutual insurance company. the names of all officers and persons by whom the
The Secretary of Finance may, upon recommendation business is or may be managed.
of the Commissioner, increase such minimum paid-up The certificate must be verified by the affidavit of the
capital stock or cash assets requirement under such chief officer, secretary, agent, or manager of the
terms and conditions as he may impose, to an amount company; and if there are any written articles of
which, in his opinion, would reasonably assure the safety agreement of the company, a copy thereof must
of the interests of the policyholders and the public. The accompany such certificate.
minimum paid-up capital and net worth requirement SECTION 196. The Commissioner must require as a
must remain unimpaired for the continuance of the condition precedent to the transaction of insurance
license. The Commissioner may require the adoption of business in the Philippines by any foreign insurance
the risk-based capital approach and other internationally company, that such company file in his office a written
accepted forms of capital framework. power of attorney designating some person who shall be
For the purpose of this section, net worth shall consist a resident of the Philippines as its general agent, on
of: whom any notice provided by law or by any insurance
(a) Paid-up capital; policy, proof of loss, summons and other legal processes
may be served in all actions or other legal proceedings
(b) Retained earnings; against such company, and consenting that service upon
(c) Unimpaired surplus; and such general agent shall be admitted and held as valid as
if served upon the foreign company at its home office.
(d) Revaluation of assets as may be approved by the Any such foreign company shall, as further condition
Commissioner. precedent to the transaction of insurance business in the
The Commission may adopt for purposes of Philippines, make and file with the Commissioner an
compliance with capital build up requirement under this agreement or stipulation, executed by the proper
Code the recognition as part of the capital account, authorities of said company in form and substance as
capital notes or debentures which are subordinate to all follows:
credits and senior only to common capital stocks. The (name of company) does hereby stipulate and
The President of the Philippines may order a periodic agree in consideration of the permission granted by the
review every two (2) years the capital structure set out Insurance Commissioner to transact business in the
above to determine the capital adequacy of the local Philippines, that if at any time said company shall leave
insurance industry from and after the integration and the Philippines, or cease to transact business therein, or
liberalization of the financial services, including shall be without any agent in the Philippines on whom
insurance, in the ASEAN Region. For this purpose, a any notice, proof of loss, summons, or legal process may
review committee consisting of representatives from the be served, then in any action or proceeding arising out of
Department of Finance (DOF), the Insurance Commission any business or transaction which occurred in the
(IC), the National Economic and Development Authority Philippines, service of any notice provided by law, or
(NEDA), the Securities and Exchange Commission (SEC) insurance policy, proof of loss, summons, or other legal
and other agencies which the President may designate process may be made upon the Insurance Commissioner,
shall conduct the review and may recommend to the and that such service upon the Insurance Commissioner
President to adopt for implementation the necessary shall have the same force and effect as if made upon the
capital adjustment. company.
SECTION 195. Every company must, before engaging Whenever such service of notice, proof of loss,
in the business of insurance in the Philippines, file with summons, or other legal process shall be made upon the
the Commissioner the following: Commissioner, he must, within ten (10) days thereafter,
transmit by mail, postage paid, a copy of such notice,
(a) A certified copy of the last annual statement or a proof of loss, summons, or other legal process to the
verified financial statement exhibiting the condition and company at its home or principal office. The sending of
affairs of such company; such copy by the Commissioner shall be a necessary part
(b) If incorporated under the laws of the Philippines, a of the service of the notice, proof of loss, or other legal
copy of the articles of incorporation and bylaws, and any process.
amendments to either, certified by the Securities and SECTION 197. No insurance company organized or
Exchange Commission to be a copy of that which is filed existing under the government or laws other than those
in its Office; of the Philippines shall engage in business in the
(c) If incorporated under any laws other than those of Philippines unless possessed of unimpaired capital or
the Philippines, a certificate from the Securities and assets and reserve of not less than One billion pesos
Exchange Commission showing that it is duly registered (P1,000,000,000.00), nor until it shall have deposited with
in the mercantile registry of that Commission in the Commissioner for the benefit and security of the
accordance with the Corporation Code. A copy of the policyholders and creditors of such company in the
articles of incorporation and bylaws, and any Philippines, securities satisfactory to the Commissioner
amendments to either, if organized or formed under any consisting of good securities of the Philippines, including
law requiring such to be filed, duly certified by the officer new issues of stock of registered enterprises, as this term
having the custody of same, or if not so organized, a copy is defined in Executive Order No. 226 of 1987, as amended,
of the law, charter or deed of settlement under which the to the actual market value of not less than the amount
deed of organization is made, duly certified by the proper herein required: Provided, That at least fifty percent (50%)
custodian thereof, or proved by affidavit to be a copy; also, of such securities shall consist of bonds or other
a certificate under the hand and seal of the proper officer instruments of debt of the Government of the
of such state or country having supervision of insurance Philippines, its political subdivisions and
business therein, if any there be, that such corporation or instrumentalities, or of government-owned or -controlled
company is organized under the laws of such state or corporations and entities, including the Bangko Sentral
country, with the amount of capital stock or assets and ng Pilipinas: Provided, further, That the total investment
legal reserve required by this Code; of a foreign insurance company in any registered
(d) If not incorporated and of foreign domicile, aside enterprise shall not exceed twenty percent (20%) of the
from the certificate mentioned in paragraph (c) of this net worth of said foreign insurance company nor twenty
section, a certificate setting forth the nature and percent (20%) of the capital of the registered enterprise,


unless previously authorized in writing by the SECTION 201. No domestic insurance corporation
Commissioner. shall declare or distribute any dividend on its outstanding
The Commissioner may, as a pre-licensing stocks unless it has met the minimum paid-up capital
requirement of a new branch office of a foreign insurance and net worth requirements under Section 194 and
company, in addition to the required asset or net worth, except from profits attested in a sworn statement to the
require the company to have an additional surplus fund Commissioner by the president or treasurer of the
in an amount to be determined by the Insurance corporation to be remaining on hand after retaining
Commission. unimpaired:
For purposes of this Code, the net worth of a foreign (a) The entire paid-up capital stock,
insurance company shall refer only to its net worth in the (b) The solvency requirements defined by Section
Philippines. 200;
SECTION 198. The Commissioner shall hold the (c) In the case of life insurance corporations, the legal
securities, deposited as required in the immediately reserve fund required by Section 217;
preceding section, for the benefit and security of all the (d) In the case of corporations other than life, the
policyholders and creditors of the company depositing legal reserve fund required by Section 219; and
the same: Provided, That the Commissioner may as long
as the company is solvent, permit the company to collect (e) A sum sufficient to pay all net losses reported, or in
the interest or dividends on the securities so deposited, the course of settlement, and all liabilities for expenses
and, from time to time, with his assent, to withdraw any and taxes.
of such securities, upon depositing with said Any dividend declared or distributed under the
Commissioner other like securities, the market value of preceding paragraph shall be reported to the
which shall be equal to the market value of such as may Commissioner within thirty (30) days after such
be withdrawn. In the event of any company ceasing to do declaration or distribution.
business in the Philippines, the securities deposited as
aforesaid shall be returned to the company upon the If the Commissioner finds that any such corporation
Commissioner's written approval and only after the has declared or distributed any such dividend in violation
company has duly proven in its application therefor that it of this section, he may order such corporation to cease
has no further liability whatsoever under any of its and desist from doing business until the amount of such
policies nor to any of its creditors in the Philippines. dividend or the portion thereof in excess of the amount
allowed under this section has been restored to said
SECTION 199. Every foreign company doing business corporation.
in the Philippines shall set aside an amount
corresponding to the legal reserves of the policies written The Commissioner shall prescribe solvency
in the Philippines and invest and keep the same therein requirements for branches of foreign insurance
in accordance with the provisions of this section. The companies operating in the Philippines.
legal reserve therein required to be set aside shall be
invested only in the classes of Philippine securities TITLE 3 Assets
described in Section 206: Provided, however, That no
investment in stocks or bonds of any single entity shall, in SECTION 202. In any determination of the financial
the aggregate exceed twenty percent (20%) of the net condition of any insurance company doing business in
worth of the investing company or twenty percent (20%) the Philippines, there shall be allowed and admitted as
of the capital of the issuing company, whichever is the assets only such assets legally or beneficially owned by
lesser, unless otherwise approved in writing by the the insurance company concerned as determined by the
Commissioner. The securities purchased and kept in the Commissioner which consist of:
Philippines under this section, shall not be sent out of the (a) Cash in the possession of the insurance company
territorial jurisdiction of the Philippines without the or in transit under its control, and the true and duly
written consent of the Commissioner. verified balance of any deposit of such company in a
financially sound bank or trust company duly authorized
TITLE 2 Solvency by the Bangko Sentral ng Pilipinas.
SECTION 200. An insurance company doing business (b) Investments in securities, including money market

in the Philippines shall at all times maintain the instruments, and in real property acquired or held in
minimum paid-up capital, and net worth requirements as accordance with and subject to the applicable provisions
prescribed by the Commissioner. Such solvency of this Code and the income realized therefrom or
requirements shall be based on internationally accepted accrued thereon.
solvency frameworks and adopted only after due (c) Loans granted by the insurance company
consultation with the insurance industry associations. concerned to the extent of that portion thereof
Whenever the aforementioned requirement be found adequately secured by non-speculative assets with
to be less than that herein required to be maintained, the readily realizable values in accordance with and subject to
Commissioner shall forthwith direct the company to the limitations imposed by applicable provisions of this
make good any such deficiency by cash, to be Code.
contributed by all stockholders of record in proportion to (d) Policy loans and other policy assets and liens on
their respective interests, and paid to the treasurer of the policies, contracts or certificates of a life insurance
company, within fifteen (15) days from receipt of the company, in an amount not exceeding legal reserves and
order: Provided, That the company in the interim shall not other policy liabilities carried on each individual life
be permitted to take any new risk of any kind or character insurance policy, contract or certificate.
unless and until it make good any such deficiency: (e) The net amount of uncollected and deferred
Provided, further, That a stockholder who aside from premiums and annuity considerations in the case of a life
paying the contribution due from him, pays the insurance company which carries the full mean tabular
contribution due from another stockholder by reason of reserve liability.
the failure or refusal of the latter to do so, shall have a lien
on the certificates of stock of the insurance company (f) Reinsurance recoverable by the ceding insurer:
concerned appearing in its books in the name of the (1) From an insurer authorized to transact business in
defaulting stockholder on the date of default, as well as this country, the full amount thereof; or
on any interests or dividends that have accrued or will
accrue to the said certificates of stock, until the (2) From an insurer not authorized in this country, in
corresponding payment or reimbursement is made by an amount not exceeding the liabilities carried by the
the defaulting stockholder. ceding insurer for amounts withheld under a reinsurance
treaty with such unauthorized insurer as security for the



payment of obligations thereunder if such funds are held

subject to withdrawal by, and under the control of, the TITLE 4 Investments
ceding insurer. The Commissioner may prescribe the
conditions under which a ceding insurer may be allowed SECTION 204. A life insurance company may lend to
credit, as an asset or as a deduction from loss and any of its policyholders upon the security of the value of
unearned premium reserves, for reinsurance recoverable its policy such sum as may be determined pursuant to
from an insurer not authorized in this country but which the provisions of the policy.
presents satisfactory evidence that it meets the No insurance company shall loan any of its money or
applicable standards of solvency required in this country. deposits to any person, corporation or association, except
(g) Funds withheld by a ceding insurer under a upon the security of any of the following:
reinsurance treaty, provided reserves for unpaid losses (a) First mortgage or deeds of trust of registered,
and unearned premiums are adequately provided. unencumbered, improved or unimproved real estate,
(h) Deposits or amounts recoverable from including condominiums;
underwriting associations, syndicates and reinsurance (b) First mortgages or deeds of trust of actually
funds, or from any suspended banking institution, to the cultivated, improved and unencumbered agricultural
extent deemed by the Commissioner to be available for lands in the Philippines;
the payment of losses and claims and values to be
(c) Purchase money mortgages, lease purchase
determined by him.
agreements or similar securities executed or received by
(i) Electronic data processing machines, as may be it on account of the sale or exchange of real property
authorized by the Commissioner to be acquired by the acquired pursuant to Sections 206 and 208;
insurance company concerned, the acquisition cost of
(d) Bonds or other instruments of indebtedness
which to be amortized in equal annual amounts within a
issued or guaranteed by the Government of the
period of five (5) years from the date of acquisition
Philippines or its political subdivisions authorized by law
thereof.
to incur such obligations or issue such guarantees or of
(j) Investments in mutual funds, real estate government-owned or -controlled corporations and
investment trusts, salary loans, unit investment trust instrumentalities including the Bangko Sentral ng
funds and special deposit accounts, subject to the Pilipinas; or
conditions as may be provided for by the Commissioner.
(e) Obligations issued or guaranteed by universal
(k) Other assets, not inconsistent with the provisions banks, commercial banks, offshore banking units,
of paragraphs (a) to (j) hereof, which are deemed by the investment houses or other financial intermediaries duly
Commissioner to be readily realizable and available for registered with the Bangko Sentral ng Pilipinas; or
the payment of losses and claims at values to be
(f) Obligations issued or guaranteed by foreign banks
determined by him in a circular, rule or regulation.
or corporations, each of which shall have total net worth
SECTION 203. In addition to such assets as the of at least One hundred fifty million US dollars
Commissioner may from time to time determine to be ($US150,000,000.00) or such other higher net worth as
non-admitted assets of insurance companies doing may be prescribed by the Insurance Commission, as
business in the Philippines, the following assets shall in shown in their financial statements as of the immediately
no case be allowed as admitted assets of an insurance preceding fiscal year; or
company doing business in the Philippines, in any
(g) Assignments of monetary instruments such as
determination of its financial condition:
cash deposits, deposit certificates or other similar
(a) Goodwill, trade names, and other like intangible instruments of universal banks, commercial banks,
assets. investment houses or other financial intermediaries duly
(b) Prepaid or deferred charges for expenses and registered with the Bangko Sentral ng Pilipinas; or
commissions paid by such insurance company. (h) Pledges of shares of stock, bonds or other
(c) Advances to officers (other than policy loans), instruments of indebtedness specified in Section 209; or
which are not adequately secured and which are not (i) Chattel mortgages over equipment not more than
previously authorized by the Commissioner, as well as three (3) years old; and
advances to employees, agents, and other persons on
(j) Such other security as may be approved by the
mere personal security.
Commissioner.
(d) Shares of stock of such insurance company,
The loans provided in the preceding subsection shall
owned by it, or any equity therein as well as loans secured
be subject to the following conditions:
thereby, or any proportionate interest in such shares of
stock through the ownership by such insurance company (1) The amount of loan secured by real estate
of an interest in another corporation or business unit. mortgage over a non-agricultural land shall not exceed
seventy percent (70%) of its appraised value, and in the
(e) Furniture, furnishing, fixtures, safes, equipment,
case of a loan secured by a real estate mortgage over an
library, stationery, literature, and supplies.
agricultural land, the amount of loan shall not exceed
(f) Items of bank credits representing checks, drafts or forty percent (40%) of its market value: Provided, That, in
notes returned unpaid after the date of statement. no case shall such loan have a maturity period in excess of
(g) The amount, if any, by which the aggregate value twenty-five (25) years;
of investments as carried in the ledger assets of such (2) Unless approved by the Commissioner, no loan
insurance company exceeds the aggregate value thereof may be granted upon the security of a mortgage on
as determined in accordance with the provisions of this improved real estate if the improvements thereon do not
Code and/or the rules of the Commissioner. belong to the owner of the land, and the owner of the
All non-admitted assets and all other assets of improvements does not sign the deed of mortgage.
doubtful value or character included as ledger or However, if the owner of the land is the Government of
non-ledger assets in any statement submitted by an the Philippines or any of its political subdivisions and a
insurance company to the Commissioner, or in any long-term lease has been executed in favor of the owner
insurance examiner's report to him, shall also be reported, of the improvements, the owner of the land need not be a
to the extent of the value disallowed as deductions from party to the deed of mortgage. The expiration date of the
the gross assets of such insurance company, except lease shall not, however, precede the maturity of the loan.
where the Commissioner permits a reserve to be carried The phrase 'improved real estate' as used herein shall
among the liabilities of such insurance company in lieu of mean land with permanent building or buildings erected
any such deduction. thereon;


(3) Lease-agreements or similar securities received on December thirty-first next preceding the date of such
the sale of real estate property shall not exceed one investment.
hundred percent (100%) of the selling price of said As used in this subsection the term net earnings
property, or one hundred percent (100%) of its market available for fixed charges shall mean net income after
value at the time of its disposition, whichever amount is deducting operating and maintenance expenses, taxes
lower. However, in no case shall such agreement have a other than income taxes, depreciation and depletion; but
maturity period not exceeding thirty (30) years; excluding extraordinary nonrecurring items of income or
(4) Loans secured by shares of stock of solvent expense appearing in the regular financial statement of
corporations or institutions shall not exceed fifty percent the issuing, assuming or guaranteeing institution. The
(50%) of: term fixed charges shall include interest on funded and
(i) The weighted average market price for the one unfunded debt, amortization of debt discount, and
hundred eighty (180) days preceding the approval of the rentals for leased properties.
loan for shares listed in the stock exchange; and (5) Preferred or guaranteed stocks of any solvent
(ii) For unlisted shares, the adjusted book value of corporation or institution created or existing under the
such shares. laws of the Philippines: Provided, That if the stocks are
guaranteed, the amount of stocks so guaranteed is not in
(5) Loans secured by the chattel mortgages over excess of fifty percent (50%) of the amount of the
equipment shall not exceed seventy percent (70%) of the preferred or common stocks, as the case may be, of the
market value of said equipment. guaranteeing corporation: Provided, finally, That no life
SECTION 205. No loan by any insurance company on insurance company shall invest in or loan upon
the security of real estate shall be made unless the title to obligations of any one institution in the kinds permitted
such real estate shall have first been registered in under this subsection an amount in excess of ten percent
accordance with the existing Land Registration Act, or (10%) of the total admitted assets of such insurer as of
shall have been previously registered under the December thirty-first next preceding the date of such
provisions of the existing Mortgage Law and the lien or investment.
interest of the insurance company as mortgagee has (6) Common stocks of any solvent corporation or
been registered. institution created or existing under the laws of the
SECTION 206. (a) An insurance company may Philippines: Provided, however, That no life insurance
purchase, hold, own and convey such property, real and company shall invest in or loan upon the obligations of
personal, as may have been mortgaged, pledged, or any one corporation or institution in the kinds permitted
conveyed to it in good faith in trust for its benefit by under this subsection an amount in excess of ten percent
reason of money loaned by it in pursuance of the regular (10%) of the total admitted assets of such insurer as of
business of the company, and such real or personal December thirty-first next preceding the date of such
property as may have been purchased by it at sales under investment.
pledges, mortgages or deeds of trust for its benefit on (7) Securities issued by a registered enterprise, as this
account of money loaned by it; and such real and term is defined in Executive Order No. 226, otherwise
personal property as may have been conveyed to it by known as the Omnibus Investments Code of 1987, as
borrowers in satisfaction and discharge of loans made by amended: Provided, That the total investment of a
the company in payment or by reason of any loan made domestic non-life insurance company in any registered
by the company in payment or by reason of any loan enterprise shall not exceed twenty percent (20%) of the
made by it shall be sold by the company within twenty net worth of said insurance company as shown by its
(20) years after the title thereto has been vested in it. aforesaid financial statement unless previously
(b) An insurance company may purchase, hold, and authorized by the Commissioner.
own the following: (8) Certificates, notes and other obligations issued by
(1) Real properties which serve as its main place of the trustees or receivers of any institution created or
business and/or branch offices: Provided, That such existing under the laws of the Philippines which or the
investment shall not in the overall exceed twenty percent assets of which, are being administered under the
(20%) of its net worth as shown by its latest financial direction of any court having jurisdiction: Provided,
statement approved by the Commissioner. however, That such certificates, notes or other obligations
are adequately secured as to principal and interests.
(2) Bonds or other instruments of indebtedness of the
Government of the Philippines or its political subdivisions (9) Equipment trust obligations or certificates which
authorized by law to issue bonds at the reasonable are adequately secured or other adequately secured
market value thereof. instruments evidencing an interest in equipment wholly
or in part within the Philippines: Provided, however, That
(3) Bonds or other instruments of debt of there is a right to receive determined portions of rental,
government-owned or -controlled corporations and purchase or other fixed obligatory payments for the use
entities, including the Bangko Sentral ng Pilipinas. or purchase of such equipment.
(4) Bonds, debentures or other instruments of (10) Any obligation of any corporation or institution
indebtedness of any solvent corporation or institution created or existing under the laws of the Philippines
created or existing under the laws of the which is, on the date of acquisition by the insurer,
Philippines:Provided, however, That the issuing, assuming adequately secured and has qualities and characteristics
or guaranteeing entity or its predecessors shall not have wherein the speculative elements are not predominant.
defaulted in the payment of interest on any of its
securities and that during each of any three (3) including (11) Such other securities as may be approved by the
the last two (2) of the five (5) fiscal years next preceding Commissioner.
the date of acquisition by such insurance company of (c) Any domestic insurer which has outstanding
such bonds, debentures, or other instruments of insurance, annuity or reinsurance contracts in currencies
indebtedness, the net earnings of the issuing, assuming other than the national currency of the Philippines may
or guaranteeing institution available for its fixed charges, invest in, or otherwise acquire or loan upon securities and
as hereinafter defined, shall have been not less than one investments in such currency which are substantially of
and one-quarter (1 1/4) times the total of its fixed charges the same kinds, classes and investment grades as those
for such year: Provided, further, That no life insurance eligible for investment under the foregoing subdivisions
company shall invest in or loan upon the obligations of of this section; but the aggregate amount of such
any one institution in the kinds permitted under this investments and of such cash in such currency which is at
subsection an amount in excess of twenty-five percent any time held by such insurer shall not exceed one and
(25%) of the total admitted assets of such insurer as of one-half (1 1/2) times the amount of its reserves and other
obligations under such contracts or the amount which



such insurer is required by the law of any country or (a) No more than twenty percent (20%) of the net
possession outside the Republic of the Philippines to be worth of such company as shown by its latest financial
invested in such country or possession, whichever shall be statement approved by the Commissioner shall be
greater. invested in the lot and building in which the insurance
SECTION 207. An insurance company may: company conducts its business; and
(1) Invest in equities of other financial institutions; and (b) The total investment of an insurance company in
any registered enterprise shall not exceed twenty percent
(2) Engage in the buying and selling of long-term (20%) of the net worth of said insurance company as
debt instruments: Provided, That any or all of such shown by its aforesaid financial statement nor twenty
investments shall be with the prior approval of the percent (20%) of the paid-up capital of the registered
Commissioner. Insurance companies may, however, enterprise excluding the intended investment, unless
invest in listed equities of other financial institutions previously authorized by the Commissioner: Provided,
without need of prior approval by the Commissioner. further, That such investments, free from any lien or
SECTION 208. Any life insurance company may: encumbrance, shall be at least equal in amount to the
aggregate amount of: (1) its legal reserve, as provided in
(a) Acquire or construct housing projects and, in Section 219, and (2) its reserve fund held for reinsurance
connection with any such project, may acquire land or as provided for in the pertinent treaty provision in the
any interest therein by purchase, lease or otherwise, or case of reinsurance ceded to authorized insurers.
use land acquired pursuant to any other provision of this
Code. Such company may thereafter own, maintain, SECTION 211. After satisfying the requirements
manage, collect or receive income from, or sell and contained in Sections 197, 199, 209 and 210, any non-life
convey, any land or interest therein so acquired and any insurance company may invest any portion of its funds
improvements thereon. The aggregate book value of the representing earned surplus in any of the investments
investments of any such company in all such projects described in Sections 204, 206 and 207, or in any
shall not exceed at the time of such investments securities issued by a registered enterprise mentioned in
twenty-five percent (25%) of the total admitted assets of the preceding sections: Provided, That no investment in
such company on the thirty-first day of December next stocks or bonds of any single entity shall in the aggregate,
preceding: Provided, That the funds of the company for exceed twenty percent (20%) of the net worth of the
the payment of pending claims and obligations shall not insurance company as shown in its latest financial
be used for such investments. statement approved by the Commissioner or twenty
percent (20%) of the paid-up capital of the issuing
(b) Acquire real property, other than property to be company, whichever is lesser, unless otherwise approved
used primarily for providing housing and property for by the Commissioner.
accommodation of its own business, as an investment for
the production of income, or may acquire real property to SECTION 212. After satisfying the minimum capital
be improved or developed for such investment purpose investment required in Section 209, any life insurance
pursuant to a program therefor, subject to the condition company may invest its legal policy reserve, as provided
that the cost of each parcel of real property so acquired in Section 217 or in Section 218, in any of the classes of
under the authority of this paragraph (b), including the securities or types of investments described in Sections
estimated cost to the company of the improvement or 204, 206, 207 and 208, subject to the limitations therein
development thereof, when added to the book value of all contained, and in any securities issued by any registered
other real property held by it pursuant to this paragraph enterprise mentioned in Section 210, free from any lien or
(b), shall not exceed twenty-five percent (25%) of its encumbrance, in such amounts as may be approved by
admitted assets as of the thirty-first day of December the Commissioner. Such company may likewise invest
next preceding. any portion of its earned surplus in the aforesaid
securities or investments subject to the aforesaid
SECTION 209. Every domestic insurance company limitations.
shall, to the extent of an amount equal in value to
twenty-five percent (25%) of the minimum net worth SECTION 213. Any investment made in violation of the
required under Section 194, invest its funds only in applicable provisions of this title shall be considered
securities, satisfactory to the Commissioner, consisting of non-admitted assets.
bonds or other instruments of debt of the Government of SECTION 214. (a) All bonds or other instruments of
the Philippines or its political subdivisions or indebtedness having a fixed term and rate of interest and
instrumentalities, or of government-owned or -controlled held by any life insurance company authorized to do
corporations and entities, including the Bangko Sentral business in this country, if amply secured and if not in
ng Pilipinas: Provided, That such investments shall at all default as to principal or interest, shall be valued based on
times be maintained free from any lien or encumbrance: their amortized cost using effective interest method less
Provided, further, That such securities shall be deposited impairment and unrecoverable amount based on
with and held by the Commissioner for the faithful appropriate measurement methods which are generally
performance by the depositing insurer of all its accepted in the industry and accepted by the
obligations under its insurance contracts. The provisions Commissioner. The Commissioner shall have the power to
of Section 198 shall, so far as practicable, apply to the determine the eligibility of any such investments for
securities deposited under this section. valuation on the basis of amortization, and may by
Except as otherwise provided in this Code, no regulation prescribe or limit the classes of securities so
judgment creditor or other claimant shall have the right eligible for amortization. All bonds or other instruments
to levy upon any of the securities of the insurer held on of indebtedness which in the judgment of the
deposit under this section or held on deposit pursuant to Commissioner are not amply secured shall not be eligible
the requirement of the Commissioner. for amortization and shall be valued in accordance with
paragraph two. The Commissioner may, if he finds that
SECTION 210. After satisfying the requirements the interest of policyholders so permit or require, by
contained in the preceding section, any domestic non-life official regulation permit or require any class or classes of
insurance company, shall invest, to an amount prescribed insurers, other than life insurance companies authorized
below, its funds in, or otherwise, acquire or loan upon, to do business in this country, to value their bonds or
only the classes of investments described in Section 206, other instruments of indebtedness in accordance with
including securities issued by any registered enterprise, the foregoing rule.
as this term is defined in Executive Order No. 226,
otherwise known as 'The Omnibus Investments Code of (b) The investments of all insurers authorized to do
1987' and such other classes of investments as may be business in this country, except securities subject to
authorized by the Commissioner for purposes of this amortization and except as otherwise provided in this
section: Provided, That: chapter, shall be valued, in the discretion of the
Commissioner, at their amortized cost using effective


interest method less impairment and unrecoverable (1) The value of only such of the assets of such
amount or at valuation representing their fair market subsidiary as would constitute lawful investments for the
value. If the Commissioner finds that in view of the insurer if acquired or held directly by the insurer; or
character of investments of any insurer authorized to do (2) Such other value determined pursuant to
business in this country it would be prudent for such standards and cumulative limitations, contained in a
insurer to establish a special reserve for possible losses or regulation to be promulgated by the Commissioner.
fluctuations in the values of its investments, he may
require such insurer to establish such reserve, reasonable (h) Notwithstanding any provision contained in this
in amount, and include a report thereon in any statement section or elsewhere in this chapter, if the Commissioner
or report of the financial condition of such insurer. The finds that the interests of policyholders so permit or
Commissioner may, in connection with any examination require, he may permit or require any class or classes of
or required financial statement of an authorized insurer, insurers authorized to do business in this country to value
require such insurer to furnish him complete financial their investments or any class or classes thereof as of any
statements and audited report of the financial condition date heretofore or hereafter in accordance with any
of any corporation of which the securities are owned applicable valuation or method.
wholly or partly by such insurer and may cause an SECTION 215. It shall be the duty of the officers of the
examination to be made of any subsidiary or affiliate of insurance company to report within the first fifteen (15)
such insurer as appropriate to specific investments as days of every month all such investments as may be
provided in appropriate circulars issued by the made by them during the preceding month, and the
Commissioner. Commissioner may, if such investments or any of them
(c) Investments in equity of an insurance company seem injudicious to him, require the sale or disposal of
shall be valued as follows: the same. The report shall also include a list of
investments sold or disposed of by the company during
(1) Listed stocks shall be valued at market value and the same period.
periodically adjusted to reflect market changes through a
special valuation account to reflect their realizable value
when sold; TITLE 5 Reserves
(2) Unlisted stocks shall be valued at adjusted book SECTION 216. Every life insurance company, doing
value based on the latest unqualified audited financial business in the Philippines, shall annually make a
statements of the company which issued such stocks; valuation of all policies, additions thereto, unpaid
and dividends, and all other obligations outstanding on the
(3) Stocks of a corporation under the control of the thirty-first day of December of the preceding year. All
insurer shall be valued using the equity method which is such valuations shall be made according to the standard
the cost plus or minus the share of the controlling adopted by the company, as prescribed by the
company in the earnings or losses of the controlled Commissioner in accordance with internationally
company after acquisition of such stocks. accepted actuarial standards, which standard shall be
stated in its annual report.
(d) The stock of an insurance company shall be valued
at the lesser of its market value or its book value as shown Such standard of valuations shall be according to a
by its last approved audited financial statement or the standard table of mortality with interest to be determined
last report on examination, whichever is more recent. The by the Insurance Commissioner. When the preliminary
book value of a share of common stock of an insurance term basis is used, the term insurance shall be limited to
company shall be ascertained by dividing (1) the amount the first policy year.
of its capital and surplus less the value of all of its The results of such valuations shall be reported to the
preferred stock, if any, outstanding, by (2) the number of Commissioner on or before the thirtieth day of April of
shares of its common stock issued and outstanding. each year accompanied by a sworn statement of a
Notwithstanding the foregoing provisions, an insurer designated company officer and stating the methods
may, at its option, value its holdings of stock in a and assumptions used in arriving at the values reported.
subsidiary insurance company in an amount not less than SECTION 217. The aggregate net value so ascertained
acquisition cost if such acquisition cost is less than the of the policies of such company shall be deemed its
value determined as hereinbefore provided. reserve liability, to provide for which it shall hold funds in
(e) Real estate acquired by foreclosure or by deed in secure investments equal to such net value, above all its
lieu thereof, in the absence of a recent appraisal deemed other liabilities; and it shall be the duty of the
by the Commissioner to be reliable, shall not be valued at Commissioner, after having verified, to such an extent as
an amount greater than the unpaid principal of the he may deem necessary, the valuation of all policies in
defaulted loan at the date of such foreclosure or deed, force, to satisfy himself that the company has such
together with any taxes and expenses paid or incurred by amount in safe legal securities after all other debts and
such insurer at such time in connection with such claims against it have been provided for.
acquisition, and the cost of additions or improvements The reserve liability for variable contracts defined in
thereafter paid by such insurer and any amount or Section 238 shall be established in accordance with
amounts thereafter paid by such insurer or any actuarial procedures that recognize the variable nature of
assessments levied for improvements in connection with the benefits provided, and shall be approved by the
the property. Commissioner.
(f) Purchase money mortgages received on SECTION 218. Every life insurance company,
dispositions of real property held pursuant to Section 208 conducted on the mutual plan or a plan in which
shall be valued in an amount equivalent to ninety percent policyholders are by the terms of their policies entitled to
(90%) of the value of such real property. Purchase money share in the profits or surplus shall, on all policies of life
mortgages received on disposition of real property insurance heretofore or hereafter issued, under the
otherwise held shall be valued in an amount not conditions of which the distribution of surplus is deferred
exceeding ninety percent (90%) of the value of such real to a fixed or specified time and contingent upon the
property as determined by an appraisal made by an policy being in force and the insured living at that time,
appraiser at or about the time of disposition of such real annually ascertain the amount of the surplus to which all
property. such policies as a separate class are entitled, and shall
(g) The stock of a subsidiary of an insurer shall be annually apportion to such policies as a class the amount
valued on the basis of the greater of: of the surplus so ascertained, and carry the amount of
such apportioned surplus, plus the actual interest
earnings and accretions to such fund, as a distinct and
separate liability to such class of policies on and for which


the same was accumulated, and no company or any of its so under such terms and conditions which the
officers shall be permitted to use any part of such Commissioner may prescribe.
apportioned surplus fund for any purpose whatsoever Should any reinsurance agreement be for any reason
other than for the express purpose for which the same cancelled or terminated, the ceding company concerned
was accumulated. shall inform the Commissioner in writing of such
SECTION 219. Every insurance company, other than cancellation or termination within thirty (30) days from
life, shall maintain a reserve for unearned premiums on the date of such cancellation or termination or from the
its policies in force, which shall be charged as a liability in date notice or information of such cancellation or
any determination of its financial condition. Such reserve termination is received by such company as the case may
shall be calculated based on the twenty-fourth (24th) be.
method. SECTION 226. Every insurance company authorized to
SECTION 220. In addition to its liabilities and reserves do business in the Philippines shall report to the
on contracts of insurance issued by it, every insurance Commissioner on forms prescribed by him the particulars
company shall be charged with the estimated amount of of reinsurance treaties or any new treaties or changes in
all of its other liabilities, including taxes, expenses and existing treaties within three (3) months from their
other obligations due or accrued at the date of effectivity.
statement, and including any special reserves required by SECTION 227. No credit shall be allowed as an
the Commissioner pursuant to the provisions of this Code. admitted asset or as a deduction from liability, to any
ceding insurer for reinsurance made, ceded, renewed, or
TITLE 6 Limit of Single Risk otherwise becoming effective after January 1, 1975, unless
the reinsurance shall be payable by the assuming insurer
SECTION 221. No insurance company other than life, on the basis of the liability of the ceding insurer under the
whether foreign or domestic, shall retain any risk on any contract or contracts reinsured without diminution
one subject of insurance in an amount exceeding twenty because of the insolvency of the ceding insurer nor unless
percent (20%) of its net worth. For purposes of this under the contract or contracts of reinsurance the liability
section, the term subject of insurance shall include all for such reinsurance is assumed by the assuming insurer
properties or risks insured by the same insurer that or insurers as of the same effective date; nor unless the
customarily are considered by non-life company reinsurance agreement provides that payments by the
underwriters to be subject to loss or damage from the assuming insurer shall be made directly to the ceding
same occurrence of any hazard insured against. insurer or to its liquidator, receiver, or statutory successor
The Commissioner may issue regulations providing except:
for a maximum limit on the overall retained risks of (a) Where the contract specifically provides another
insurers to serve as a catastrophe cover requirement for payee of such reinsurance in the event of the insolvency
the same. of the ceding insurer; and
Reinsurance ceded as authorized under the (b) Where the assuming insurer with the consent of
succeeding title shall be deducted in determining the risk the direct insured or insureds has assumed such policy
retained. As to surety risk, deduction shall also be made of obligations of the ceding insurer as direct obligations of
the amount assumed by any other company authorized the assuming insurer to the payees under such policies
to transact surety business and the value of any security and in substitution for the obligations of the ceding
mortgaged, pledged, or held subject to the surety's insurer to such payees.
control and for the surety's protection.
SECTION 228. No life insurance company doing
business in the Philippines shall reinsure its whole risk on
TITLE 7 Reinsurance Transactions any individual life or joint lives, or substantially all of its
SECTION 222. An insurance company doing business insurance in force, without having first obtained the
in the Philippines may accept reinsurances only of such written permission of the Commissioner.
risks, and retain risk thereon within such limits, as it is
otherwise authorized to insure. TITLE 8 Annual Statement
SECTION 223. No insurance company doing business SECTION 229. Every insurance company doing
in the Philippines shall cede all or part of any risks business in the Philippines shall terminate its fiscal period
situated in the Philippines by way of reinsurance directly on the thirty-first day of December every year, and shall
to any foreign insurer not authorized to do business in the annually on or before the thirtieth day of April of each
Philippines unless such foreign insurer or, if the services year render to the Commissioner a statement signed and
of a nonresident broker are utilized, such nonresident sworn to by the chief officer of such company showing, in
broker is represented in the Philippines by a resident such form and details as may be prescribed by the
agent duly registered with the Commissioner as required Commissioner, the exact condition of its affairs on the
in this Code. preceding thirty-first day of December.
The resident agent of such unauthorized foreign The annual statement shall be prepared in
insurer or nonresident broker shall immediately upon accordance with the financial reporting framework as
registration furnish the Commissioner with the annual determined by the Commissioner. In addition, the
statement of such insurer, or of such company or Commissioner may require other relevant information.
companies where such broker may place Philippine The form and details of such other relevant information
business as of the year preceding such registration, and shall be prescribed by the Commissioner and shall form
annually thereafter as soon as available. part of the supplementary schedules to the annual
SECTION 224. All insurance companies, both life and statement.
non-life, authorized to do business in the Philippines shall Any entry in the statement which is found to be false
cede their excess risks to other companies similarly shall constitute a misdemeanor and the officer signing
authorized to do business in the Philippines in such such statement shall be subject to the penalty provided
amounts and under such arrangements as would be for under Section 442.
consistent with sound underwriting practices before they
enter into reinsurance arrangements with unauthorized SECTION 230. Every insurance company authorized
foreign insurers. under Title 10 of this chapter to issue, deliver or use
variable contracts shall annually file with the
SECTION 225. Any insurance company doing business Commissioner separate annual statement of its separate
in the Philippines desiring to cede their excess risks to variable accounts. Such statement shall be on a form
foreign insurance or reinsurance companies not prescribed or approved by the Commissioner and shall
authorized to transact business in the Philippines may do include details as to all of the income, disbursements,



assets and liability items of and associated with the said accruing under the policy, and the age of the insured has
separate variable accounts. Said statement shall be under been misstated, the amount payable under the policy
oath of two (2) officers of the company and shall be filed shall be such as the premium would have purchased at
simultaneously with the annual statement required by the correct age;
the preceding section. (e) If the policy is participating, a provision that the
SECTION 231. Within thirty (30) days after receipt of company shall periodically ascertain and apportion any
the annual statement approved by the Commissioner, divisible surplus accruing on the policy under conditions
every insurance company doing business in the specified therein;
Philippines shall publish in a newspaper of general (f) A provision specifying the options to which the
circulation, a full synopsis of its annual financial policyholder is entitled to in the event of default in a
statement showing fully the conditions of its business, premium payment after three (3) full annual premiums
and setting forth its resources and liabilities in shall have been paid. Such option shall consist of:
accordance with such form prescribed by the
Commissioner. (1) A cash surrender value payable upon surrender of
the policy which shall not be less than the reserve on the
The Commissioner shall have the authority to make, policy, the basis of which shall be indicated, for the then
amend, and rescind such accounting rules and current policy year and any dividend additions thereto,
regulations as may be necessary to carry out the reduced by a surrender charge which shall not be more
provisions of this Code, and define accounting, technical than one-fifth (1/5) of the entire reserve or two and
and trade terms used in this Code: Provided, That such one-half percent (2 1/2%) of the amount insured and any
shall be in accordance with internationally accepted dividend additions thereto; and
accounting standards. Among other things, the
Commissioner may prescribe the form or forms in which (2) One or more paid-up benefits on a plan or plans
required information shall be set forth, the items or specified in the policy of such value as may be purchased
details to be shown in the balance sheet and income by the cash surrender value.
statement, and the methods to be followed in the (g) A provision that at any time after a cash surrender
preparation of accounts, appraisal or valuation of assets value is available under the policy and while the policy is
and liabilities, determination of recurring and in force, the company will advance, on proper assignment
nonrecurring income, differentiation of investment and or pledge of the policy and on sole security thereof, a sum
operating income, and in the preparation, where the equal to, or at the option of the owner of the policy, less
Commissioner deems it necessary or desirable, of than the cash surrender value on the policy, at a specified
consolidated balance sheets or income accounts of any rate of interest, not more than the maximum allowed by
person directly or indirectly controlling or controlled by law, to be determined by the company from time to time,
the insurance company. but not more often than once a year, subject to the
approval of the Commissioner; and that the company will
TITLE 9 Policy Forms deduct from such loan value any existing indebtedness
on the policy and any unpaid balance of the premium for
SECTION 232. No policy, certificate or contract of the current policy year, and may collect interest in
insurance shall be issued or delivered within the advance on the loan to the end of the current policy year,
Philippines unless in the form previously approved by the which provision may further provide that such loan may
Commissioner, and no application form shall be used be deferred for not exceeding six (6) months after the
with, and no rider, clause, warranty or endorsement shall application therefor is made;
be attached to, printed or stamped upon such policy,
certificate or contract unless the form of such application, (h) A table showing in figures cash surrender values
rider, clause, warranty or endorsement has been and paid-up options available under the policy each year
approved by the Commissioner. upon default in premium payments, during at least
twenty (20) years of the policy beginning with the year in
SECTION 233. In the case of individual life or which the values and options first become available,
endowment insurance, the policy shall contain in together with a provision that in the event of the failure of
substance the following conditions: the policyholder to elect one of the said options within
(a) A provision that the policyholder is entitled to a the time specified in the policy, one of said options shall
grace period either of thirty (30) days or of one (1) month automatically take effect and no policyholder shall ever
within which the payment of any premium after the first forfeit his right to same by reason of his failure to so elect;
may be made, subject at the option of the insurer to an (i) In case the proceeds of a policy are payable in
interest charge not in excess of six percent (6%) per installments or as an annuity, a table showing the
annum for the number of days of grace elapsing before minimum amounts of the installments or annuity
the payment of the premium, during which period of payments;
grace the policy shall continue in full force, but in case the
policy becomes a claim during the said period of grace (j) A provision that the policyholder shall be entitled
before the overdue premium is paid, the amount of such to have the policy reinstated at any time within three (3)
premium with interest may be deducted from the years from the date of default of premium payment
amount payable under the policy in settlement; unless the cash surrender value has been duly paid, or
the extension period has expired, upon production of
(b) A provision that the policy shall be incontestable evidence of insurability satisfactory to the company and
after it shall have been in force during the lifetime of the upon payment of all overdue premiums and any
insured for a period of two (2) years from its date of issue indebtedness to the company upon said policy, with
as shown in the policy, or date of approval of last interest rate not exceeding that which would have been
reinstatement, except for nonpayment of premium and applicable to said premiums and indebtedness in the
except for violation of the conditions of the policy relating policy years prior to reinstatement.
to military or naval service in time of war;
Any of the foregoing provisions or portions thereof
(c) A provision that the policy shall constitute the not applicable to single premium or term policies shall to
entire contract between the parties, but if the company that extent not be incorporated therein; and any such
desires to make the application a part of the contract it policy may be issued and delivered in the Philippines
may do so provided a copy of such application shall be which in the opinion of the Commissioner contains
indorsed upon or attached to the policy when issued, and provisions on any one or more of the foregoing
in such case the policy shall contain a provision that the requirements more favorable to the policyholder than
policy and the application therefor shall constitute the hereinbefore required.
entire contract between the parties;
This section shall not apply to policies of group life or
(d) A provision that if the age of the insured is industrial life insurance.
considered in determining the premium and the benefits



SECTION 234. No policy of group life insurance shall the insurer at the age and for an amount not in excess of
be issued and delivered in the Philippines unless it the coverage under the group policy; and
contains in substance the following provisions, or (2) The premium on the individual policy shall be at
provisions which in the opinion of the Commissioner are the insurer's then customary rate applicable to the form
more favorable to the persons insured, or at least as and amount of the individual policy, to the class of risk to
favorable to the persons insured and more favorable to which such person then belongs, and to his age attained
the policyholders: on the effective date of the individual policy.
(a) A provision that the policyholder is entitled to a (i) A provision that if the group policy terminates or is
grace period of either thirty (30) days or of one (1) month amended so as to terminate the insurance of any class of
for the payment of any premium due after the first, insured persons, every person insured thereunder at the
during which grace period the death benefit coverage date of such termination whose insurance terminates
shall continue in force, unless the policyholder shall have and who has been so insured for five (5) years prior to
given the insurer written notice of discontinuance in such termination date shall be entitled to have issued to
advance of the date of discontinuance and in accordance him by the insurer an individual policy of life insurance
with the terms of the policy. The policy may provide that subject to the same limitations as set forth in paragraph
the policyholder shall be liable for the payment of a pro (h), except that the group policy may provide that the
rata premium for the time the policy is in force during amount of such individual policy shall not exceed the
such grace period; amount of the person's life insurance protection ceasing;
(b) A provision that the validity of the policy shall not (j) A provision that if a person insured under the
be contested, except for nonpayment of premiums after group policy dies during the thirty (30)-day period within
it has been in force for two (2) years from its date of issue; which he would have been entitled to an individual policy
and that no statement made by any insured under the issued to him in accordance with paragraphs (h) and (i)
policy relating to his insurability shall be used in above and before such individual policy shall have
contesting the validity of the insurance with respect to become effective, the amount of life insurance which he
which such statement was made after such insurance would have been entitled to have issued to him as an
has been in force prior to the contest for a period of two individual policy shall be payable as a claim under the
(2) years during such person's lifetime nor unless group policy whether or not application for the individual
contained in a written instrument signed by him; policy or the payment of the first premium has been
(c) A provision that a copy of the application, if any, of made;
the policyholder shall be attached to the policy when (k) In the case of a policy issued to a creditor to insure
issued, that all statements made by the policyholder or by debtors of such creditor, a provision that the insurer will
persons insured shall be deemed representations and not furnish to the policyholder for delivery to each debtor
warranties, and that no statement made by any insured insured under the policy a form which will contain a
shall be used in any contest unless a copy of the statement that the life of the debtor is insured under the
instrument containing the statement is or has been policy and that any death benefit paid thereunder by
furnished to such person or to his beneficiary; reason of his death shall be applied to reduce or
(d) A provision setting forth the conditions, if any, extinguish indebtedness.
under which the insurer reserves the right to require a The provisions of paragraphs (f) to (j) shall not apply
person eligible for insurance to furnish evidence of to policies issued to a creditor to insure his debtors. If a
individual insurability satisfactory to the insurer as a group life policy is on a plan of insurance other than term,
condition to part or all of his coverage; it shall contain a non-forfeiture provision or provisions
(e) A provision specifying an equitable adjustment of which in the opinion of the Commissioner is or are
premiums or of benefits or of both to be made in the equitable to the insured or the policyholder:Provided,
event that the age of a person insured has been That nothing herein contained shall be so construed as to
misstated, such provision to contain a clear statement of require group life policies to contain the same
the method of adjustment to be used; non-forfeiture provisions as are required of individual life
(f) A provision that any sum becoming due by reason policies.
of death of the person insured shall be payable to the SECTION 235. The term industrial life insurance as
beneficiary designated by the insured, subject to the used in this Code shall mean that form of life insurance
provisions of the policy in the event that there is no under which the premiums are payable either monthly or
designated beneficiary, as to all or any part of such sum, oftener, if the face amount of insurance provided in any
living at the death of the insured, and subject to any right policy is not more than five hundred times that of the
reserved by the insurer in the policy and set forth in the current statutory minimum daily wage in the City of
certificate to pay at its option a part of such sum not Manila, and if the words industrial policy are printed upon
exceeding Five hundred pesos (P500.00) to any person the policy as part of the descriptive matter.
appearing to the insurer to be equitably entitled thereto An industrial life policy shall not lapse for
by reason of having incurred funeral or other expenses nonpayment of premium if such nonpayment was due to
incident to the last illness or death of the person insured; the failure of the company to send its representative or
(g) A provision that the insurer will issue to the agent to the insured at the residence of the insured or at
policyholder for delivery to each person insured a some other place indicated by him for the purpose of
statement as to the insurance protection to which he is collecting such premium: Provided, That the provisions of
entitled, to whom the insurance benefits are payable, and this paragraph shall not apply when the premium on the
the rights set forth in paragraphs (h), (i) and (j) following; policy remains unpaid for a period of three (3) months or
(h) A provision that if the insurance, or any portion of twelve (12) weeks after the grace period has expired.
it, on a person covered under the policy ceases because of SECTION 236. In the case of industrial life insurance,
termination of employment or of membership in the the policy shall contain in substance the following
class or classes eligible for coverage under the policy, provisions:
such person shall be entitled to have issued to him by the (a) A provision that the insured is entitled to a grace
insurer, without evidence of insurability, an individual period of four (4) weeks within which the payment of any
policy of life insurance without disability or other premium after the first may be made, except that where
supplementary benefits, provided application for the premiums are payable monthly, the period of grace shall
individual policy and payment of the first premium to the be either one (1) month or thirty (30) days; and that
insurer shall be made within thirty (30) days after such during the period of grace, the policy shall continue in full
termination, and provided further that: force, but if during such grace period the policy becomes
(1) The individual policy shall be on any one of the a claim, then any overdue and unpaid premiums may be
forms, except term insurance, then customarily issued by



deducted from any amount payable under the policy in insurer in writing as to which one of such forms he has
settlement; selected;
(b) A provision that the policy shall be incontestable (j) A provision that the policy may be reinstated at any
after it has been in force during the lifetime of the insured time within two (2) years from the due date of the
for a specified period, not more than two (2) years from its premium in default unless the cash surrender value has
date of issue, except for nonpayment of premiums and been paid or the period of extended term insurance
except for violation of the conditions of the policy relating expired, upon production of evidence of insurability
to naval or military service, or services auxiliary thereto, satisfactory to the company and payment of arrears of
and except as to provisions relating to benefits in the premiums with interest at a rate not exceeding six
event of disability as defined in the policy, and those percent (6%) per annum payable annually;
granting additional insurance specifically against death (k) A provision that when a policy shall become a
by accident or by accidental means, or to additional claim by death of the insured, settlement shall be made
insurance against loss of, or loss of use of, specific upon receipt of due proof of death, or not later than two
members of the body; (2) months after receipt of such proof;
(c) A provision that the policy shall constitute the (l) A title on the face and on the back of the policy
entire contract between the parties, or if a copy of the correctly describing its form;
application is endorsed upon and attached to the policy
when issued, a provision that the policy and the (m) A space on the front or the back of the policy for
application therefor shall constitute the entire contract the name of the beneficiary designated by the insured
between the parties, and in the latter case, a provision with a reservation of the insured's right to designate or
that all statements made by the insured shall, in the change the beneficiary after the issuance of the policy.
absence of fraud, be deemed representations and not The policy may also provide that no designation or
warranties; change of beneficiary shall be binding on the insurer
until endorsed on the policy by the insurer, and that the
(d) A provision that if the age of the person insured, or insurer may refuse to endorse the name of any proposed
the age of any person, considered in determining the beneficiary who does not appear to the insurer to have an
premium, or the benefits accruing under the policy, has insurable interest in the life of the insured. Such policy
been misstated, any amount payable or benefit accruing may also contain a provision that if the beneficiary
under the policy shall be such as the premium paid designated in the policy does not surrender the policy
would have purchased at the correct age; with due proof of death within the period stated in the
(e) A provision that if the policy is a participating policy, which shall not be less than thirty (30) days after
policy, the company shall periodically ascertain and the death of the insured, or if the beneficiary is the estate
apportion any divisible surplus accruing on the policy of the insured, or is a minor, or dies before the insured, or
under the conditions specified therein; is not legally competent to give valid release, then the
(f) A provision that in the event of default in premium insurer may make any payment thereunder to the
payments after three (3) full years' premiums have been executor or administrator of the insured, or to any of the
paid, the policy shall be converted into a stipulated form insured's relatives by blood or legal adoption or
of insurance, and that in the event of default in premium connections by marriage or to any person appearing to
payments after five (5) full years' premiums have been the insurer to be equitably entitled thereto by reason of
paid, a specified cash surrender value shall be available, in having incurred expense for the maintenance, medical
lieu of the stipulated form of insurance, at the option of attention or burial of the insured; and
the policyholder. The net value of such stipulated form of (n) A provision that when an industrial life insurance
insurance and the amount of such cash value shall not be policy is issued providing for accidental or health benefits,
less than the reserve on the policy and dividend additions or both, in addition to life insurance, the foregoing
thereto, if any, at the end of the last completed policy year provisions shall apply only to the life insurance portion of
for which premiums shall have been paid (the policy to the policy.
specify the mortality table, rate of interest and method of Any of the foregoing provisions or portions thereof
valuation adopted to compute such reserve), exclusive of not applicable to nonparticipating or term policies shall
any reserve on disability benefits and accidental death to that extent not be incorporated therein. The foregoing
benefits, less an amount not to exceed two and one-half provisions shall not apply to policies issued or granted
percent (2 1/2%) of the maximum amount insured by the pursuant to the nonforfeiture provisions prescribed in
policy and dividend additions thereto, if any, when the provisions of paragraphs (f) and (i) of this section, nor shall
issue age is under ten (10) years, and less an amount not provisions of paragraphs (f), (g), (h), and (i) hereof be
to exceed two and one-half percent (2 1/2%) of the current required in term insurance of twenty (20) years or less but
amount insured by the policy and dividend additions such term policies shall specify the mortality table, rate of
thereto, if any, if the issue age is ten (10) years or older, interest, and method of computing reserves.
and less any existing indebtedness to the company on or
secured by the policy; SECTION 237. No policy of industrial life insurance
shall be issued or delivered in the Philippines if it contains
(g) A provision that the policy may be surrendered to any of the following provisions:
the company at its home office within a period of not less
than sixty (60) days after the due date of a premium in (a) A provision that gives the insurer the right to
default for the specified cash value: Provided, That the declare the policy void because the insured has had any
insurer may defer payment for not more than six (6) disease or ailment, whether specified or not, or because
months after the application therefor is made; the insured has received institutional, hospital, medical or
surgical treatment or attention, except a provision which
(h) A table that shows in figures the nonforfeiture gives the insurer the right to declare the policy void if the
benefits available under the policy every year upon insured has, within two (2) years prior to the issuance of
default in payment of premiums during at least the first the policy, received institutional, hospital, medical or
twenty (20) years of the policy, such table to begin with surgical treatment or attention and if the insured or the
the year in which such values become available, and a claimant under the policy fails to show that the condition
provision that the company will furnish upon request an occasioning such treatment or attention was not of a
extension of such table beyond the year shown in the serious nature or was not material to the risk;
policy.
(b) A provision that gives the insurer the right to
(i) A provision that specifies which one of the declare the policy void because the insured has been
stipulated forms of insurance provided for under the rejected for insurance, unless such right be conditioned
provision of paragraph (f) of this section shall take effect upon a showing by the insurer that knowledge of such
in the event of the insured's failure, within sixty (60) days
from the due date of the premium in default, to notify the


rejection would have led to a refusal by the insurer to the Philippines or its instrumentalities with an actual
make such contract; market value of Two million pesos (P2,000,000.00);
(c) A provision that allows the company to pay the (2) The character, responsibility and fitness of the
proceeds of the policy at the death of the insured to any officers and directors of the company; and
person other than the named beneficiary, except in (3) The law and regulation under which the company
accordance with a standard provision as specified under is authorized in the state of domicile to issue such
the provisions of paragraph (m) of the preceding section; contracts.
(d) A provision that limits the time within which any (d) If after notice and hearing, the Commissioner shall
action at law or in equity may be commenced to less than find that the company is qualified to issue, deliver, sell or
six (6) years after the cause of action shall accrue; and use variable contracts in accordance with this Code and
(e) A provision that specifies any mode of settlement the regulations and rules issued thereunder, the
at maturity of less value than the amount insured by the corresponding order of authorization shall be issued. Any
policy plus dividend additions, if any, less any decision or order denying authority to issue, deliver, sell or
indebtedness to the company on the policy and less any use variable contracts shall clearly and distinctly state the
premium that may by the terms of the policy be reasons and grounds on which it is based.
deducted, payments to be made in accordance with the SECTION 239. Any insurance company issuing
terms of the policy. variable contracts pursuant to this Code may in its
Nothing contained in this section nor in the provision discretion issue contracts providing a combination of
of paragraph (b) of the preceding section, relating to fixed amount and variable amount of benefits and for
incontestability, shall be construed as prohibiting the life option lump-sum payment of benefits.
insurance company from placing in its industrial life SECTION 240. Every variable contract form delivered
policies provisions limiting its liability with respect to: or issued for delivery in the Philippines, and every
(1) Death resulting from aviation other than as a certified form evidencing variable benefits issued
fare-paying passenger on a regularly scheduled route pursuant to any such contract on a group basis, and the
between definitely established airports; and application, rider and endorsement forms applicable
(2) Military or naval service: Provided, That if the thereto and used in connection therewith, shall be
liability of the company is limited as herein provided, such subject to the prior approval of the Commissioner.
liability shall in no event be fixed at an amount less than SECTION 241. Illustration of benefits payable under
the reserve on the policy (excluding the reserve for any any variable contract shall not include or involve
additional benefits in the event of death by accident or projections of past investment experience into the future
accidental means or for benefits in the event of any type and shall conform with the rules and regulations
of disability), less any indebtedness on or secured by such promulgated by the Commissioner.
policy; nor shall any provision of this section apply to any SECTION 242. Variable contracts may be issued on
provision in an industrial life insurance policy for the industrial life basis, provided that the pertinent
additional benefits in the event of death by accident or provisions of this Code and of the rules and regulations of
accidental means. the Commissioner governing variable contracts are
complied with in connection with such contracts.
TITLE 10 Variable Contracts SECTION 243. Every life insurance company
SECTION 238. (a) No insurance company authorized authorized under the provisions of this Code to issue,
to transact business in the Philippines shall issue, deliver, deliver, sell or use variable contracts shall, in connection
sell or use any variable contract in the Philippines, unless with the same, establish one or more separate accounts
and until such company shall have satisfied the to be known as separate variable accounts. All amounts
Commissioner that its financial and general condition received by the company in connection with any such
and its methods of operations, including the issue and contracts which are required by the terms thereof, to be
sale of variable contracts, are not and will not be allocated or applied to one or more designated separate
hazardous to the public or to its policy and contract variable accounts shall be placed in such designated
owners. No foreign insurance company shall be account or accounts. The assets and liabilities of each
authorized to issue, deliver or sell any variable contract in such separate variable account shall at all times be clearly
the Philippines, unless it is likewise authorized to do so by identifiable and distinguishable from the assets and
the laws of its domicile. liabilities in all other accounts of the company.
Notwithstanding any provision of law to the contrary, the
(b) The term variable contract shall mean any policy assets held in any such separate variable account shall
or contract on either a group or on an individual basis not be chargeable with liabilities arising out of any other
issued by an insurance company providing for benefits or business the company may conduct but shall be held
other contractual payments or values thereunder to vary and applied exclusively for the benefit of the owners or
so as to reflect investment results of any segregated beneficiaries of the variable contracts applicable thereto.
portfolio of investments or of a designated separate In the event of the insolvency of the company, the assets
account in which amounts received in connection with of each such separate variable account shall be applied to
such contracts shall have been placed and accounted for the contractual claims of the owners or beneficiaries of
separately and apart from other investments and the variable contracts applicable thereto. Except as
accounts. This contract may also provide benefits or otherwise specifically provided by the contract, no sale,
values incidental thereto payable in fixed or variable exchange or other transfer of assets may be made by a
amounts, or both. It shall not be deemed to be a security company, between any of its separate accounts or
or securities as defined in the Securities Act, as amended, between any other investment account and one or more
or in the Investment Company Act, as amended, nor of its separate accounts, unless in the case of a transfer
subject to regulations under said Acts. into a separate account, such transfer is made solely to
(c) In determining the qualifications of a company establish the account or to support the operation of the
requesting authority to issue, deliver, sell or use variable contracts with respect to the separate account to which
contracts, the Commissioner shall always consider the the transfer is made, or in case of a transfer from a
following: separate account, such transfer would not cause the
remaining assets of the account to become less than the
(1) The history, financial and general condition of the
reserves and other contract liabilities with respect to such
company: Provided, That such company, if a foreign
separate account. Such transfer, whether into or from a
company, must have deposited with the Commissioner
separate account, shall be made by a transfer of cash, or
for the benefit and security of its variable contract owners
by a transfer of securities having a valuation which could
in the Philippines, securities satisfactory to the
be readily determined in the market place: Provided, That
Commissioner consisting of bonds of the Government of



such transfer of securities is approved by the insurance company, and the Commissioner's complaint
Commissioner. The Commissioner may authorize other experience with other insurance companies writing
transfers among such accounts, if, in his opinion, such similar lines of insurance shall be admissible in evidence
transfers would not be inequitable. All amounts and in an administrative or judicial proceeding brought under
assets allocated to any such separate variable account this section.
shall be owned by the company and with respect to the (c) If it is found, after notice and an opportunity to be
same the company shall not be nor hold itself out to be a heard, that an insurance company has violated this
trustee. section, each instance of noncompliance with paragraph
SECTION 244. Any insurance company which has (a) may be treated as a separate violation of this section
established one or more separate variable accounts and shall be considered sufficient cause for the
pursuant to the preceding section may invest and suspension or revocation of the company's certificate of
reinvest all or any part of the assets allocated to any such authority.
account in the securities and investments authorized by SECTION 248. The proceeds of a life insurance policy
Sections 204, 206, 207 and 208 for any of the funds of an shall be paid immediately upon maturity of the policy,
insurance company in such amount or amounts as may unless such proceeds are made payable in installments or
be approved by the Commissioner. In addition thereto, as an annuity, in which case the installments, or annuities
such company may also invest in common stocks or shall be paid as they become due: Provided, however,
other equities which are listed on or admitted to trading That in the case of a policy maturing by the death of the
in a securities exchange located in the Philippines, or insured, the proceeds thereof shall be paid within sixty
which are publicly held and traded in the (60) days after presentation of the claim and filing of the
over-the-counter market as defined by the Commissioner proof of death of the insured. Refusal or failure to pay the
and as to which market quotations have been available: claim within the time prescribed herein will entitle the
Provided, however, That no such company shall invest in beneficiary to collect interest on the proceeds of the
excess of ten percent (10%) of the assets of any such policy for the duration of the delay at the rate of twice the
separate variable accounts in any one corporation issuing ceiling prescribed by the Monetary Board, unless such
such common stock. The assets and investments of such failure or refusal to pay is based on the ground that the
separate variable accounts shall not be taken into claim is fraudulent.
account in applying the quantitative investment
limitations applicable to other investments of the The proceeds of the policy maturing by the death of
company. In the purchase of common capital stock or the insured payable to the beneficiary shall include the
other equities, the insurer shall designate to the broker, or discounted value of all premiums paid in advance of their
to the seller if the purchase is not made through a broker, due dates, but are not due and payable at maturity.
the specific variable account for which the investment is SECTION 249. The amount of any loss or damage for
made. which an insurer may be liable, under any policy other
SECTION 245. Assets allocated to any separate than life insurance policy, shall be paid within thirty (30)
variable account shall be valued at their market value on days after proof of loss is received by the insurer and
the date of any valuation, or if there is no readily available ascertainment of the loss or damage is made either by
market value then in accordance with the terms of the agreement between the insured and the insurer or by
variable contract applicable to such assets, or if there are arbitration; but if such ascertainment is not had or made
no such contract terms then in such manner as may be within sixty (60) days after such receipt by the insurer of
prescribed by the rules and regulations of the the proof of loss, then the loss or damage shall be paid
Commissioner. within ninety (90) days after such receipt. Refusal or
failure to pay the loss or damage within the time
SECTION 246. The reserve liability for variable prescribed herein will entitle the assured to collect
contracts shall be established in accordance with interest on the proceeds of the policy for the duration of
actuarial procedures that recognize the variable nature of the delay at the rate of twice the ceiling prescribed by the
the benefits provided, and shall be approved by the Monetary Board, unless such failure or refusal to pay is
Commissioner. based on the ground that the claim is fraudulent.
SECTION 250. In case of any litigation for the
TITLE 11 Claims Settlement enforcement of any policy or contract of insurance, it shall
SECTION 247. (a) No insurance company doing be the duty of the Commissioner or the Court, as the case
business in the Philippines shall refuse, without just may be, to make a finding as to whether the payment of
cause, to pay or settle claims arising under coverages the claim of the insured has been unreasonably denied or
provided by its policies, nor shall any such company withheld; and in the affirmative case, the insurance
engage in unfair claim settlement practices. Any of the company shall be adjudged to pay damages which shall
following acts by an insurance company, if committed consist of attorney's fees and other expenses incurred by
without just cause and performed with such frequency as the insured person by reason of such unreasonable denial
to indicate a general business practice, shall constitute or withholding of payment plus interest of twice the
unfair claim settlement practices: ceiling prescribed by the Monetary Board of the amount
of the claim due the insured, from the date following the
(1) Knowingly misrepresenting to claimants pertinent time prescribed in Section 248 or in Section 249, as the
facts or policy provisions relating to coverage at issue; case may be, until the claim is fully satisfied. Provided,
(2) Failing to acknowledge with reasonable That failure to pay any such claim within the time
promptness pertinent communications with respect to prescribed in said sections shall be considered prima
claims arising under its policies; facie evidence of unreasonable delay in payment.
(3) Failing to adopt and implement reasonable SECTION 251. It is unlawful to:
standards for the prompt investigation of claims arising (a) Present or cause to be presented any fraudulent
under its policies; claim for the payment of a loss under a contract of
(4) Not attempting in good faith to effectuate prompt, insurance; and
fair and equitable settlement of claims submitted in (b) Fraudulently prepare, make or subscribe any
which liability has become reasonably clear; or writing with intent to present or use the same, or to allow
(5) Compelling policyholders to institute suits to it to be presented in support of any such claim. Any
recover amounts due under its policies by offering person who violates this section shall be punished by a
without justifiable reason substantially less than the fine not exceeding twice the amount claimed or
amounts ultimately recovered in suits brought by them. imprisonment of two (2) years, or both, at the discretion of
the court.
(b) Evidence as to numbers and types of valid and
justifiable complaints to the Commissioner against an



management and board of directors of the said company,
TITLE 12 Examination of Companies any provision of law, or of the articles of incorporation or
bylaws of the company, to the contrary notwithstanding,
SECTION 252. The Commissioner shall require every and such other powers as the Commissioner shall deem
insurance company doing business in the Philippines to necessary.
keep its books, records, accounts and vouchers in such
manner that he or his authorized representatives may The conservator may be another insurance company
readily verify its annual statements and ascertain whether doing business in the Philippines, any officer or officers of
the company is solvent and has complied with the such company, or any other competent and qualified
provisions of this Code or the circulars, instructions, person, firm or corporation. The remuneration of the
rulings or decisions of the Commissioner. conservator and other expenses attendant to the
conservation shall be borne by the insurance company
SECTION 253. The Commissioner shall at least once a concerned.
year and whenever he considers the public interest so
demands, cause an examination to be made into the The conservator shall not be subject to any action,
affairs, financial condition and method of business of claim or demand by, or liability to, any person in respect
every insurance company authorized to transact business of anything done or omitted to be done in good faith in
in the Philippines and of any other person, firm or the exercise, or in connection with the exercise, of the
corporation managing the affairs and/or property of such powers conferred on the conservator.
insurance company. Such company, as well as such The conservator appointed shall report and be
managing person, firm or corporation, shall submit to the responsible to the Commissioner until such time as the
examiner all such books, papers and securities as he may Commissioner is satisfied that the insurance company
require and such examiner shall also have the power to can continue to operate on its own and the
examine the officers of such company under oath conservatorship shall likewise be terminated should the
touching its business and financial condition, and the Commissioner, on the basis of the report of the
authority to transact business in the Philippines of any conservator or of his own findings, determine that the
such company shall be suspended by the Commissioner continuance in business of the insurance company would
if such examination is refused and such company shall be hazardous to policyholders and creditors, in which
not thereafter be allowed to transact further business in case the provisions of Title 15 shall apply.
the Philippines until it has fully complied with the
provisions of this section. No insurance company, life or non-life, or any
professional reinsurer, ordered to be liquidated by the
Government-owned or -controlled corporations or Commissioner under the provisions hereunder may be
entities engaged in social or private insurance shall rehabilitated or authorized to transact anew, insurance or
similarly be subject to such examination by the reinsurance business, as the case may be.
Commissioner unless their respective charters otherwise
provide.
TITLE 15 Proceedings Upon Insolvency
TITLE 13 Suspension or Revocation of Authority SECTION 256. Whenever, upon examination or other
evidence, it shall be disclosed that the condition of any
SECTION 254. If the Commissioner is of the opinion insurance company doing business in the Philippines is
upon examination of other evidence that any domestic or one of insolvency, or that its continuance in business
foreign insurance company is in an unsound condition, or would be hazardous to its policyholders and creditors, the
that it has failed to comply with the provisions of law or Commissioner shall forthwith order the company to
regulations obligatory upon it, or that its condition or cease and desist from transacting business in the
method of business is such as to render its proceedings Philippines and shall designate a receiver to immediately
hazardous to the public or to its policyholders, or that its take charge of its assets and liabilities, as expeditiously as
net worth requirement, in the case of a domestic stock possible collect and gather all the assets and administer
company, or its available cash assets, in the case of a the same for the benefit of its policyholders and creditors,
domestic mutual company, or its security deposits, in the and exercise all the powers necessary for these purposes
case of a foreign company, is impaired or deficient, or including, but not limited to, bringing suits and
that the margin of solvency required of such company is foreclosing mortgages in the name of the insurance
deficient, the Commissioner is authorized to suspend or company.
revoke all certificates of authority granted to such
insurance company, its officers and agents, and no new The Commissioner shall thereupon determine within
business shall thereafter be done by such company or for ninety (90) days whether the insurance company may be
such company by its agent in the Philippines while such reorganized or otherwise placed in such condition so that
suspension, revocation or disability continues or until its it may be permitted to resume business with safety to its
authority to do business is restored by the Commissioner. policyholders and creditors and shall prescribe the
Before restoring such authority, the Commissioner shall conditions under which such resumption of business
require the company concerned to submit to him a shall take place as well as the time for fulfillment of such
business plan showing the company's estimated receipts conditions. In such case, the expenses and fees in the
and disbursements, as well as the basis therefor, for the collection and administration of the insurance company
next succeeding three (3) years. shall be determined by the Commissioner and shall be
paid out of the assets of such company.
If the Commissioner shall determine and confirm
TITLE 14 Appointment of Conservator within the said period that the insurance company is
SECTION 255. If at any time before, or after, the insolvent, as defined hereunder, or cannot resume
suspension or revocation of the certificate of authority of business with safety to its policyholders and creditors, he
an insurance company as provided in the preceding title, shall, if the public interest requires, order its liquidation,
the Commissioner finds that such company is in a state indicate the manner of its liquidation and approve a
of continuing inability or unwillingness to maintain a liquidation plan and implement it immediately. The
condition of solvency or liquidity deemed adequate to Commissioner shall designate a competent and qualified
protect the interest of policyholders and creditors, he may person as liquidator who shall take over the functions of
appoint a conservator to take charge of the assets, the receiver previously designated and, with all
liabilities, and the management of such company, collect convenient speed, reinsure all its outstanding policies,
all moneys and debts due to said company and exercise convert the assets of the insurance company to cash, or
all powers necessary to preserve the assets of said sell, assign or otherwise dispose of the same to the
company, reorganize the management thereof, and policyholders, creditors and other parties for the purpose
restore its viability. The said conservator shall have the of settling the liabilities or paying the debts of such
power to overrule or revoke the actions of the previous company and he may, in the name of the company,



institute such actions as may be necessary in the calculated to mislead the public; the rights of the
appropriate court to collect and recover accounts and stockholders or members of the absorbed or dissolved
assets of the insurance company, and to do such other companies; date of effectivity of the merger or
acts as may be necessary to complete the liquidation as consolidation; and such particulars as may be necessary
ordered by the Commissioner. to explain and make manifest the objects and purposes
The provisions of any law to the contrary of the absorbing or acquiring company.
notwithstanding, the actions of the Commissioner under SECTION 260. Upon execution of such agreement to
this section shall be final and executory, and can be set merge or consolidate by and between or among the
aside by the court upon petition by the company and boards of directors of the constituent companies, notice
only if there is convincing proof that the action is plainly thereof shall be mailed immediately to their policyholders
arbitrary and made in bad faith. The Commissioner, and creditors. The company or companies to be absorbed
through the Solicitor General, shall then file the or dissolved shall discharge all its accrued liabilities;
corresponding answer reciting the proceeding taken and otherwise, such liabilities shall, with the consent of its
praying the assistance of the court in the liquidation of creditors, be transferred to and assumed by the
the company. No restraining order or injunction shall be absorbing or acquiring company, or such liabilities be
issued by the court enjoining the Commissioner from reinsured by the latter. In the case of such policies as are
implementing his actions under this section, unless there subject to cancellation by the company or companies to
is convincing proof that the action of the Commissioner is be absorbed or dissolved, same may be cancelled
plainly arbitrary and made in bad faith and the petitioner pursuant to the terms thereof in lieu of such transfer,
or plaintiff files with the Clerk or Judge of the Court in assumption, or reinsurance.
which the action is pending a bond executed in favor of SECTION 261. Upon approval or adoption in the
the Commissioner in an amount to be fixed by the court. meetings of the stockholders or members or members
The restraining order or injunction shall be refused or, if called for the purpose in each of the constituent
granted, shall be dissolved upon filing by the companies of the agreement to merge or consolidate, all
Commissioner, if he so desires, of a bond in an amount stockholders or members dissenting or objecting to the
twice the amount of the bond of the petitioner or plaintiff merger or consolidation shall be paid the value of their
conditioned that it will pay the damages which the shares by the company concerned in accordance with the
petition or plaintiff may suffer by the refusal or the bylaws thereof.
dissolution of the injunction. The provisions of Rule 58 of
the New Rules of Court insofar as they are applicable shall SECTION 262. Upon approval or adoption of the
govern the issuance and dissolution of the restraining agreement to merge or consolidate by the stockholders
order or injunction contemplated in this section. or members of the constituent companies, the
corresponding articles of merger or of consolidation shall
All proceedings under this title shall be given be duly executed by the presidents and attested by the
preference in the courts. The Commissioner shall not be corporate secretaries and shall bear the corporate seals of
required to pay any fee to any public officer for filing, the merging or consolidating companies setting forth:
recording, or in any manner authenticating any paper or
instrument relating to the proceedings. (a) The plan of merger or the plan of consolidation;
As used in this title, the term Insolvency shall mean (b) As to each corporation, the number of shares
the inability of an insurance company to pay its lawful outstanding, or in case of mutual corporations, the
obligations as they fall due in the usual and ordinary number of members; and
course of business as may be shown by its failure to (c) As to each corporation, the number of shares or
maintain the solvency requirements under Section 200 of members voted for and against such plan, respectively.
this Code. Thereafter, a certified copy of such articles of merger or
SECTION 257. The receiver or the liquidator, as the consolidation, together with a certificate of approval or
case may be, designated under the provisions of this title, adoption by the stockholders or members of such articles
shall not be subject to any action, claim or demand by, or of merger or consolidation, verified by affidavits of such
liability to, any person in respect of anything done or officers and under the seal of the constituent companies,
omitted to be done in good faith in the exercise, or in shall be submitted to the Commissioner, together with
connection with the exercise, of the powers conferred on such other papers or documents which the
such receiver or liquidator. Commissioner may require, for his consideration.
SECTION 263. The articles of merger or of
TITLE 16 Consolidation and Merger of Insurance consolidation, signed and verified as hereinabove
required, shall be filed with the Securities and Exchange
Companies
Commission for its examination and approval.
SECTION 258. Upon prior notice to the Commissioner,
SECTION 264. Upon receipt from the Securities and
two (2) or more domestic insurance companies, acting
Exchange Commission of the certificate of merger or of
through their respective boards of directors, may
consolidation, the constituent companies shall surrender
negotiate to merge into a single corporation which shall
to the Commissioner their respective certificates of
be one of the constituent corporations, or consolidate
authority to transact insurance business. The absorbing
into a single corporation which shall be a new corporation
or surviving company in case of merger, or the newly
to be formed by the consolidation. A common agreement
formed company in case of consolidation, shall
of the proposed merger or consolidation shall be drawn
immediately file with the Commissioner the
up for submission to the stockholders or members of the
corresponding application for issuance of a new
constituent companies for adoption and approval in
certificate of authority to transact insurance business,
accordance with the provisions of the respective bylaws
together with a certified copy of the certificate of merger
of the constituent companies and all existing laws that
or of consolidation, and of the certificate of increase of
may be pertinent.
stocks, if there is any, issued by the Securities and
SECTION 259. Such agreement shall include, aside Exchange Commission.
from the proposed merger or consolidation, provisions
SECTION 265. Nothing in this title shall be construed
relative to the manner of transfer of assets to and
to enlarge the powers of the absorbing or surviving
assumption of liabilities by the absorbing or acquiring
company in case of merger, or the newly formed
company from the absorbed or dissolved company or
company in case of consolidation, except those conferred
companies; the proposed articles of merger or
by the certificate of merger or of consolidation and the
consolidation and bylaws of the surviving or acquiring
articles of merger or of consolidation, or the amended
company; the corporate name to be adopted which
articles of incorporation, as registered with the Securities
should not be that of any other existing company
and Exchange Commission.
transacting similar business or one so similar as to be


SECTION 266. No director, officer, or stockholder of group policy. Beneficiaries under unmatured contracts
any such constituent companies shall receive any fee, shall not as such be deemed to be policyholders; and
commission, compensation, or other valuable (e) Filed with the Commissioner after having been
consideration whatsoever, directly or indirectly, or in any approved as provided in this section.
manner aiding, promoting or assisting in such merger or
consolidation. SECTION 270. The Commissioner shall examine the
plan submitted to him under the provisions of
SECTION 267. The merger or consolidation of subparagraph (c) of Section 269. He shall not approve
companies under this Code shall be subject to the such plan unless in his opinion the rights and interests of
provisions of the Corporation Code, and, in those cases the insurer, its policyholders and shareholders are
specified in Republic Act No. 5455, as amended, be protected nor unless he is satisfied that the plan will be
further subject to the provisions of said law. fair and equitable in its operation.
SECTION 271. The election prescribed by
TITLE 17 Mutualization of Stock Life Insurance subparagraph (d) of Section 269 shall be called by the
Companies board of directors or the president, and every policyholder
SECTION 268. Any domestic stock life insurance of the class or classes for whose benefit the stock is to be
company doing business in the Philippines may convert acquired, whose insurance shall have been in force for at
itself into an incorporated mutual life insurer. To that end least one (1) year prior to such election shall have one
it may provide and carry out a plan for the acquisition of vote, regardless of the number of policies or amount of
the outstanding shares of its capital stock for the benefit insurance he holds, and regardless of whether such
of its policyholders, or any class or classes of its policies are policies of life insurance or policies of health
policyholders, by complying with the requirements of this and accident insurance or annuity contracts. Notice of
chapter. such election shall be given to policyholders entitled to
vote by mail from the principal office of such insurer at
SECTION 269. Such plan shall include appropriate least thirty (30) days prior to the date set for such election,
proceedings for amending the insurer's articles of in a sealed envelope, postage prepaid, addressed to each
incorporation to give effect to the acquisition, by said such policyholder at his last known address.
insurer, for the benefit of its policyholders or any class or
classes thereof, of the outstanding shares of its capital Voting shall be by one of the following methods.
stock and the conversion of the insurer from a stock (a) At a meeting of such policyholders, held pursuant
corporation into a nonstock corporation for the benefit of to such notice, by ballot in person or by proxy.
its members. The members of such nonstock corporation
(b) If not by the method described in the preceding
shall be the policyholders from time to time of the class
subparagraph, then by mail pursuant to a procedure and
or classes for whose benefit the stock of the insurer was
on forms to be prescribed by such plan.
acquired, and the policyholders of such other class or
classes as may be specified in such corporation's articles Such election shall be conducted under the direction
of incorporation as they may be amended from time to and supervision of three (3) impartial and disinterested
time. Such plan shall be: inspectors appointed by the insurer and approved by the
Commissioner. In case any person appointed as inspector
(a) Adopted by a vote of a majority of the directors;
fails to appear at such meeting or fails or refuses to act at
(b) Approved by the vote of the holders of at least a such election, the vacancy, if occurring in advance of the
majority of the outstanding shares at a special meeting of convening of the meeting or in advance of the opening of
shareholders called for that purpose, or by the written the mail vote, may be filled in the manner prescribed for
consent of such shareholders; the appointment of inspectors and, if occurring at the
(c) Submitted to the Commissioner and approved by meeting or during the canvass of the mail vote, may be
him in writing; filled by the person acting as chairman of said meeting or
designated for that purpose in such plan. The decision,
(d) Approved by a majority vote of all the act or certificate of a majority of the inspectors shall be
policyholders of the class or classes for whose benefit the effective in all respects as the decision, act or certificate of
stock is to be acquired voting at an election by the all. The inspectors of election shall determine the number
policyholders called for that purpose, subject to the of policyholders the voting power of each, the
provisions of Section 271. The terms policyholder or policyholders represented at the meeting or voting by
policyholders as used in this chapter shall be deemed to mail, the existence of a quorum and the authenticity,
mean the person or persons insured under an individual validity and effect of proxies. They shall receive votes, hear
policy of life insurance, or of health and accident and determine all challenges and questions in any way
insurance, or of any combination of life, health and arising in connection with the right to vote, count and
accident insurance. They shall also include the person or tabulate all votes, determine the result, and do such other
persons to whom any annuity or pure endowment is acts as are proper to conduct the vote with fairness to all
presently or prospectively payable by the terms of an policyholders. The inspectors of election shall, before
individual annuity or pure endowment contract, except commencing performance of their duties, subscribe to
where the policy or contract declares some other person and file with the insurer and with the Commissioner an
to be the owner or holder thereof, in which case such oath that they, and each of them, will perform their duties
other person shall be deemed policyholder. In any case impartially, in good faith, to the best of their ability and as
where a policy or contract names two or more persons as expeditiously as is practicable. On the request of the
joint insured, payees, owners or holders thereof, the insurer, the Commissioner, a policyholder or his proxy, the
persons so named shall be deemed collectively to be one inspectors shall make a report in writing of any challenge
(1) policyholder for the purpose of this chapter. In any case or question or matter determined by them and execute a
where a policy or contract shall have been assigned by certificate of any fact found by them. They shall also
assignment absolute on its face to an assignee other than certify the result of such vote to the insurer and to the
the insurer, and such assignment shall have been filed at Commissioner. Any report or certificate made by them
the principal office of the insurer at least thirty (30) days shall be prima facie evidence of facts stated therein. All
prior to the date of any election or meeting referred to in necessary expenses incurred in connection with such
this chapter, then such assignee shall be deemed at such election shall be paid by the insurer. For the purpose of
election or meeting to be the policyholder. For the this section, a quorum shall consist of five percent (5%) of
purpose of this chapter the terms policyholder and the policyholders of such insurer entitled to vote at such
policyholders include the employer to whom, or a election.
president, secretary or other executive officer of any
corporation or association to which a master group policy SECTION 272. In carrying out any such plan, the
has been issued, but exclude the holders of certificates or insurer may acquire any shares of its own stock by gift,
policies issued under or in connection with a master bequest or purchase. Any shares so acquired shall, unless


as a result of such acquisition all of the shares of the subject to the prior approval of the Commissioner.
insurer shall have been acquired, be acquired in trust for Neither such plan, nor any such payment, may be
the policyholders of the class or classes for whose benefit approved by the Commissioner unless he finds that the
the plan provides that the stock of the insurer shall be rights and interests of the insurer, its policyholders, and
acquired as hereinafter provided. Such shares shall be shareholders are protected.
assigned and transferred on the books of such insurer SECTION 275. The trustees referred to in Section 272
and approved by the Commissioner. Such trustees shall shall file with such insurer and with the Commissioner a
hold such stock in trust until all of the outstanding shares verified acceptance of their appointments and verified
of capital stock of such insurer have been acquired, but declarations that they will faithfully discharge their duties
for not longer than thirty (30) years with such extensions as such trustees. All dividends and other sums received
of not more than five (5) years each as may be granted by by said trustees on the shares held by them, after paying
the Commissioner. Such extensions may be granted by the necessary expenses of executing their trust, shall be
the Commissioner if the plan so provides and if in his immediately repaid to such insurer for the benefit of all
opinion the plan of acquisition of all of such stock can be who are, or may become, policyholders of such insurance
completed within a reasonable period. Such trustees shall of the class or classes for whose benefit the stock of such
vote such stock at all corporate meetings at which insurer was acquired and entitled to participate in the
stockholders have the right to vote. When all the profits thereof and shall be added to and become part of
outstanding shares of capital stock of such insurer have the assets of such insurer.
been acquired, all said shares shall be cancelled, the
certificate of amendment of the insurer's articles of SECTION 276. If, at any time within the period
incorporation giving effect thereto shall be filed in provided in the plan for the acquisition of the
accordance with the provisions of the Corporation Code, outstanding shares of stock of the insurer, ninety percent
and the insurer shall become a nonstock corporation for (90%) thereof has already been acquired and transferred
the profit of its members and such trust shall thereupon to the trustees under the plan, the insurer by a vote of a
terminate. Thereafter such corporation shall be majority of the directors may determine to make an offer,
conducted for the mutual benefit, ratably, of its with the permission of the Commissioner and subject to
policyholders of the class or classes for whose benefit the such requirement as he may specify, to acquire by
stock was acquired and shall have power to issue purchase all of the shares not theretofore acquired under
non-assessable policies on a reserve basis subject to all the plan, at a specified price which the insurer considers
provisions of law applicable to incorporated life insurers to be their fair value as of the date of making such offer.
issuing non-assessable policies on a reserve basis. Policies If the offer to acquire is permitted by the
so issued may be upon the basis of full or partial Commissioner, the insurer shall make a written offer by
participation therein as agreed between the insurer and registered mail to each shareholder whose shares have
the insured. not theretofore been acquired under the plan or
Upon the termination of any such voting trust, either otherwise, offering to acquire all his shares at such price if
in accordance with its terms or as hereinabove provided, accepted in writing within thirty (30) days after the
such plan of mutualization shall terminate, unless mailing of such offer. Any shareholder accepting such
theretofore completed. Upon such termination, unless offer within the time therefor shall, within sixty (60) days
the plan of mutualization provides for the disposition of after his acceptance, transfer to the insurer the
the shares acquired by the insurer under such plan or for certificates representing such shares and, upon doing so,
the disposition of the proceeds thereof, the shares held shall be paid by the insurer the amount of such offer for
by such trustees shall be disposed of in accordance with his shares. Any share so acquired shall be assigned and
an order of the court of competent jurisdiction in the transferred to the trustees under the plan and held by
judicial district in which is located the principal office of them as shares acquired pursuant to the plan.
such insurer, made upon a verified petition of the Each shareholder who does not accept such offer to
Commissioner. acquire his shares within the time stated in such offer for
SECTION 273. Any such plan of mutualization may acceptance thereof shall within fifteen (15) days after the
provide for the creation of a voting trust under a trust expiration of such offer apply to the Secretary of Finance
agreement for the holding and voting by three (3) or for a determination of the fair value of his shares as of the
more trustees of any portion or all of the shares of the date of making such offer. The Secretary of Finance may
insurer not required upon the adoption of such plan. The himself, after due notice and hearing, determine upon
voting trustees shall be named in accordance with such the evidence received the fair value of the shares as of the
plan or, if no provision is made therein for the naming of date of making such offer, or appoint three (3) impartial
such trustees, then by the insurer. The voting trust and disinterested persons to appraise the fair value of
agreement and voting trustees shall be subject to the such shares with such direction as he shall deem proper
approval of the Commissioner. Any or all of the trustees and necessary to expedite the proceedings. Upon
under such voting trust agreement may be the same completion of the appraisal proceedings, the appraisers
person or persons as any or all of the trustees referred to shall file with the Secretary of Finance their report in
in Section 272. Such voting trust agreement shall provide writing stating the fair value of such shares as of the date
that in the event of acquisition by the insurer of any of the of the making of such offer and setting forth their
shares of stock held thereunder in accordance with the findings in support of such statement. The appraisers
provisions of the plan, such shares so acquired together shall furnish each party to the proceedings a copy of their
with the voting rights thereof shall be transferred by the appraisal report, and within ten (10) days after receipt
trustees named under the provisions of this section to the thereof, any such party may signify his objection, if any, to
trustees named under the provisions of Section 272. Any the report or move for the approval thereof. Upon the
voting trust agreement created pursuant to the expiration of the period of ten (10) days referred to above,
provisions of this section may be made irrevocable for not the report shall be set for hearing, after which the
longer than thirty (30) years and thereafter until the Secretary of Finance shall issue an order adopting,
termination of the trust provided for in Section 272. The modifying or rejecting the report, in whole or in part, or
trust created pursuant to the provisions of this section he may receive further evidence or may recommit it with
shall terminate in any event upon termination of the trust instructions. Whenever the Secretary of Finance shall
provided for in Section 272. Upon the termination of the determine in any manner, as aforesaid, the fair value of
trust created pursuant to the provisions of this section, such shares, he may also determine the terms of
any shares held in such trust shall revert to the persons payment thereof by the insurer. The expenses incidental
entitled thereto by law. to the proceedings including charges of the appraisers, if
any, shall be paid equally by the insurer and the
SECTION 274. Every payment for the acquisition of shareholder.
any shares of the capital stock of such insurer, the
purchase price of which is not fixed by such plan, shall be The findings of the Secretary of Finance on all
questions of fact raised at the hearing of the application



for determination of the fair value of such shares shall be there be no such officer, or in case of his neglect or
conclusive upon all parties to the proceedings. The order refusal, by any director or member. At the option of the
of the Secretary of Finance determining the fair value of insurer such notice may be imprinted on premium
the shares and the terms of payment thereof shall have notices or receipts or on both.
the force and effect of a judgment which shall be A notice may be given by such insurer to any
appealable on any question of law. Such order shall member either personally, or by mail, or other means of
become final and executory fifteen (15) days after receipt written communication, charges prepaid, addressed to
thereof by the parties to the proceedings. such member at his address appearing on the books of
Upon any such order becoming final and from which the insurer, or given by him to the insurer for the purpose
no appeal is pending, or when the time to appeal of notice. If a member gives no address, notice shall be
therefrom has expired, each shareholder party to the deemed to have been given him if sent by mail or other
proceedings shall transfer his shares to the insurer and means of written communication addressed to the place
surrender to the said insurer the certificates representing where the principal office of the insurer is situated, or if
such shares and the insurer shall make payment therefor published at least once in some newspaper of general
as provided in such order. Any shares so acquired by the circulation in the place in which said office is located.
insurer shall be assigned and transferred to the trustees Notice of any meeting of members shall be sent to
and held by them as shares acquired pursuant to the each member entitled thereto not less than seven (7)
plan. days before such meeting, unless the bylaws provide
Any shareholder who does not apply to the Secretary otherwise.
of Finance in the manner and within the time Notice of any meeting of members shall specify the
hereinbefore prescribed shall be deemed to have place, the day and the hour of the meeting and the
accepted the offer referred to above, effective, however, general nature of the business to be transacted.
upon the expiration of the time hereinabove prescribed
for making such application, and such shareholder's time Notice of an annual meeting to be held at the time
for accepting such offer shall, for that purpose only, be and place specified in subparagraph (a) of this section
deemed to have been extended accordingly. shall be sufficiently given if published at least once in
each of four (4) successive weeks in a newspaper of
Any offer to acquire shares made pursuant to this general circulation in the place in which the principal
section shall, except as otherwise provided herein, be office of such insurer is located, and if so published no
irrevocable until all proceedings upon such offer have other notice of such meeting shall be required.
been completed or all shares have otherwise been earlier
acquired by the insurer. (d) The presence in person or by proxy of five percent
(5%) of the members entitled to vote at any meeting shall
Any shareholder who has expressly or impliedly constitute a quorum for the transaction of business,
accepted the plan or the offer to acquire his shares not including the amendment of the articles of incorporation
theretofore acquired under the plan, and any shareholder and/or the bylaws unless otherwise provided by the
who has rejected such plan or such offer and has applied, bylaws.
as aforesaid, to the Secretary of Finance for a
determination of the fair value of his shares subsequent (e) Each such member shall have one (1) vote at any
to which an agreement has been reached or a final order meeting of members regardless of the number of policies
issued fixing such fair value but who fails to surrender his or the amount of insurance that such member holds and
certificates for cancellation upon payment of the amount regardless of whether such policies are policies of life
to which he is entitled, may be compelled to do so by an insurance, or of health and accident insurance, or both.
order of the Secretary of Finance for that purpose and Any member entitled to vote shall have the right to do so
such order may provide that upon failure of such either in person or by an agent or agents authorized by a
shareholder to surrender such certificates for written proxy executed by such person or his duly
cancellation, such order shall stand in lieu of such authorized agent and filed with the secretary or such
surrender and cancellation. insurer.
SECTION 277. Such insurer, after mutualization, shall (f) The directors of the insurer in office at the time the
be a continuation of the original insurer, and such insurer is mutualized as provided in this chapter shall
mutualization shall not affect such insurer's certificate of continue in office until the first annual meeting of
authority nor existing suits, rights or contracts except as members. At the first annual meeting of members and at
provided in said plan for the acquisition of the each annual meeting thereafter, directors shall be elected
outstanding shares of the capital stock of such insurer, by the members for the term or terms authorized by this
approved as provided in this chapter. Such insurer, after chapter.
mutualization, shall exercise all the rights and powers and (g) The articles of incorporation or the bylaws may
shall perform all the duties conferred or imposed by law provide that the directors may be divided into two (2) or
upon insurers writing the classes of insurance written by more classes whose terms of office shall expire at
it, and to protect rights and contracts existing prior to different times, but no terms shall continue longer than
mutualization, subject to the effect of said plan. The six (6) years. In the absence of such provisions, each
board of directors of such insurer, prior to mutualization, director, except members of the board of directors at the
may adopt amendments to its bylaws to take effect upon time the insurer is mutualized, shall be elected for a term
mutualization. of one (1) year. All directors shall hold office for a term for
SECTION 278. (a) An annual meeting of members which they are elected and until their successors are
shall be held at ten o'clock in the morning of the fourth elected and qualified. A director may, but need not be a
Tuesday of March of each year at the principal office of member or policyholder of the insurer of which he is
the insurer, unless a different time or place is provided in acting as director. Vacancies in the board of directors may
the bylaws. be filled by a majority of the remaining directors, though
less than a quorum, and each director so elected shall
(b) Special meetings of the members, for any purpose hold office until the next annual meeting.
or purposes whatsoever, may be called at any time by the
president, or by the board of directors, or by one or more (h) All insurers mutualized under the provisions of this
members holding not less than one-fifth (1/5) of the chapter shall be subject to all other applicable provisions
voting power of such insurer, or by such other officers or of this Code. The provisions of the Corporation Code shall
persons as the bylaws authorize. apply in a suppletory manner.
(c) Notice of all meetings of members whether SECTION 279. The provisions of Commonwealth Act
annual or special shall be given in writing to the No. 83, otherwise known as the Securities Act, as
members entitled to vote by the secretary, or an assistant amended, shall not apply to any of the following:
secretary, or other person charged with that duty, or if


(a) Shares of the capital stock of such insurer acquired withdraw. The cost and expenses of all such examination

as provided in Section 272 and assigned and transferred shall be paid as prescribed in Section 440.
to the trustees as is provided in said section, and the
assignment and transfer of said shares as so provided;
SECTION 285. Upon the failure of such withdrawing
(b) Any certificate or other instrument issued to a insurance company or its agents in the Philippines to pay
policyholder of such mutualized insurer conferring or time expenses of such publication within thirty (30) days
evidencing membership in such mutualized insurer or after the presentation of the bill therefor, the
conferring or evidencing such member's right to Commissioner shall collect such fee from the deposit
participate in the profits or share in the assets of such furnished in accordance with the provisions of Section
mutualized insurer by virtue of his membership therein 197.
and the issuance of such certificate or other instrument;
SECTION 286. A foreign life insurance company that
(c) The plan for the acquisition of the outstanding withdraws from the Philippines shall be considered a
shares of the capital stock of such insurer authorized by servicing insurance company if its business transactions
the provisions of this chapter, the submission of said plan are confined to accepting periodic premium payments
to the Commissioner and to the policyholders of such from, or granting policy loans and paying cash surrender
insurer as provided in this chapter, and the approval and values of outstanding policies to, or reviving lapsed
carrying out of said plan or any part thereof in accordance policies of, Philippine policyholders, and such other
with the provisions of this chapter. related services.
SECTION 280. A domestic mutual life insurance SECTION 287. No company shall act as a servicing
company doing business in the Philippines may convert insurance company until after it shall have obtained a
itself into an incorporated stock life insurance company special certificate of authority to act as such from the
by demutualization. To that end, it may provide and carry Commissioner upon application therefor and payment by
out a plan for the conversion by complying with the the company of the fees hereinafter prescribed. Such
requirements of this title. certificate shall expire on the last day of December of the
The conversion of a domestic mutual life insurance third year and shall be renewed, while the company
company to an incorporated stock life insurance continues to service its policyholders, and to comply with
company shall be carried out pursuant to a conversion all the applicable provisions of law and regulations.
plan duly approved by the Commissioner.
The Commissioner shall promulgate such rules and TITLE 19 Professional Reinsurers
regulations as he or she may deem necessary to carry out
the provisions of this title, after due consultation with SECTION 288. Except as otherwise provided in this
representatives of the insurance industry. Code, no partnership, association or corporation shall
transact any business in the Philippines as a professional
All converted insurers under the provisions of this title reinsurer until it shall have obtained a certificate of
shall be subject to all other applicable provisions of this authority for that purpose from the Commissioner upon
Code. The provisions of the Corporation Code shall apply application therefor and payment by such entity of the
in a suppletory manner. fees hereinafter prescribed. As used in this Code, the term
'professional reinsurer' shall mean any entity that
TITLE 18 Withdrawal of Foreign Insurance transacts solely and exclusively reinsurance business in
the Philippines.
Companies
The Commissioner may refuse to issue a certificate of
SECTION 281. A foreign insurance company doing authority to any such entity when such refusal will best
business in the Philippines, upon payment of the fee promote public interest. No such certificate of a authority
hereinafter prescribed and surrender to the shall be granted to any such entity unless and until the
Commissioner of its certificate of authority, may apply to Commissioner is satisfied by such examination and such
withdraw from the Philippines. Such application shall be evidence as may be required that such entity is qualified
duly executed in writing, accompanied by evidence of by the laws of the Philippines to transact business therein
due authority for such execution, properly acknowledged. as professional reinsurer.
SECTION 282. The Commissioner shall publish the Before issuing such certificate of authority, the
application for withdrawal once a week for three (3) Commissioner must be satisfied that the name of the
consecutive weeks in a newspaper of general circulation applicant is not that of any other known company
in the Philippines. The expenses of such publication shall transacting insurance or reinsurance business in the
be paid by the insurance company filing such application. Philippines, or a name so similar as to be calculated to
SECTION 283. Every foreign insurance company mislead the public.
desiring to withdraw from the Philippines shall, prior to Such certificate of authority shall expire on the last
such withdrawal, discharge its liabilities to policyholders day of December the third year following its issuance
and creditors in this country. In case of its policies unless it is renewed.
insuring residents of the Philippines, it shall cause the
primary liabilities under such policies to be reinsured and Every such partnership, association, or corporation
assumed by another insurance company authorized to receiving such certificate of authority shall be subject to
transact business in the Philippines. In the case of such the provisions of this Code and other related laws, and to
policies as are subject to cancellation by the withdrawing the jurisdiction and supervision of the Commissioner.
company, it may cancel such policies pursuant to the SECTION 289. Any partnership, association, or
terms thereof in lieu of such reinsurance and assumption corporation authorized to transact solely reinsurance
of liabilities. business must have a capitalization of at least Three
SECTION 284. The Commissioner shall cause an billion pesos (P3,000,000,000.00) paid in cash of which at
examination of the books and records of the withdrawing least fifty percent (50%) is paid-up and the remaining
company, and if, upon such examination, the portion thereof is contributed surplus, which in no case
Commissioner finds that the insurer has no outstanding shall be less than Four hundred million pesos
liabilities to policyholders and creditors in the Philippines, (P400,000,000.00) or such capitalization as may be
and no policies uncancelled; or its primary liabilities have determined by the Secretary of Finance, upon the
been reinsured or assumed by another insurance recommendation of the Commissioner: Provided, That
company authorized to transact business in the twenty-five percent (25%) of the paid-up capital must be
Philippines, as required in the preceding section, it shall invested in securities satisfactory to the Commissioner
cancel the withdrawing company's certificate of consisting of bonds or other instruments of debt of the
authority, if unexpired, and shall permit the insurer to Government of the Philippines or its political subdivisions
or instrumentalities, or of government-owned or



-controlled corporations and entities including the (a) Authorized insurers or reinsurers or their
Bangko Sentral ng Pilipinas, and deposited with the subsidiaries; and
Commissioner, and the remaining seventy-five percent (b) The Government of the Philippines, or any political
(75%) in such other securities as may be allowed and subdivision, agency or instrumentality thereof, or any
permitted by the Commissioner, which securities shall at corporation which is wholly owned directly or indirectly
all times be maintained free from any lien or by one or more of the foregoing.
encumbrance: Provided, further, That the aforesaid
capital requirement is without prejudice to other The Commissioner may conditionally or
requirements to be imposed under any risk-based capital unconditionally exempt any specified person or class of
method that may be adopted by the Commissioner: persons from any of the obligations or liabilities imposed
Provided, finally, That the provisions of this chapter under this title, if and to the extent he finds the
applicable to insurance companies shall as far as exemption necessary or appropriate in the public interest
practicable be likewise applicable to professional or not adverse to the interests of policyholders or
reinsurers. stockholders and consistent with the purposes of this
title.
TITLE 20 Holding Companies SECTION 294. (a) Every person who on the date this
Code takes effect is a controlled insurer and every person
SECTION 290. As used in this title, the following terms who thereafter becomes a controlled insurer, shall, within
shall have the respective meanings hereinafter set forth sixty (60) days thereafter, or within thirty (30) days after
unless the context shall otherwise require: becoming a controlled insurer, whichever is later, register
(a) Person means an individual, partnership, firm, with the Commissioner. Such registration shall be
association, corporation, trust, any similar entity or any amended within thirty (30) days following any change in
combination of the foregoing acting in concert. the identity of its holding company. The Commissioner
may grant one or more reasonable extensions of the time
(b) Control, including the terms controlling, controlled to register.
by and under common control with, means the
possession directly or indirectly of the power to direct or (b) Every registrant shall furnish the Commissioner
cause the direction of the management and policies of a with the following information concerning its holding
person, whether through the ownership of voting company:
securities by a contract other than a commercial contract (1) A copy of its charter or articles of incorporation and
for goods or non-management services or otherwise. its bylaws;
Subject to Section 292, control shall be presumed to exist
if any person directly or indirectly owns, controls or holds (2) The identities of its principal shareholders, officers,
with the power to vote forty percent (40%) or more of the directors and controlled persons; and
voting securities of any other person: Provided, That no (3) Information as to its capital structure and financial
person shall be deemed to control another person solely condition, and a description of its principal business
by reason of his being an officer or director of such other activities.
person.
SECTION 295. Every controlled insurer shall file with
(c) Holding company means any person who directly the Commissioner such reports on material as he may
or indirectly controls any authorized insurer. direct for the purpose of disclosing information
(d) Controlled insurer means an authorized insurer concerning the operations of persons within the holding
controlled directly or indirectly by a holding company. company system which may materially affect the
operations, management or financial condition of the
(e) Controlled person means any person, other than a insurer.
controlled insurer, who is controlled directly or indirectly
by a holding company. SECTION 296. Every holding company and every
controlled person within a holding company system shall
(f) Holding company system means a holding be subject to examination by order of the Commissioner
company together with its controlled insurers and if he has cause to believe that the operations of such
controlled persons. persons may materially affect the operations,
SECTION 291. Notwithstanding paragraph (b) of management or financial condition of any controlled
Section 290, the Commissioner may determine after insurer with the system and that he is unable to obtain
notice and opportunity to be heard, that a person relevant information from such controlled insurer. The
exercises directly or indirectly either alone or pursuant to grounds relied upon by the Commissioner for such
an agreement with one or more other persons such a examination shall be stated in his order, which order shall
controlling influence over the management or policies of be subject to judicial review only at the instance of the
an authorized insurer as to make it necessary or person sought to be examined. Such examination shall be
appropriate in the public interest or for the protection of confined to matters specified in the order. The cost of
policyholders or stockholders of the insurer that the such examination shall be assessed against the person
person be deemed to control the insurer. examined and no portion thereof shall thereafter be
reimbursed to it directly or indirectly by the controlled
SECTION 292. The Commissioner may determine insurer.
upon application that any person, either alone or
pursuant to agreement with one or more other persons,
does not or will not upon the taking of some proposed SECTION 297. The Commissioner shall keep the
action control another person. The filing of an application contents of each report made pursuant to this title and
hereunder in good faith by any person shall relieve the any information obtained by him in connection therewith
applicant from any obligation or liability imposed by this confidential and shall not make the same public without
title with respect to the subject of the application, except the prior written consent of the controlled insurer to
as contained in Section 302, until the Commissioner has which it pertains unless the Commissioner after notice
acted upon the application. Within thirty (30) days or and an opportunity to be heard shall determine that the
such further period as he may prescribe, the interests of policyholders, stockholders or the public will
Commissioner may prospectively revoke or modify his be served by the publication thereof. In any action or
determination, after notice and opportunity to be heard, proceeding by the Commissioner against the person
whenever in his judgment, revocation or modification is examined or any other person within the same holding
consistent with this title. company system a report of such examination published
SECTION 293. Notwithstanding any other provisions by him shall be admissible as evidence of the facts stated
of this title, the following shall not be deemed holding therein.
companies:


SECTION 298. Transactions within a holding company (2) The trustworthiness of the acquiring person or any

system to which a controlled insurer is a party shall be of its officers or directors;
subject to the following: (3) A plan for the proper and effective conduct of the
(a) The terms shall be fair and equitable; insurer's operations;
(b) Charges or fees for services performed shall be (4) The source of the funds or assets for the
reasonable; acquisition;
(c) Expenses incurred and payments received shall be (5) The fairness of any exchange of stock, assets, cash
allocated to the insurer on an equitable basis in or other consideration for the stock or assets to be
conformity with customary insurance accounting received;
practices consistently applied. (6) Whether the effect of the acquisition may be
The books, accounts and records of each party to all substantially to lessen competition in any line of
such transactions shall be maintained as to clearly and commerce in insurance or to tend to create a monopoly
accurately disclose the nature and details of the therein; and
transactions including such accounting information as is (7) Whether the acquisition is likely to be hazardous
necessary to support the reasonableness of the charges or prejudicial to the insurer's policyholders or
or fees to the respective parties. stockholders.
SECTION 299. The prior written approval of the (c) The following conditions affecting any controlled
Commissioner shall be required for the following insurer, regardless of when such control has been
transactions between a controlled insurer and any person acquired, are violations of this title:
in its holding company system: sales, purchases,
exchanges, loans or extensions of credit, or investments, (1) The controlling person or any of its officers or
involving five percent (5%) or more of the insurer's directors have demonstrated untrustworthiness; and
admitted assets as of the thirty-first day of December (2) The effect of retention of control may be
next preceding. substantially to lessen competition in any line of
SECTION 300. The following transactions between a commerce in insurance in this country or to tend to
controlled insurer and any person in its holding company create a monopoly therein. If, after notice and an
system may not be entered into unless the insurer has opportunity to be heard, the Commissioner determines
notified the Commissioner in writing of its intention to that any of the foregoing violations exists, he shall reduce
enter into any such transaction at least thirty (30) days his findings to writing and shall issue an order based
prior thereto, or such shorter period as he may permit, thereon and cause the same to be served upon the
and he has not disapproved it within such period: insurer and upon all persons affected thereby directing
any person found to be in violation thereof to take
(a) Sales, purchases, exchanges, loans or extensions of appropriate action to cure such violation. Upon the failure
credit, or investments, involving more than one-half of of any such person to comply with such order, Section
one percent (1/2%) but less than five percent (5%) of the 306 shall become applicable.
insurer's admitted assets as of the thirty-first day of
December next preceding; (d) The Commissioner may require the submission of
such information as he deems necessary to determine
(b) Reinsurance treaties or agreements; whether any acquisition or retention of control complies
(c) Rendering of services on a regular or systematic with this title and may require, as a condition of approval
basis; or of such acquisition or retention of control, that all or any
(d) Any material transaction, specified by regulation, portion of such information be disclosed to the insurer's
which the Commissioner determines may adversely stockholders.
affect the interest of the insurer's policyholders or (e) Unless subject to registration under Section 294 or
stockholders or of the public. unless acquisition of its control is subject to paragraphs
Nothing herein contained shall be deemed to (a) and (b) hereof, every authorized insurer shall notify the
authorize or permit any transaction which, in the case of a Commissioner in writing of the identity of any person
non-controlled insurer, would be otherwise contrary to whom the insurer then knows or has reason to believe
law. controls or has taken any action, other than preliminary
negotiations or discussion, to acquire control of the
SECTION 301. The Commissioner, in reviewing insurer.
transactions pursuant to Sections 299 and 300, shall
consider whether the transactions comply with the SECTION 303. (a) Notwithstanding the control of an
standard set forth in Section 298 and whether they may authorized insurer by any person, the officers and
adversely affect the interests of policyholders. This section directors of the insurer shall not thereby be relieved of
shall not apply to transactions subject to other sections of any obligation or liability to which they would otherwise
this Code which impose notice or approval requirements be subject by law, and the insurer shall be managed so as
greater than those prescribed by this title. to assure its separate operating identity consistent with
this title.
SECTION 302. (a) No person, other than an authorized
insurer, shall acquire control of any domestic insurer, (b) Nothing herein shall preclude an authorized
whether by purchase of its securities or otherwise, except: insurer from having or sharing a common management
or cooperative or joint use of personnel, property or
(1) After twenty (20) days written notice to its insurer services with one or more other persons under
or such shorter period as the Commissioner may permit, arrangements meeting the standards of Section 298.
of its intention to acquire control; and
SECTION 304. To the extent that any information or
(2) With the prior written approval of the material is set forth in forms or other matter on file with
Commissioner. any government agency or in a registration form filed
(b) The Commissioner shall disapprove the with the Commissioner by another person within the
acquisition of control of a domestic insurer if he same holding company system, the controlled insurer
determines, after notice and an opportunity to be heard, may comply with the registration or reporting
that such action is reasonably necessary to protect the requirements of this title by referring in its registration
interest of the people of this country. The following shall from or report to such other filed matter and attaching a
be the only factors to be considered by him in reaching copy thereof certified by the insurer as a true and
the foregoing determination. complete copy, to such registration form or report or, if
such other filed matter is on file with the Commissioner,
(1) The financial condition of the acquiring person and incorporating such matter by reference.
the insurer;


SECTION 305. No holding company or controlled become liable to all the duties, requirements, liabilities
person shall directly or indirectly or through another and penalties to which an insurance agent is subject.
person do or cause to be done for or in behalf of the An insurance agent is an independent contractor and
controlled insurer any act intended to affect the not an employee of the company represented. 'Insurance
insurance operations of the insurer which, if done by the agent' includes an agency leader, agency manager, or
insurer, would violate any provision of this Code. their equivalent.
SECTION 306. In addition to any other penalty Since the insurance industry is imbued with public
provided by law, the Commissioner may, upon the willful interest, the insurance companies upon approval of the
failure of any person within a holding company system to Commissioner may exercise wide latitude in supervising
comply with this title or any regulation or order the activities of their insurance agents to ensure the
promulgated hereunder. protection of the insuring public.
(a) Proceed under Title 14 or Title 15, Chapter III of this SECTION 310. Any person who for any compensation,
Code with respect to insurer within the holding company commission or other thing of value acts or aids in any
system; or manner in soliciting, negotiating or procuring the making
(b) Revoke or refuse to renew the authority to do of any insurance contract or in placing risk or taking out
business in this country of an insurer within the holding insurance, on behalf of an insured other than himself,
company system or refuse to issue such authority to any shall be an insurance broker within the intent of this
other insurer in the system; or Code, and shall thereby become liable to all the duties,
(c) Direct that, in addition to any other penalty requirements, liabilities and penalties to which an
provided by law, such person forfeit to the people of this insurance broker is subject.
country a sum not less than Five thousand pesos SECTION 311. Every applicant for an insurance broker's
(P5,000.00) for a first violation and Twenty-five thousand license shall file with the application and shall thereafter
pesos (P25,000.00) for any subsequent violation. An maintain in force while so licensed, a bond in favor of the
additional sum not less than Twenty-five thousand pesos people of the Republic of the Philippines executed by a
(P25,000.00) shall be imposed for each month during company authorized to become surety upon official
which any such violation shall continue. recognizances, stipulations, bonds and undertakings. The
bond shall be in such amount as may be fixed by the
Commissioner, but in no case less than Five hundred
CHAPTER IV Sales Agencies and Technical thousand pesos (P500,000.00), and shall be conditioned
Services upon full accounting and due payment to the person
entitled thereto of funds coming into the broker's
possession through insurance transactions under license.
TITLE 1 Insurance Agents and Insurance Brokers The bond shall remain in force until released by the
Commissioner, or until cancelled by the surety. Without
SECTION 307. No insurance company doing business prejudice to any liability previously incurred thereunder,
in the Philippines, nor any agent thereof, shall pay any the surety may cancel the bond on thirty (30) days
commission or other compensation to any person for advance written notice to both the broker and the
services in obtaining insurance, unless such person shall Commissioner.
have first procured from the Commissioner a license to
act as an insurance agent of such company or as an Upon approval of the application, the applicant must
insurance broker as hereinafter provided. also file two (2) errors and omissions (professional liability
or professional indemnity) policies issued separately by
No person shall act as an insurance agent or as an two (2) insurance companies authorized to do business in
insurance broker in the solicitation or procurement of the Philippines, satisfactory to the Commissioner to
applications for insurance, or receive for services in indemnify the applicant against any claim or claims for
obtaining insurance, any commission or other breach of duty as insurance broker which may be made
compensation from any insurance company doing against him by reason of any negligent act, error or
business in the Philippines, or any agent thereof, without omission, whenever or wherever committed or alleged to
first procuring a license so to act from the Commissioner, have been committed, on the part of the applicant or any
which must be renewed every three (3) years thereafter. person who has been, is now, or may hereafter during the
Such license shall be issued by the Commissioner only subsistence of the policies be employed by the said
upon the written application of the person desiring it, applicant in his capacity as insurance broker: Provided,
such application if for a license to act as insurance agent, That the filing of any claim or claims under one of such
being approved or endorsed by the company such policies shall preclude the filing of the said claim or
person desires to represent, and shall be upon a form claims under the other policy. The said policies shall be in
prescribed by the Commissioner giving such information such amounts as may be prescribed by the
as he may require, and upon payment of the Commissioner, depending upon the size or amount of
corresponding fee hereinafter prescribed. The the broking business of the applicant, but in no case shall
Commissioner shall satisfy himself as to the competence the amount of each of such policies be less than Five
and trustworthiness of the applicant and shall have the hundred thousand pesos (P500,000.00).
right to refuse to issue or renew and to suspend or revoke
any such license in his discretion. The license shall expire SECTION 312. The Commissioner shall, in order to
after the thirty-first day of December of the third year determine the competence of every applicant to have the
following the date of issuance unless it is renewed. kind of license applied for, require such applicant to
submit to a written examination and to pass the same to
Licenses may be renewed in the case of the company the satisfaction of the Commissioner. The Commissioner
represented by such agents, and in the case of insurance may delegate or authorize the administration of the
brokers, upon the application of the said brokers, examination to an independent organization, subject to
themselves. such conditions that the Commissioner may provide.
SECTION 308. The provisions of Sections 307 and 309 SECTION 313. An applicant for the written
shall apply to an employee who shall be engaged to sell examination mentioned in the preceding section must
insurance products by an insurance company. be of good moral character and must not have been
SECTION 309. Any person who for compensation convicted of any crime involving moral turpitude. He
solicits or obtains insurance on behalf of any insurance must satisfactorily show to the Commissioner that he has
company or transmits for a person other than himself an been trained in the kind of insurance contemplated in
application for a policy or contract of insurance to or from the license applied for. Such examination may be waived
such company or offers or assumes to act in the if it is shown to the satisfaction of the Commissioner that
negotiating of such insurance shall be an insurance
agent within the intent of this section and shall thereby



the applicant has undergone extensive education and/or general agent of any insurance company unless he is
training in insurance. empowered by a written power of attorney duly executed
SECTION 314. An application for the issuance or by such insurance company, and registered with the
renewal of a license to act as an insurance agent or Commissioner to receive notices, summons and legal
insurance broker may be refused, or such license, if processes for and in behalf of the insurance company
already issued or renewed, shall be suspended or revoked concerned in connection with actions or other legal
if the Commissioner finds that the applicant for, or holder proceedings against said insurance company. It shall be
of, such license: the duty of said general agent to notify the Commissioner
of his post office address in the Philippines, or any
(a) Has willfully violated any provision of this Code; or change thereof. Notices, summons, or processes of any
(b) Has intentionally made a material misstatement in kind sent by registered mail to the last registered address
the application to qualify for such license; or of such general agent of the company concerned or to
the Commissioner shall be sufficient service and deemed
(c) Has obtained or attempted to obtain a license by as if served on the insurance company itself.
fraud or misrepresentation; or
SECTION 318. Except as otherwise provided by law or
(d) Has been guilty of fraudulent or dishonest treaty, it shall be unlawful for any person, partnership,
practices; or association or corporation in the Philippines, for himself
(e) Has misappropriated or converted to his own use or itself, or for some other person, partnership, association
or illegally withheld moneys required to be held in a or corporation, either to procure, receive or forward
fiduciary capacity; or applications of insurance in, or to issue or to deliver or
accept policies or contracts of insurance of or for, any
(f) Has not demonstrated trustworthiness and insurance company or companies not authorized to
competence to transact business as an insurance agent transact business in the Philippines, covering risks, life or
or insurance broker in such manner as to safeguard the non-life, situated in the Philippines; and any such person,
public; or partnership, association or corporation violating the
(g) Has materially misrepresented the terms and provisions of this section shall be deemed guilty of a
conditions of policies or contracts of insurance which he penal offense, and upon conviction thereof, shall for each
seeks to sell or has sold; or such offense be punished by a fine of Two hundred fifty
(h) Has failed to pass the written examination thousand pesos (P250,000.00), or imprisonment of six (6)
prescribed, if not otherwise exempt from taking the months, or both, at the discretion of the court: Provided,
same. That the provisions of this section shall not apply to
reinsurance.
In addition to the foregoing causes, no license to act
as insurance agent or insurance broker shall be renewed
if the holder thereof has not been actively engaged as TITLE 2 Reinsurance Brokers
such agent or broker in accordance with such rules as the SECTION 319. Except as provided in the next
Commissioner may prescribe. succeeding title, no person shall act as reinsurance broker
SECTION 315. The premium, or any portion thereof, in the Philippines unless he is authorized as such by the
which an insurance agent or insurance broker collects Commissioner.
from an insured and which is to be paid to an insurance A reinsurance broker is one who, for compensation,
company because of the assumption of liability through not being a duly authorized agent, employee or officer of
the issuance of policies or contracts of insurance, shall be an insurer in which any reinsurance is effected, acts or
held by the agent or broker in a fiduciary capacity and aids in any manner in negotiating contracts of
shall not be misappropriated or converted to his own use reinsurance, or placing risks of effecting reinsurance, for
or illegally withheld by the agent or broker. any insurance company authorized to do business in the
Any insurance company which delivers to an Philippines.
insurance agent or insurance broker a policy or contract SECTION 320. Upon application and payment of the
of insurance shall be deemed to have authorized such corresponding fee hereinafter prescribed, and the filing
agent or broker to receive on its behalf payment of any of two (2) errors and omissions (professional liability or
premium which is due on such policy or contract of professional indemnity) policies hereinafter described, a
insurance at the time of its issuance or delivery or which person may, if found qualified, be issued a license to act
becomes due thereon. as reinsurance broker by the Commissioner. No such
In order to ensure faithful performance by the license shall be valid after December 31 of the third year
insurance agent or insurance broker of these fiduciary following its issuance unless it is renewed.
responsibilities, the Insurance Commissioner shall The errors and omissions (professional liability or
prescribe the minimum terms and conditions on such professional indemnity) policies mentioned above shall
matters in the standard agency or brokers agreement indemnify the applicant against any claim or claims for
between the agents and/or the broker with the insurance breach of duty as reinsurance broker which may be made
companies. against him by reason of any negligent act, error or
SECTION 316. Any provision of existing laws to the omission, whenever or wherever committed or alleged to
contrary notwithstanding, no person shall, within the have been committed, on the part of the applicant or any
Philippines, sell or offer for sale a variable contract or do person who has been, is now, or may hereafter during the
or perform any act or thing in the sale, negotiation, subsistence of the policies be employed by the said
making or consummating of any variable contract other applicant in his capacity as reinsurance broker: Provided,
than for himself unless such person shall have a valid and That the filing of any claim or claims under one of such
current license from the Commissioner authorizing such policies shall preclude the filing of the said claim or
person to act as a variable contract agent. No such license claims under the other policy. The said policies shall be
shall be issued unless and until the Commissioner is issued separately by two (2) insurance companies
satisfied, after examination that such person is by authorized to do business in the Philippines and shall be
training, knowledge, ability and character qualified to act in such amounts as may be prescribed by the Insurance
as such agent. Any such license may be withdrawn and Commissioner, depending upon the size or amount of
cancelled by the Commissioner after notice and hearing, the broking business of the applicant, but in no case shall
if he shall find that the holder thereof does not then have the amount of each of such policies be less than Five
the qualifications required for the issuance of such hundred thousand pesos (P500,000.00).
license. SECTION 321. The Commissioner may recall, suspend
SECTION 317. It shall be unlawful for any person, or revoke the license granted to a reinsurance broker for
company or corporation in the Philippines to act as


violation of any existing law, rule and regulation, or any company or companies that employed him in that
provision of this Code after due notice and hearing. capacity. The minimum underwriting experience herein
required may be reduced or waived if it is shown to the
satisfaction of the Commissioner that the non-life
TITLE 3 Resident Agents company underwriter has undergone extensive
SECTION 322. No person shall act as resident agent, education and/or training in insurance.
as hereinafter defined, unless he is registered as such SECTION 330. Any applicant who misrepresents or
with the Commissioner. omits any material fact in his application for registration
SECTION 323. The term resident agent, as used in this as a non-life company underwriter, or commits any
title, is one duly appointed by a foreign insurer or broker dishonest act in taking or in connection with the
not authorized to do business in the Philippines to receive qualifying written examination for underwriters, shall be
in its behalf notices, summons and legal processes in barred from being registered as such non-life company
connection with actions or other legal proceedings underwriter and, if already registered, his registration
against such foreign insurer or broker. shall be cancelled and the certificate of registration
issued in his favor shall be recalled immediately by the
SECTION 324. The application for a certificate of
Commissioner.
registration as resident agent filed with the
Commissioner must be accompanied with a copy of the In the event that the certificate of authority of a
power of attorney, duly notarized and authenticated by non-life insurance company to transact business is
the Philippine Consul in the place where such foreign suspended or revoked due to business failure arising
insurer or broker is domiciled, empowering the applicant largely from the imprudent and injudicious acceptance of
to act as resident agent and to receive notices, summons risks by the underwriter concerned, the registration of
and legal processes for and in behalf of such foreign such underwriter shall likewise be cancelled and his
insurer or broker in connection with any action or legal certificate of registration shall be recalled by the
proceeding against such foreign insurer or broker. Commissioner, and no similar certificate shall thereafter
be issued in his favor.
SECTION 325. It shall be the duty of such resident
agent to notify immediately the Commissioner of any SECTION 331. No certificate of registration issued to
change of his office address. an underwriter shall be valid after December 31 of the
third year following its issuance unless it is renewed.
SECTION 326. A certificate of registration issued to a
resident agent shall expire on the thirty-first day of The Commissioner may, after due notice and hearing,
December of the third year following its issuance unless it also suspend or cancel such certificate for violation of
is renewed. existing laws, rules and regulations or of any provisions of
this Code.
The Commissioner may, after due notice and hearing,
recall or cancel the certificate of registration issued to a
resident agent for violation of any existing law, rule or TITLE 5 Adjusters
regulation, or any provision of this Code.
SECTION 332. No person, partnership, association, or
corporation shall act as an adjuster, as hereinafter
TITLE 4 Non-Life Company Underwriter defined, unless authorized so to act by virtue of a license
issued or renewed by the Commissioner pursuant to the
SECTION 327. No person shall act, and no company
provisions of this Code: Provided, That in the case of a
shall employ any person, as non-life company
natural person, he must be a Filipino citizen and in the
underwriter, whose duty and responsibility it shall be to
case of a partnership, association or corporation, at least
select, evaluate and accept risks for, and to determine the
sixty percent (60%) of its capital must be owned by
terms and conditions, including those pertaining to
citizens of the Philippines.
amounts of retentions, under which such risks are to be
accepted by the company, unless such underwriter is SECTION 333. An adjuster may be an independent
registered as such with the Commissioner. adjuster or a public adjuster.
SECTION 328. Every non-life insurance company The term independent adjuster means any person,
doing business in the Philippines must maintain at all partnership, association or corporation which, for money,
times a register of risks accepted and a claims register for commission or any other thing of value, acts for or on
each line of risks engaged in by such non-life insurance behalf of an insurer in the adjusting of claims arising
company with such entries therein as are now or as may under insurance contracts or policies issued by such
hereafter be required by the Commissioner, and it shall insurer.
be the responsibility of the underwriter on the particular The term public adjuster means any person,
line of risk involved to see to it that the said registers are partnership, association or corporation which, for money,
well maintained and kept, and that all entries therein are commission or any other thing of value, acts on behalf of
properly and correctly recorded. Such registers shall be an insured in negotiating for, or effecting, the settlement
open to inspection and examination of duly authorized of a claim or claims of the said insured arising under
representatives of the Commissioner at all times during insurance contracts or policies, or which advertises for or
business hours. solicits employment as an adjuster of such claims.
SECTION 329. No person shall be registered with the SECTION 334. For every line of insurance claim
Commissioner, unless such person shall be at least adjustment, adjusters shall be licensed either as
twenty-one (21) years of age on the date of such independent adjusters or as public adjusters. No adjuster
registration; a resident of the Philippines; of good moral shall act on behalf of an insurer unless said adjuster is
character and with no conviction of any crime involving licensed as an independent adjuster; and no adjuster
moral turpitude; has had at the time such registration is shall act on behalf of an insured unless said adjuster is
made at least two (2) years of underwriting work in the licensed as a public adjuster: Provided, however, That
particular line of risk involved; and has passed such when a firm or person has been licensed as a public
qualifying written examination that the Commissioner adjuster, he shall not be granted another license as
shall conduct at such time and in such place as he may independent adjuster and vice versa.
decide to hold for applicants desiring to act as
underwriters. No license, however, shall be required of any
company adjuster who is a salaried employee of an
Such examination shall not be required of any person insurance company for the adjustment of claims filed
who has served as non-life company underwriter for a under policies issued by such insurance company.
period of at least five (5) years, if the Commissioner is
satisfied of the applicant's competence as shown by the SECTION 335. Such license or any renewal thereof
results of his underwriting work in the non-life insurance may be issued by the Commissioner upon written


application filed by the person interested on the form or the Commissioner who shall, during his tenure of office,
forms prescribed by the Commissioner, which shall be directly responsible for the direction and supervision
contain such information as he may require, and upon of all actuarial work connected with or that may be
payment of the corresponding fee hereinafter prescribed. involved in the business of the insurance company. The
SECTION 336. The Commissioner shall conduct, at Commissioner may also require non-life insurance
such times, and in such places as he may decide to hold, companies to engage the services of an accredited
written examinations to determine the competence and actuary, in accordance with the rules and regulations that
ability of applicants desiring to act as adjuster of the Commissioner will formulate.
insurance claims. SECTION 345. Any person may be officially accredited
SECTION 337. No adjuster's license issued hereunder by the Commissioner to act as an actuary in any life
shall be valid after December 31 of the third year following insurance company or in any mutual benefit association
the issuance of such license unless it is renewed. authorized to do business in the Philippines upon
application therefor and the payment of the
SECTION 338. Nothing contained in this title shall corresponding fee hereinafter prescribed: Provided, That:
apply to any duly licensed attorney-at-law who acts or
aids in adjusting insurance claims as an incident to the (a) He is a fellow of good standing of the Actuarial
practice of his profession and who does not advertise Society of the Philippines at the time of his appointment
himself as an adjuster. and remains in such good standing during the tenure of
his engagement; or
SECTION 339. The Commissioner may suspend or
revoke any adjuster's license if, after giving notice and (b) In the case of one who is not a fellow of the
hearing to the adjuster concerned, the Commissioner Actuarial Society of the Philippines, he meets all the
finds that the said adjuster: requirements of the said Society for accreditation as a
fellow of the Society, and has been given permission by
(a) Has violated any provision of this Code and of the the pertinent government authorities in the Philippines
circulars, rulings and instructions of the Commissioner or to render services in the Philippines, in the event that he
has violated any law in the course of his dealings as an is not a citizen of the Philippines.
adjuster; or
The registration of the actuary shall be suspended or
(b) Has made a material misstatement in the revoked by the Commissioner on the following grounds:
application for such license; or
(1) Failure to adequately perform required functions
(c) Has been guilty of fraudulent or dishonest and duties under this Code;
practices; or
(2) Failure to disclose conflict of interest;
(d) Has demonstrated his incompetence or
untrustworthiness to act as adjuster; or (3) Failure to comply with the Code of Conduct of the
Actuarial Society of the Philippines; or
(e) Has made patently unjust valuation of loss; or
(4) Such other grounds that may be determined by
(f) Has failed to make a report of the adjustment he the Commissioner.
proposed within sixty (60) days from the date of the filing
of the claim by the insured with the insurer, unless No actuary engaged by a life insurance company
prevented so to do by reasons beyond his control; or shall be at the same time a stockholder or a director of
the board, chief executive officer or chief financial officer
(g) Has refused to allow an examination into his affairs of the company or hold any position that the
or method of doing business as hereinafter provided. Commissioner may determine to have an inherent
SECTION 340. Every adjuster shall submit to the conflict of interest to the position of an actuary.
Commissioner a quarterly report of all losses which are No certificate of registration issued under this title
the subject of adjustment effected by him during each shall be valid after December 31 of the third year following
month in the form prescribed by the Commissioner. The its issuance unless it is renewed.
report shall be filed within one (1) month after the end of
each quarter. SECTION 346. The following documents, which are
from time to time submitted to the Commissioner by a
SECTION 341. Every adjuster shall keep his or its life insurance company authorized to do business in the
books, records, reports, accounts, and vouchers in such Philippines, shall be duly certified by an accredited
manner that the Commissioner or his duly authorized actuary employed by such company:
representatives may readily verify the quarterly reports of
the said adjuster and ascertain whether the said adjuster (a) Policy reserves, claims or loss reserves and net due
has complied with the provisions of law or regulations and deferred premiums.
obligatory upon him or whether the method of doing (b) Statements of bases and net premiums, loading
business of the said adjuster has been fair, just and for gross premiums, and on non-forfeiture values and
honest. reserves, when applying for approval of gross premiums,
SECTION 342. The Commissioner shall, at least once a reserves and non-forfeiture values.
year and whenever he considers the public interest so (c) Policies of insurance under any plan submitted to
demands, cause an examination to be made into the the Commissioner as required by law.
affairs and method of doing business of every adjuster. (d) Annual statements and valuation reports
SECTION 343. Any violation of any provision of this submitted to the Commissioner as required by law.
title shall be punished by a fine of not less than Ten (e) Financial projection showing the probable income
thousand pesos (P10,000.00), or by imprisonment at the and outgo and reserve requirements, enumerating the
discretion of the court: Provided, That, in case of a actuarial assumptions and bases of projections.
partnership, association or corporation, the said penalty
shall be imposed upon the partner, president, manager, (f) Valuation of annuity funds or retirement plans.
managing director, director or person in charge of its The Commissioner may also require non-life
business or responsible for the violation. insurance companies to submit, from time to time,
similar documents which shall be duly certified by an
TITLE 6 Actuaries accredited actuary employed by such company.
SECTION 344. No life insurance company shall be Any life insurance company authorized to do business

licensed to do business in the Philippines nor shall any life in the Philippines may employ any person who is not
insurance company doing business in the Philippines be officially accredited under either of the qualifications for
allowed to continue doing such business unless they shall any kind of actuarial work: Provided, That he shall not, at
engage the services of an actuary duly accredited with


any time, have the authority to certify to the correctness A member means an insurer who participates in or is
of the foregoing documents. entitled to participate in the management of a rating
SECTION 347. No accredited actuary shall serve more organization.
than one client or employer at the same time. However, A subscriber means an insurer which is furnished at
one already in the employ of an insurance company may its request with rates and rating manuals by a rating
be allowed by the Commissioner to serve a mutual organization of which it is not a member.
benefit association or any other insurance company, SECTION 351. Each rating organization shall furnish its
provided the following conditions are first complied with: rating service without discrimination to all of its members
(a) That the request to engage his services by the and subscribers, and shall, subject to reasonable rules
other employer is in writing; and regulations, permit any insurance company doing
(b) That his present employer acquiesced to it in business in the Philippines, not admitted to membership,
writing; and to become a subscriber to its rating services for any kind
of insurance or subdivisions thereof. Notice of proposed
(c) That he furnishes the Commissioner with copies of changes in such rules and regulations shall be given to
said request and acquiescence. subscribers. The reasonableness of any rule or regulation
No external auditor shall be engaged by supervised in its application to subscribers, or the refusal of any
persons or entities unless it has been issued an rating organization to admit an insurance company as a
accreditation certificate by the Commissioner. The subscriber, shall, at the request of any subscriber or any
accreditation certificate shall be valid until December 31 such insurance company, be reviewed by the
of the third year from issuance unless it is revoked or Commissioner at a hearing held upon at least ten (10)
suspended. The Commissioner shall issue rules and days' written notice to such rating organization and to
regulations to govern the accreditation of the external such subscriber or insurance company. The
auditor and the revocation or suspension of the Commissioner may, after such hearing, issue an
accreditation. appropriate order.
SECTION 352. No rating organization or any other
association shall refuse to do business with, or prohibit or
TITLE 7 Rating Organization and Rate Making
prevent the payment of commissions to, any person
SECTION 348. Every organization which now exists or licensed as an insurance broker pursuant to the
which may hereafter be formed for the purpose of provisions of Title 1 of this chapter.
making rates to be used by more than one insurance
SECTION 353. Rating organizations shall be subject to
company authorized to do business in the Philippines
examination by the Commissioner, as often as he may
shall be known as a rating organization. The term rate as
deem such examination expedient, pursuant to the
used in this title shall generally mean the ratio of the
provisions of this Code applicable to the examination of
premium to the amount insured and shall include, as the
insurance companies. He shall cause such an
context may require, either the consideration to be paid
examination of each rating organization to be made at
or charged for insurance contracts, including surety
least once in every five (5) years.
bonds, or the elements and factors forming the basis for
the determination or application of the same, or both. SECTION 354. The Commissioner may suspend or
revoke the license of any rating organization which fails to
SECTION 349. Every rating organization which now
comply with his order within the time limited by such
exists or which may hereafter be formed shall be subject
order, or any extension thereof which he may grant. The
to the provisions of this title.
Commissioner may determine when a suspension of
SECTION 350. No rating organization hereafter license shall become effective and it shall remain in effect
formed shall commence rate-making operations until it for the period fixed by him, unless he modifies or rescinds
shall have obtained a license from the Commissioner. such suspension.
Before obtaining such license, such rating organization
SECTION 355. Any rating organization may subscribe
shall file with the Commissioner a notice of its intention
for or purchase actuarial, technical or other services, and
to commence rate-making operations, a copy of its
such services shall be available to all members and
constitution, articles of agreement or association, or of
subscribers without discrimination.
incorporation, and its bylaws, a list of insurance
companies that have agreed to become members or SECTION 356. Any rating organization may provide for
subscribers, and such other information concerning such the examination of policies, daily reports, binders, renewal
rating organization and its operations as may be required certificates, endorsements or other instruments of
by the Commissioner. If the Commissioner finds that the insurance, or the cancellation thereof, and may make
organization has complied with the provisions of law and reasonable rules governing their submission. Such rules
that it has a sufficient number of members or subscribers shall contain a provision that in the event an insurance
and is otherwise qualified to function as a rating company does not within sixty (60) days furnish
organization, the Commissioner may issue a license to satisfactory evidence to the rating organization of the
such rating organization authorizing it to make rates for correction of any error or omission previously called to its
the kinds of insurance or subdivisions thereof as may be attention by the rating organization, it shall be the duty of
specified in such license. No license issued to a rating the rating organization to notify the Commissioner
organization shall be valid after December 31 of the third thereof. All information so submitted for examination
year following its issuance unless it is renewed. No rating shall be confidential.
organization which now exists and is not licensed SECTION 357. Cooperation among rating
pursuant to this section shall continue rate-making organizations or among rating organizations and insurers
operations until it shall have obtained from the in rate making or in other matters within the scope of this
Commissioner a license which he may issue if satisfied title is hereby authorized, provided the filings resulting
that such organization is complying with the provisions of from such cooperation are subject to all provisions of this
this title. Every rating organization shall notify the title which are applicable to filings generally. The
Commissioner promptly of every change in: Commissioner may review such cooperative activities and
(a) Its constitution, its articles of agreement or practices and if he finds that any such activity or practice
association or its certificate of incorporation, and its is unfair or unreasonable or otherwise inconsistent with
bylaws, rules and regulations governing the conduct of its the provisions of this title, he may issue a written order
business; and specifying in what respects such activity or practice is
unfair or unreasonable or otherwise inconsistent with the
(b) Its list of members and subscribers.
provisions of this title, and requiring the discontinuance
of such activity or practice.


SECTION 358. Every rating organization and every requirements of this title. When a filing is not
insurance company which makes and files its own rates, accompanied by the information upon which the
shall make rates for all risks rated by such organization or insurance company supports such filing, and the
insurance company in accordance with the following Commissioner does not have sufficient information to
provisions: determine whether such filing meets the requirements
(a) Basic classification, manual, minimum, class, or of this title, he shall require such insurance company to
schedule rates or rating plans, shall be made and furnish the information upon which it supports such
adopted for all such risks. Any departure from such rates filing. The information furnished in support of a filing may
shall be in accordance with schedules, rating plans and include:
rules filed with the Commissioner; (a) The experience or judgment of the insurance
(b) Rates shall be reasonable and adequate for the company or rating organization making the filing;
class of risks to which they apply; (b) Its interpretation of any statistical data it relies
(c) No rate shall discriminate unfairly between risks upon;
involving essentially the same hazards and expense (c) The experience of other insurance companies or
elements or between risks in the application of like rating organization; or
charges and credits; (d) Any other relevant factors.
(d) Consideration shall be given to the past and SECTION 364. If the Commissioner finds that any rate
prospective loss experience, including the conflagration filings theretofore filed with him do not comply with the
and catastrophe hazards, if any, to all factors reasonably provisions of this title or that they provide rates or rules
attributable to the class of risks, to a reasonable profit, to which are inadequate, excessive, unfairly discriminatory
commissions paid during the most recent annual period or otherwise unreasonable, he may order the same
and to past and prospective other expenses. In case of fire withdrawn and at the expiration of sixty (60) days
insurance rates, consideration shall be given to the thereafter the same shall be deemed no longer on file.
experience of the fire insurance business during a period Before making any such finding and order, the
of not less than five (5) years next preceding the year in Commissioner shall give notice, not less than ten (10) days
which the review is made; in advance, and a hearing, to the rating organization, or to
(e) Risk may be grouped by classifications for the the insurer, which filed the same. Such order shall not
establishment of rates and minimum premiums. affect any contract or policy made or issued prior to the
Classification rates may be modified to produce rates for expiration of such sixty (60)-day period.
individual risks in accordance with rating plans which SECTION 365. No member or subscriber of a rating
establish standards for measuring variations in hazards or organization, and no insurance company doing business
expense provisions, or both. Such standards may measure in the Philippines, or agent, employee or other
any difference among risks that can be demonstrated to representative of such company, and no insurance broker
have a probable effect upon losses or expenses. shall charge or demand a rate or receive a premium
SECTION 359. No rating organization and no which deviates from the rates, rating plans,
insurance company which makes and files its own rates classifications, schedules, rules and standards, made and
shall make or promulgate any rate or schedule of rates last filed by a rating organization or by or on behalf of the
which is to be applied to any fire risk on the condition insurance company, or shall issue or make any policy or
that the whole amount of insurance on any risk or any contract involving a violation of such rate filings.
specified part thereof shall be placed with the members SECTION 366. Notwithstanding any other provisions
of or subscribers to such rating organization or with such of this title, upon the written application of the insurer,
insurer. stating his reasons therefor, filed with and approved by
SECTION 360. Every insurance company doing the Commissioner, a rate in excess of that provided by a
business in the Philippines shall annually file with the filing otherwise applicable may be used on any specific
rating organization of which it is a member or subscriber, risk.
or with such other agency as the Commissioner may SECTION 367. Whenever the Commissioner shall
designate, a statistical report showing a classification determine, after notice and a hearing, that the rates
schedule of its premiums and losses on all kinds or types charged or filed on any class of risks are excessive,
of insurance business to which Section 358 is applicable, discriminatory, inadequate or unreasonable, he shall
and such other information as the Commissioner may order that such rates be appropriately adjusted. For the
deem necessary or expedient for the administration of purpose of applying the provisions of this section, the
the provisions of this title. Commissioner may from time to time approve
SECTION 361. Every non-life rating organization and reasonable classifications of risks for any or all such
every non-life insurance company doing business in the classes, having due regard to the past and prospective
Philippines shall file with the Commissioner, except as to loss experience, including conflagration or catastrophe
risks which by general custom of the business are not hazards, if any, to all other relevant factors and to a
written according to manual rates or rating plans, every reasonable profit.
rate manual, schedule of rates, classification of risks, SECTION 368. Nothing contained in this title shall be
rating plan, and every other rating rule and every construed as requiring any insurer to become a member
modification of any of the foregoing which it proposes to of or subscriber to any rating organization.
use. An insurance company may satisfy its obligation to
make such filings for any kind or type of insurance by SECTION 369. Agreements may be made among
becoming a member of or subscriber to a rating insurance companies with respect to the equitable
organization which makes such filings for such kind or apportionment among them of insurance which may be
type of insurance, and by authorizing the Commissioner afforded applicants who are in good faith entitled to but
to accept such filings of the rating organization on behalf are unable to procure such insurance through ordinary
of such insurance company. methods and such insurance companies may agree
among themselves on the use of reasonable rates and
SECTION 362. Every manual or schedule of rates and modifications for such insurance, such agreements and
every rating plan filed as provided in the preceding rate modifications to be subject to the approval of the
section shall state or clearly indicate the character and Commissioner: Provided, however, That the provisions of
extent of the coverage to which any such rate or any this section shall not be deemed to apply to workmen's
modification thereof will be applied. compensation insurance.
SECTION 363. The Commissioner shall review filings SECTION 370. No insurance company doing business
as soon as reasonably possible after they have been made in the Philippines or any agent thereof, no insurance
in order to determine whether they meet the broker, and no employee or other representative of any



such insurance company, agent, or broker, shall make, premises of the head office of such bank duly licensed by
procure or negotiate any contract of insurance or the Bangko Sentral ng Pilipinas or any of its branches
agreement as to policy contract, other than is plainly under such rules and regulations which the
expressed in the policy or other written contract issued or Commissioner and the Bangko Sentral ng Pilipinas may
to be issued as evidence thereof, or shall directly or promulgate. To engage in bancassurance arrangement, a
indirectly, by giving or sharing a commission or in any bank is not required to have equity ownership of the
manner whatsoever, pay or allow or offer to pay or allow insurance company. No insurance company shall enter
to the insured or to any employee of such insured, either into a bancassurance arrangement unless it possesses all
as an inducement to the making of such insurance or the requirements as may be prescribed by the
after such insurance has been effected, any rebate from Commissioner and the Bangko Sentral ng Pilipinas.
the premium which is specified in the policy, or any No insurance product under this section, whether life
special favor or advantage in the dividends or other or non-life, shall be issued or delivered unless in the form
benefits to accrue thereon, or shall give or offer to give previously approved by the Commissioner.
any valuable consideration or inducement of any kind,
directly or indirectly, which is not specified in such policy SECTION 376. Personnel tasked to present and sell
or contract of insurance; nor shall any such company, or insurance products within the bank premises shall be
any agent thereof, as to any policy or contract of duly licensed by the Commissioner and shall be subject
insurance issued, make any discrimination against any to the rules and regulations of this Act.
Filipino in the sense that he is given less advantageous SECTION 377. The Commissioner and the Bangko
rates, dividends or other policy conditions or privileges Sentral ng Pilipinas shall promulgate rules and
than are accorded to other nationals because of his race. regulations to effectively supervise the business of
SECTION 371. No insurance company doing business bancassurance.
in the Philippines, and no officer, director, or agent
thereof, and no insurance broker or any other person,
partnership or corporation shall issue or circulate or cause CHAPTER V Security Fund
or permit to be issued or circulated any literature, SECTION 378. There is hereby created a fund to be
illustration, circular or statement of any sort known as the Security Fund which shall be used in the
misrepresenting the terms of any policy issued by any payment of allowed claims against an insurance
insurance company of the benefits or advantages company authorized to transact business in the
promised thereby, or any misleading estimate of the Philippines remaining unpaid by reason of the insolvency
dividends or share of surplus to be received thereon, or of such company. The said Fund may also be used to
shall use any name or title of any policy or class of policies reinsure the policy of the insolvent insurer in any solvent
misrepresenting the true nature thereof; nor shall any insurer authorized to do business in the Philippines as
such company or agent thereof, or any other person, provided in Section 256. The Fund may likewise be used
partnership or corporation make any misleading to pay insured claims which otherwise would not be
representation or incomplete comparison of policies to compensable under the provisions of the policy. No
any person insured in such company for the purpose of payment from the Security Fund shall, however, be made
inducing or tending to induce such person to lapse, to any person who owns or controls ten percent (10%) or
forfeit, or surrender his said insurance. more of the voting shares of stock of the insolvent insurer
SECTION 372. If the Commissioner, after notice and and no payment on any one claim shall exceed Twenty
hearing, finds that any insurance company, rating thousand pesos (P20,000.00).
organization, agent, broker or other person has violated SECTION 379. Such Fund shall consist of all payments
any of the provisions of this title, it shall order the made to the Fund by insurance companies authorized to
payment of a fine not to exceed Twenty-five thousand do business in the Philippines. Payments made by life
pesos (P25,000.00) for each such offense, and shall insurance companies shall be treated separately from
immediately suspend or revoke the license issued to such those made by non-life insurance companies and the
insurance company, rating organization, agent, or broker. corresponding fund shall be called Life Account and
The issuance, procurement or negotiation of a single Non-Life Account, respectively, and shall be held and
policy or contract of insurance shall be deemed a administered as such by the Commissioner in accordance
separate offense. with the provisions of this title. The Life Account shall be
utilized exclusively for disbursements that refer to life
TITLE 8 Provision Common to Agents, Brokers insurance companies, while the Non-Life Account shall be
and Adjusters utilized exclusively for disbursements that refer to non-life
insurance companies.
SECTION 373. A license issued to a partnership,
association or corporation to act as an insurance agent, SECTION 380. All insurance companies doing
general agent, insurance broker, reinsurance broker, or business in the Philippines shall contribute to the
adjuster shall authorize only the individual named in the Security Fund, Life or Non-Life Account, as the case may
license who shall qualify therefor as though an individual be, the aggregate amount of Five million pesos
licensee. The Commissioner shall charge, and the licensee (P5,000,000.00) for each Account. The contributions of
shall pay, a full additional license fee as to each respective the life insurance companies and of the non-life
individual so named in such license in excess of one. insurance companies shall be in direct proportion to the
ratio between a particular life insurance company or a
Licenses and certificates of registration issued under particular non-life insurance company's net worth and
the provisions of this chapter may be renewed by the the aggregate net worth of all life insurance companies
filing of notices of intention on forms to be prescribed by or all non-life insurance companies, as the case may be,
the Commissioner and payment of the fees therefor. as shown in their latest financial statements approved by
SECTION 374. The Commissioner, in consultation with the Commissioner. This proportion applied to the Five
the duly accredited associations representing the million pesos (P5,000,000.00) shall be the contribution of
insurance industry, shall adopt and promulgate acode of a particular company to the corresponding Account of
conduct to promote integrity, honesty and ethical the Security Fund.
business practices among insurance agents, distributors The amount of Five million pesos (P5,000,000.00) in
and other intermediaries. each Account shall be in the form of a revolving trust
fund. The respective contributions of the companies shall
remain as admitted assets in their books and any
TITLE 9 Bancassurance
disbursement therefrom shall be deducted
SECTION 375. The term bancassurance shall mean proportionately from the contributions of each company
the presentation and sale to bank customers by an which will be allowed as deductions for income tax
insurance company of its insurance products within the purposes. Any earnings of the Fund shall be turned over



to the contributing companies in proportion to their title, the Commissioner shall have power to employ such
contributions. counsel, clerks and assistants as he may deem necessary.
In the case of disbursements of funds from the Fund SECTION 385. The expense of administering an
as provided in the foregoing paragraph, the life and Account shall be paid out of the Account concerned. The
non-life companies, as the case may be, shall replenish Commissioner shall serve as administrator of the Fund
the amount disbursed in direct proportion to the and of the Accounts without additional compensation,
individual company's net worth and the aggregate net but may be allowed and paid from the Account
worth of the life or non-life companies, as the case may concerned expenses incurred in the performance of his
be. However, in no case shall the Fund exceed the duties in connection with said Account. The
aggregate amount of Ten million pesos (P10,000,000.00), compensation of those persons employed by the
or Five million pesos (P5,000,000.00) for each Account. Commissioner shall be deemed administration expense
Should the Fund, Life or Non-Life Account, as the case payable from the Account concerned. The Commissioner
may be, be inadequate for a disbursement as provided shall include in his annual report to the Secretary of
for, then the Life or Non-Life companies, as the case may Finance a statement of the expenses of administration of
be, shall contribute to the Fund their respective shares in the Fund and of the Life Account and Non-Life Account
the proportion previously mentioned. for the preceding year.
SECTION 381. The Commissioner may adopt, amend,

and enforce all reasonable rules and regulations CHAPTER VI Compulsory Motor Vehicle Liability
necessary for the proper administration of the Fund and
of the Accounts. In the event any insurer shall fail to make
Insurance
any payment required by this title, or that any payment SECTION 386. For purposes of this chapter:
made is incorrect, he shall have full authority to examine
(a) Motor Vehicle is any vehicle as defined in Section
all the books and records of the insurer for the purpose of
3, paragraph (a) of Republic Act No. 4136, otherwise
ascertaining the facts and shall determine the correct
known as the 'Land Transportation and Traffic Code'.
amount to be paid and may proceed in any court of
competent jurisdiction to recover for the benefit of the (b) Passenger is any fare paying person being
Fund or of the Account concerned any sum shown to be transported and conveyed in and by a motor vehicle for
due upon such examination and determination. Any transportation of passengers for compensation, including
insurer which fails to make any payment to the Fund or to persons expressly authorized by law or by the vehicle's
the Account concerned when due, shall thereby forfeit to operator or his agents to ride without fare.
said Fund or Account concerned a penalty of five percent (c) Third party is any person other than a passenger
(5%) of the amount determined to be due as provided by as defined in this section and shall also exclude a
this title, plus one percent (1%) of such amount for each member of the household, or a member of the family
month of delay or fraction thereof, after the expiration of within the second degree of consanguinity or affinity, of a
the first month of such delay, but the Commissioner, if motor vehicle owner or land transportation operator, as
satisfied that the delay was excusable, may remit all or likewise defined herein, or his employee in respect of
any part of such penalty. The Commissioner, in his death, bodily injury, or damage to property arising out of
discretion, may suspend or revoke the certificate of and in the course of employment.
authority to do business in the Philippines of any
insurance company which shall fail to comply with this (d) Owner or motor vehicle owner means the actual
title or to pay any penalty imposed in accordance legal owner of a motor vehicle, in whose name such
therewith. vehicle is duly registered with the Land Transportation
Office;
SECTION 382. The Accounts created by this title shall
be separate and apart from each other and from any (e) Land transportation operator means the owner or
other fund. The Treasurer of the Philippines shall be the owners of motor vehicles for transportation of passengers
custodian of the Life Account and Non-Life Account of for compensation, including school buses.
the Security Fund; and all disbursements from any (f) Insurance policy or Policy refers to a contract of
Account shall be made by the Treasurer of the Philippines insurance against passenger and third-party liability for
upon vouchers signed by the Commissioner or his death or bodily injuries and damage to property arising
deputy, as hereinafter provided. The moneys of said from motor vehicle accidents.
Account may be invested by the Commissioner only in
bonds or other instruments of debt of the Government of SECTION 387. It shall be unlawful for any land
the Philippines or its political subdivisions or transportation operator or owner of a motor vehicle to
instrumentalities. The Commissioner may sell any of the operate the same in the public highways unless there is
securities in which an Account is invested, if advisable, for in force in relation thereto a policy of insurance or
its proper administration or in the best interest of such guaranty in cash or surety bond issued in accordance
Account. with the provisions of this chapter to indemnify the death,
bodily injury, and/or damage to property of a third-party
SECTION 383. Payments from either the Life or passenger, as the case may be, arising from the use
Insurance Account or Non-Life Account, as the case may thereof.
be, shall be made by the Treasurer of the Philippines to
the Commissioner, upon the authority of appropriate SECTION 388. The Commissioner shall furnish the
certificate filed with him by the Commissioner acting in Land Transportation Office with a list of insurance
such capacity. companies authorized to issue the policy of insurance or
surety bond required by this chapter.
SECTION 384. The Commissioner may, in his
discretion, designate or appoint a duly authorized SECTION 389. The Land Transportation Office shall
representative or representatives to appear and defend not allow the registration or renewal of registration of any
before any court or other body or official having motor vehicle without first requiring from the land
jurisdiction any or all actions or proceedings against transportation operator or motor vehicle owner
principals or assureds on insurance policies or contracts concerned the presentation and filing of a substantiating
issued to them where the insurer has become insolvent documentation in a form approved by the Commissioner
or unable to meet its insurance obligations. The evidencing that the policy of insurance or guaranty in
Commissioner shall have, as of the date of insolvency of cash or surety bond required by this chapter is in effect.
such insurer or as of the date of its inability to meet its SECTION 390. Every land transportation operator and
insurance obligations, only the rights which such insurer every owner of a motor vehicle shall, before applying for
would have had if it had not become insolvent or unable the registration or renewal of registration of any motor
to meet its insurance obligations. For the purpose of this vehicle, at his option, either secure an insurance policy or
surety bond issued by any insurance company authorized



by the Commissioner or make a cash deposit in such (2) Death certificate and evidence sufficient to
amount as herein required as limit of liability for purposes establish the proper payee; or
specified in Section 387. (3) Medical report and evidence of medical or hospital
(a) In the case of a land transportation operator, the disbursement in respect of which refund is claimed;
insurance guaranty in cash or surety bond shall cover (c) Claim may be made against one motor vehicle
liability for death or bodily injuries of third-parties and/or only. In the case of an occupant of a vehicle, claim shall lie
passengers arising out of the use of such vehicle in the against the insurer of the vehicle in which the occupant is
amount not less than Twelve thousand pesos (P12,000.00) riding, mounting or dismounting from. In any other case,
per passenger or third-party and an amount, for each of claim shall lie against the insurer of the directly offending
such categories, in any one accident of not less than that vehicle. In all cases, the right of the party paying the claim
set forth in the following scale: to recover against the owner of the vehicle responsible for
(1) Motor vehicles with an authorized capacity of the accident shall be maintained.
twenty-six (26) or more passengers: Fifty thousand pesos SECTION 392. No land transportation operator or
(P50,000.00); owner of motor vehicle shall be unreasonably denied the
(2) Motor vehicles with an authorized capacity of from policy of insurance or surety bond required by this
twelve (12) to twenty-five (25) passengers: Forty thousand chapter by the insurance companies authorized to issue
pesos (P40,000.00); the same, otherwise, the Land Transportation Office shall
(3) Motor vehicles with an authorized capacity of from require from said land transportation operator or owner
six (6) to eleven (11) passengers: Thirty thousand pesos of the vehicle, in lieu of a policy of insurance or surety
(P30,000.00); bond, a certificate that a cash deposit has been made
with the Commissioner in such amount required as limits
(4) Motor vehicles with an authorized capacity of five of indemnity in Section 390 to answer for the passenger
(5) or less passengers: Five thousand pesos (P5,000.00) and/or third-party liability of such land transportation
multiplied by the authorized capacity. operator or owner of the vehicle.
Provided, however, That such cash deposit made to, No insurance company may issue the policy of
or surety bond posted with, the Commissioner shall be insurance or surety bond required under this chapter
resorted to by him in cases of accidents the indemnities unless so authorized under existing laws.
for which to third-parties and/or passengers are not
settled accordingly by the land transportation operator The authority to engage in the casualty and/or surety
and, in that event, the said cash deposit shall be lines of business of an insurance company that refuses to
replenished or such surety bond shall be restored within issue or renew, without just cause, the insurance policy or
sixty (60) days after impairment or expiry, as the case may surety bond therein required shall be withdrawn
be, by such land transportation operator, otherwise, he immediately.
shall secure the insurance policy required by this chapter. SECTION 393. No cancellation of the policy shall be
The aforesaid cash deposit may be invested by the valid unless written notice thereof is given to the land
Commissioner in readily marketable government bonds, transportation operator or owner of the vehicle and to the
and/or securities. Land Transportation Office at least fifteen (15) days prior
(b) In the case of an owner of a motor vehicle, the to the intended effective date thereof. Upon receipt of
insurance or guaranty in cash or surety bond shall cover such notice, the Land Transportation Office, unless it
liability for death or injury to third-parties in an amount receives evidence of a new valid insurance or guaranty in
not less than that set forth in the following scale in any cash or surety bond as prescribed in this chapter, or an
one accident: endorsement of revival of the cancelled one, shall order
the immediate confiscation of the plates of the motor
(1) Private Cars vehicle covered by such cancelled policy. The same may
(i) Bantam: Twenty thousand pesos (P20,000.00); be reissued only upon presentation of a new insurance
policy or that a guaranty in cash or surety bond has been
(ii) Light: Twenty thousand pesos (P20,000.00); and made or posted with the Commissioner and which meets
(iii) Heavy: Thirty thousand pesos (P30,000.00). the requirements of this chapter, or an endorsement or
revival of the cancelled one.
(2) Other Private Vehicles
SECTION 394. If the cancellation of the policy or
(i) Tricycles, motorcycles and scooters: Twelve surety bond is contemplated by the land transportation
thousand pesos (P12,000.00); operator or owner of the vehicle, he shall, before the
(ii) Vehicles with an unladen weight of 2,600 kilos or policy or surety bond ceases to be effective, secure a
less: Twenty thousand pesos (P20,000.00); similar policy of insurance or surety bond to replace the
(iii) Vehicles with an unladen weight of between 2,601 policy or surety bond to be cancelled or make a cash
kilos and 3,930 kilos: Thirty thousand pesos (P30,000.00); deposit in sufficient amount with the Commissioner, and
and without any gap, file the required documentation with
the Land Transportation Office, and notify the insurance
(iv) Vehicles with an unladen weight over 3,930 kilos: company concerned of the cancellation of its policy or
Fifty thousand pesos (P50,000.00). surety bond.
The Commissioner may, if warranted, set forth SECTION 395. In case of change of ownership of a
schedule of indemnities for the payment of claims for motor vehicle, or change of the engine of an insured
death or bodily injuries with the coverages set forth vehicle, there shall be no need of issuing a new policy
herein. until the next date of registration or renewal of
SECTION 391. Any claim for death or injury to any registration of such vehicle, and: Provided, That the
passenger or third-party pursuant to the provisions of this insurance company shall agree to continue the policy,
chapter shall be paid without the necessity of proving such change of ownership or such change of the engine
fault or negligence of any kind: Provided, That for shall be indicated in a corresponding endorsement by the
purposes of this section: insurance company concerned, and a signed duplicate of
such endorsement shall, within a reasonable time, be
(a) The total indemnity in respect of any person shall filed with the Land Transportation Office.
not be less than Fifteen thousand pesos (P15,000.00);
SECTION 396. In the settlement and payment of
(b) The following proofs of loss, when submitted claims, the indemnity shall not be availed of by any
under oath, shall be sufficient evidence to substantiate accident victim or claimant as an instrument of
the claim: enrichment by reason of an accident, but as an assistance
(1) Police report of accident; and or restitution insofar as can fairly be ascertained.


SECTION 397. Any person having any claim upon the benefit features and which shall be carried out purely
policy issued pursuant to this chapter shall, without any from voluntary contributions collected not regularly
unnecessary delay, present to the insurance company and/or no fixed amount from whomsoever may
concerned a written notice of claim setting forth the contribute, shall be known as a mutual benefit
nature, extent and duration of the injuries sustained as association within the intent of this Code.
certified by a duly licensed physician. Notice of claim Any society, association, or corporation principally
must be filed within six (6) months from the date of organized as a labor union shall be governed by the Labor
accident, otherwise, the claim shall be deemed waived. Code notwithstanding any mutual benefit feature
Action or suit for recovery of damage due to loss or injury provisions in its charter as incident to its organization.
must be brought, in proper cases, with the Commissioner
or the courts within one (1) year from denial of the claim, In no case shall a mutual benefit association be
otherwise, the claimant's right of action shall prescribe. organized and authorized to transact business as a
charitable or benevolent organization, and whenever it
SECTION 398. The insurance company concerned has this feature as incident to its existence, the
shall forthwith ascertain the truth and extent of the claim corresponding charter provision shall be revised to
and make payment within five (5) working days after conform with the provision of this section. Mutual benefit
reaching an agreement. If no agreement is reached, the association, already licensed to transact business as such
insurance company shall pay only the no-fault indemnity on the date this Code becomes effective, having
provided in Section 391 without prejudice to the claimant charitable or benevolent feature shall abandon such
from pursuing his claim further, in which case, he shall incidental purpose upon effectivity of this Code if they
not be required or compelled by the insurance company desire to continue operating as such mutual benefit
to execute any quit claim or document releasing it from associations.
liability under the policy of insurance or surety bond
issued. SECTION 404. A mutual benefit association, before it
may transact as such, must first secure a license from the
In case of any dispute in the enforcement of the Commissioner. The application for such license shall be
provisions of any policy issued pursuant to this chapter, filed with the Commissioner together with certified true
the adjudication of such dispute shall be within the copies of the articles of incorporation or the constitution
original and exclusive jurisdiction of the Commissioner, and bylaws of the association, and all amendments
subject to the limitations provided in Section 439. thereto, and such other documents or testimonies as the
SECTION 399. It shall be unlawful for a land Commissioner may require.
transportation operator or owner of motor vehicle to No license shall be granted to a mutual benefit
require his or its drivers or other employees to contribute association until the Commissioner shall have been
in the payment of premiums. satisfied by such examination as he may make and such
SECTION 400. No government office or agency evidence as he may require that the association is
having the duty of implementing the provisions of this qualified under existing laws to operate and transact
chapter nor any official or employee thereof shall act as business as such. The Commissioner may refuse to issue a
agent in procuring the insurance policy or surety bond license to any mutual benefit association if, in his
provided for herein. The commission of an agent judgment, such refusal will best promote the interest of
procuring the said policy or bond shall in no case exceed the members of such association and of the people of
ten percent (10%) of the amount of the premiums this country. Any license issued shall expire on the last
therefor. day of December of the third year following its issuance
SECTION 401. Any land transportation operator or and, upon proper application, may be renewed if the
owner of motor vehicle or any other person violating any association is continuing to comply with existing laws,
of the provisions of the preceding sections shall be rules and regulations, orders, instructions, rulings and
punished by a fine of not less than Five hundred pesos decisions of the Commissioner. Every association
(P500.00) and/or imprisonment for not more than six (6) receiving any such license shall be subject to the
months. The violation of Section 390 by a land supervision of the Commissioner: Provided, That no such
transportation operator shall be a sufficient cause for the license shall be granted to any such association if such
revocation of the certificate of public convenience issued association has no actuary.
by the Land Transportation Franchising and Regulatory SECTION 405. No mutual benefit association shall be
Board covering the vehicle concerned. issued a license to operate as such unless it has
SECTION 402. Whenever any violation of the constituted and established a Guaranty Fund by
provisions of this chapter is committed by a corporation depositing with the Commissioner an initial minimum
or association, or by a government office or entity, the amount of Five million pesos (P5,000,000.00) in cash, or in
executive officer or officers of said corporation, government securities with a total value equal to such
association or government office or entity who shall have amount, to answer for any valid benefit claim of any of its
knowingly permitted, or failed to prevent, said violation members.
shall be held liable as principals. All moneys received by the Commissioner for this
purpose must be deposited by him in interest-bearing
deposits with any bank or banks authorized to transact
CHAPTER VII Mutual Benefit Associations and business in the Philippines for the account of the
Trusts for Charitable Uses particular association constituting the Guaranty Fund.
Any accrual to such fund, be it interest earned or
dividend additions on moneys or securities so deposited,
TITLE 1 Mutual Benefit Associations may, with the prior approval of the Commissioner, be
SECTION 403. Any society, association or corporation, withdrawn by the association if there is no pending
without capital stock, formed or organized not for profit benefit claim against it, including interest thereon or
but mainly for the purpose of paying sick benefits to dividend additions thereto.
members, or of furnishing financial support to members The Commissioner, prior to or after licensing a mutual
while out of employment, or of paying to relatives of benefit association, may require such association to
deceased members of fixed or any sum of money, increase its Guaranty Fund from the initial minimum
irrespective of whether such aim or purpose is carried out amount required to an amount equal to the capital
by means of fixed dues or assessments collected regularly investment required of an existing domestic insurance
from the members, or of providing, by the issuance of company under Section 209 of this Code.
certificates of insurance, payment of its members of
accident or life insurance benefits out of such fixed and SECTION 406. Every mutual benefit association
regular dues or assessments, but in no case shall include licensed to do business as such shall issue membership
any society, association, or corporation with such mutual



certificates to its members specifying the benefits to It may also grant loans to members on the security of
which such members are entitled. a pledge or chattel mortgage of personal properties of
Such certificates, together with the articles of the borrowers, or in the absence thereof, on the security
incorporation of the association or its constitution and of the membership certificate of the borrowing
bylaws, and all existing laws as may be pertinent shall members, in which event such loan shall become a first
constitute the agreement, as of the date of its issuance, lien on the proceeds thereof.
between the association and the member. The SECTION 412. The Commissioner or any of his duly
membership certificate shall be in a form previously designated representatives, shall have the power of
approved by the Commissioner. visitation, audit and examination into the affairs, financial
SECTION 407. A mutual benefit association may, by condition, and methods of doing business of all mutual
reinsurance agreement, cede in whole or in part any benefit associations, and he shall cause such examination
individual risk or risks under certificates of insurance to be made at least once every two (2) years or whenever
issued by it, only to a life insurance company authorized it may be deemed proper and necessary. Free access to
to transact business or to a professional reinsurer the books, records and documents of the association shall
authorized to accept life risks in the Philippines: Provided, be accorded to the Commissioner, or to his
That a copy of the draft of such reinsurance agreement representatives, in such manner that the Commissioner
shall be submitted to the Commissioner for his approval. or his representatives may readily verify or determine the
The association may take credit for the reserves on such true affairs, financial condition, and method of doing
ceded risks to the extent reinsured. business of such association. In the course of such
examination, the Commissioner or his duly designated
SECTION 408. The constitution or bylaws of a mutual representatives shall have authority to administer oaths
benefit association must distinctly state the purpose for and take testimony or other evidence on any matter
which dues and/or assessments are made and collected relating to the affairs of the association.
and the portion thereof which may be used for expenses.
All minutes of the proceedings of the board of
Death benefit and other relief funds shall be created directors or trustees of the association, and those of the
and used exclusively for paying benefits due the regular or special meetings of the members, shall be
members under their respective membership taken, and a copy thereof, in English or in Pilipino, shall be
certificates. A general fund shall likewise be created and submitted to the Commissioner's representatives or
used for expenses of administration of the association. examiners in the course of such examination.
A mutual benefit association shall only maintain free A copy of the findings of such examination, together
and unassigned surplus of not more than twenty percent with the recommendations of the Commissioner, shall be
(20%) of its total liabilities as verified by the furnished the association for its information and
Commissioner. Any amount in excess shall be returned to compliance, and the same shall be taken up immediately
the members by way of dividends, enhancing the equity in the meetings of the board of directors or trustees and
value or providing benefits in kind and other relevant of the members of the association.
services. In addition, subject to the approval of the
Commissioner, a mutual benefit association may allocate SECTION 413. Every mutual benefit association shall,
a portion for capacity building and research and annually on or before the thirtieth day of April of each
development such as developing new products and year, render to the Commissioner an annual statement in
services, upgrading and improving operating systems such form and detail as may be prescribed by the
and equipment and continuing member education. Commissioner, signed and sworn to by the president,
secretary, treasurer, and actuary of the association,
SECTION 409. Every outstanding membership showing the exact condition of its affairs on the
certificate must have an equity value equivalent to at preceding thirty-first day of December.
least fifty percent (50%) of the total contributions
collected thereon. The equity value only applies to basic SECTION 414. No money, aid or benefit to be paid,
life insurance product and excludes optional products. provided or tendered by any mutual benefit association,
shall be liable to attachment, garnishment, or other
SECTION 410. Every mutual benefit association must process, or be seized, taken, appropriated, or applied by
accumulate and maintain, out of the periodic dues any legal or equitable process to pay any debt or liability
collected from its members, sufficient reserves for the of a member or beneficiary, or any other person who may
payment of claims or obligations for which it shall hold have a right thereunder, either before or after payment.
funds in securities satisfactory to the Commissioner
consisting of bonds of the Government of the Philippines, SECTION 415. Any member of a mutual benefit
or any of its political subdivisions and instrumentalities, or association shall have the right at all times to change the
in such other good securities as may be approved by the beneficiary or beneficiaries or add another beneficiary or
Commissioner. other beneficiaries in accordance with the rules and
regulations of the association unless he has expressly
The reserve liability shall be established in accordance waived this right in the membership certificate. Every
with actuarial procedures and shall be approved by the association may, under such rules as it may adopt, limit
Commissioner. the scope of beneficiaries and provide that no beneficiary
The articles of incorporation or the constitution and shall have or obtain any vested interest in the proceeds of
bylaws of a mutual benefit association must provide that any certificate until the certificate has become due and
if its reserve as to all or any class of certificates becomes payable under the terms of the membership certificate.
impaired, its board of directors or trustees may require SECTION 416. Any chapter affiliate independently
that there shall be paid by the members to the licensed as a mutual benefit association may consolidate
association the amount of the members' equitable or merge with any other similar chapter affiliate or with
proportion of such deficiency as ascertained by said the mother association.
board and that if the payment be not made it shall stand
as an indebtedness against the membership certificates SECTION 417. Any mutual benefit association may be
of the defaulting members and draw interest not to converted into and licensed as a mutual life insurance
exceed five percent (5%) per annum compounded company by complying with the requirements of the
annually. pertinent provisions of this Code and submitting the
specific plan for such conversion to the Commissioner for
SECTION 411. A mutual benefit association may invest his approval. Such plan, as approved, shall then be
such portion of its funds as shall not be required to meet submitted to the members either in the regular meeting
pending claims and other obligations in any of the classes or in a special meeting called for the purpose for their
of investments or types of securities in which life adoption. The affirmative vote of at least two-thirds (2/3)
insurance companies doing business in the Philippines of all the members shall be necessary in order to consider
may invest. such plan as adopted.


No such conversion shall take effect unless and until with the fruits or income therefrom or in exchange or
approved by the Commissioner. substitution thereof, given to or received by any person,
SECTION 418. No mutual benefit association shall be corporation, association, foundation, or entity, except the
dissolved without first notifying the Commissioner and National Government, its instrumentalities or political
furnishing him with a certified copy of the resolution subdivisions, for charitable, benevolent, educational,
authorizing the dissolution, duly adopted by the pious, religious, or other uses for the benefit of the public
affirmative vote of two-thirds (2/3) of the members at a at large or a particular portion thereof or for the benefit of
meeting called for that purpose, the financial statements an indefinite number of persons.
as of the date of the resolution, and such other papers or SECTION 425. The term trustee shall include any
documents as may be required by the Commissioner. individual, corporation, association, foundation, or entity,
No dissolution shall proceed until and unless except the National Government, its instrumentalities or
approved by the Commissioner and all proceedings in political subdivisions, in charge of, or acting for, or
connection therewith shall be witnessed and attested by concerned with the administration of, the trust referred
his duly designated representative. to in the section immediately preceding and with the
proper application of trust property.
No mutual benefit association shall be officially
declared as dissolved until after the Commissioner so SECTION 426. The term trust property shall include all
certifies that all outstanding claims against the real or personal properties or funds pertaining to the trust
association have been duly settled and liquidated. as well as those acquired with the fruits or income
therefrom or in exchange or substitution thereof.
SECTION 419. The Commissioner shall, after notice
and hearing, have the power either to suspend or revoke SECTION 427. All trustees shall, before entering in the
the license issued to a mutual benefit association if he performance of the duties of their trust, obtain a
finds that the association has: certificate of registration from the Commissioner. The
registration shall expire on December 31 of the third year
(a) Failed to comply with any provision of this Code; following its issuance unless it is renewed.
(b) Failed to comply with any other law or regulation All provisions of this Code governing mutual benefit
obligatory upon it; associations and such other provisions herein, whenever
(c) Failed to comply with any order, ruling, instruction, practicable and necessary, shall be applicable to trusts for
requirement or recommendation of the Commissioner; charitable uses.
(d) Exceeded its power to the prejudice of its SECTION 428. The treasurer of a charitable trust shall
members; file a fidelity bond in the amount commensurate with the
value of the trust property in his custody, as may be
(e) Conducted its business fraudulently or determined by the Commissioner.
hazardously;
(f) Rendered its affairs and condition to one of
insolvency; or CHAPTER VIII Trust Business in General
(g) Failed to carry out its aims and purposes for which SECTION 429. An insurance company may engage in
it was organized due to any cause. limited trust business, consisting of managing funds
pertaining only to retirement and pre-need plans,
After receipt of the order from the Commissioner
provided it has secured a license to do so from the
suspending or revoking the license, the association must
Bangko Sentral ng Pilipinas. This trust business shall be
immediately exert efforts to remove such cause or causes
separate and distinct from the general business of the
which brought about the order and, upon proper
insurance company and shall be subject to rules and
showing, may apply with the Commissioner for the lifting
regulations as may be promulgated by the Bangko
of the order and restoration or revival of the license so
Sentral ng Pilipinas in consultation with the
revoked or suspended.
Commissioner.
SECTION 420. For failure to remove such cause or
causes which brought about the suspension or
revocation of the license of a mutual benefit association, CHAPTER IX Registration, Responsibilities and
the Commissioner shall apply under this Code for an Oversight of Self-Regulatory Organizations
order from the proper court to liquidate such association.
SECTION 430. The Commissioner shall have the
power to register as a self-regulatory organization, or
The provisions of Titles 14 and 15, Chapter III, otherwise grant licenses, and to regulate, supervise,
pertaining to the appointment of a conservator and examine, suspend or otherwise discontinue, as a
proceedings upon insolvency of an insurance company condition for the operation of organizations whose
shall, insofar as practicable, apply to mutual benefit operations are related to or connected with the insurance
associations. market such as, but not limited to, associations of
SECTION 421. To secure the enforcement of any insurance companies, whether life or non-life, reinsurers,
provision under this title, the Commissioner may issue actuaries, agents, brokers, dealers, mutual benefit
such rules, rulings, instructions, orders and circulars. associations, trusts, rating agencies, and other persons
regulated by the Commissioner, which are engaged in
SECTION 422. The violation of any provision of this the business regulated by this Code.
title shall subject the person violating or the officer of the
association responsible therefor to a fine of not less than The Commissioner may prescribe rules and
Ten thousand pesos (P10,000.00), or imprisonment of not regulations which are necessary or appropriate in the
exceeding three (3) years, or both such fine and public interest or for the protection of investors to govern
imprisonment, at the discretion of the court. self-regulatory organizations and other organizations
licensed or regulated pursuant to the authority granted
SECTION 423. All provisions of this Code governing life hereunder including, but not limited to, the requirement
insurance companies and such other provisions of cooperation within and among all participants in the
whenever practicable and necessary, shall be applicable insurance market to ensure transparency and facilitate
to mutual benefit associations. exchange of information.
SECTION 431. An association cannot be registered as a
TITLE 2 Trusts for Charitable Uses self-regulatory organization unless the Commissioner
SECTION 424. The term trust for charitable uses, determines that:
within the intent of this Code, shall include, all the real or (a) The association is so organized and has the
personal properties or funds, as well as those acquired capacity to be able to carry out the purposes of this Code



and to comply with, and to enforce compliance by its the proposed amendment. Otherwise, the same may be
members and persons associated with its members, with made effective by the self-regulatory organization.
the provisions of this Code, the rules and regulations In the event of an emergency requiring action for the
thereunder, and the rules of the association. protection of the insuring public, a self-regulatory
(b) The rules of the association, notwithstanding organization may put a proposed amendment into effect
anything in the Corporation Code to the contrary, provide summarily: Provided, however, That a copy of the same
the following: shall be immediately submitted to the Commissioner.
(1) Qualifications and the disqualifications on The Commissioner is further authorized, if after
membership of the association; making appropriate request in writing to a self-regulatory
(2) A fair representation of its members to serve on organization that such organization effect on its own
the board of directors of the association and the behalf specified changes in its rules and practices and,
administration of its affairs, and that any natural person after due notice and hearing, it determines that such
associated with a juridical entity that is a member shall changes have not been effected, and that such changes
also be deemed to be a member for this purpose; are necessary, by rule or regulation or by order, may alter,
abrogate or supplement the rules of such self-regulatory
(3) The president of the association and at least two organization insofar as necessary or appropriate to effect
(2) independent directors as members of the board of such changes in respect of such matters as:
directors of the association;
(a) Safeguards in respect of the financial
(4) Equitable allocation of reasonable dues, fees, and responsibility of members and adequate provision
other charges among members and other persons using against the evasion of financial responsibility through the
any facility or system which the association operates or use of corporate forms or special partnerships;
controls;
(b) The supervision of market practices;
(5) The prevention of fraudulent and manipulative
acts and practices to protect the insuring public and the (c) The manner, method and place of soliciting
promotion of just and equitable principles of business; business;
(6) Members and persons associated with its (d) The fixing of reasonable rates of fees, interest,
members subject to discipline for violation of any listing and other charges, but not rates of commission;
provision of this Code, the rules or regulations and self-regulatory organization; and
thereunder, or the rules of the association; (e) The supervision, auditing and disciplining of
(7) Fair procedure for the disciplining of members members.
and persons associated with members; and In addition to the general powers of the
(8) The prohibition or limitation of access to services Commissioner over the entities under supervision, the
offered by the association or a member thereof. Commissioner, after due notice and hearing, is
authorized, in the public interest and to protect the
SECTION 432. A self-regulatory organization may insuring public:
examine and verify the qualifications of an applicant to
become a member in accordance with procedures (1) To suspend for a period not exceeding twelve (12)
established by the rules of the association. months or to revoke the registration of a self-regulatory
organization, or to censure or impose limitations on the
A self-regulatory organization shall deny membership activities, functions and operations of such self-regulatory
or condition the membership of an entity, if it does not organization, if the Commission finds that such a
meet the standards of financial responsibility, operational self-regulatory organization has willfully violated or is
capability, training, experience, or competence that are unable to comply with any provision of this Code or of the
prescribed by the rules of the association; or has rules and regulations thereunder, or its own rules, or has
engaged, and there is a reasonable likelihood it will again failed to enforce compliance therewith by a member of,
engage, in acts or practices inconsistent with just and person associated with a member, or a participant in
equitable principles of fair trade. such self-regulatory organization;
A self-regulatory organization may deny membership (2) To expel from a self-regulatory organization any
to an entity not engaged in a type of business in which member thereof or any participant therein who is found
the rules of the association require members to be to have willfully violated any provision of this Code or
engaged. suspend for a period not exceeding twelve (12) months for
SECTION 433. Upon the filing of an application for violation of any provision of this Code or any other law
registration as a self-regulatory organization under this administered by the Commission, or the rules and
title, the Commissioner shall have ninety (90) days within regulations thereunder, or effected, directly or indirectly,
which to either grant registration or institute a any transaction for any person who, such member or
proceeding to determine whether registration should be participant had reason to believe, was violating in respect
denied. In the event proceedings are instituted, the of such transaction any of such provisions; and
Commissioner shall have two hundred seventy (270) days (3) To remove from office or censure any officer or
within which to conclude such proceedings at which director of a self-regulatory organization if it finds that
time he shall, by order, grant or deny such registration. such officer or director has violated any provision of this
SECTION 434. Every self-regulatory organization shall Code, any other law administered by the Commissioner,
comply with the provisions of this Code, the rules and the rules or regulations thereunder and the rules of such
regulations thereunder, and its own rules, and enforce self-regulatory organization, or has abused his authority,
compliance therewith by its members, persons or without reasonable justification or excuse has failed to
associated with its members or its participants, enforce compliance with any of such provisions.
notwithstanding any provision of the Corporation Code to SECTION 436. (a) A self-regulatory organization is
the contrary. authorized to discipline a member of or participant in
SECTION 435. Each self-regulatory organization shall such self-regulatory organization, or any person
submit to the Commissioner for prior approval any associated with a member, including suspending or
proposed rule or amendment thereto, together with a expelling such member or participant, or suspending or
concise statement of the reason and effect of the barring such person from being associated with a
proposed amendment. member, if engaged in acts or practices inconsistent with
just and equitable principles of fairness or in willful
Within sixty (60) days after submission of a proposed violation of any provision of this Code, any other law
amendment, the Commissioner shall, by order, approve administered by the Commission, the rules or regulations
thereunder, or the rules of the self-regulatory
organization. In any disciplinary proceeding by a



self-regulatory organization (other than a summary executed and to perform the duties imposed upon him
proceeding pursuant to paragraph (b) of this section) the by this Code, and shall, notwithstanding any existing laws
self-regulatory organization shall bring specific charges, to the contrary, have sole and exclusive authority to
provide notice to the person charged, afford the person regulate the issuance and sale of variable contracts as
charged with an opportunity to defend against the defined in Section 238 hereof and to provide for the
charges, and keep a record of the proceedings. A licensing of persons selling such contracts, and to issue
determination to impose a disciplinary sanction shall be such reasonable rules and regulations governing the
supported by a written statement of the offense, a same.
summary of the evidence presented and a statement of The Commissioner may issue such rulings,
the sanction imposed. instructions, circulars, orders and decisions as may be
(b) A self-regulatory organization may summarily: deemed necessary to secure the enforcement of the
(1) Suspend a member, participant or person provisions of this Code, to ensure the efficient regulation
associated with a member who has been or is expelled or of the insurance industry in accordance with global best
suspended from any other self-regulatory organization; or practices and to protect the insuring public. Except as
otherwise specified, decisions made by the
(2) Suspend a member who the self-regulatory Commissioner shall be appealable to the Secretary of
organization finds to be in such financial or operating Finance.
difficulty that the member or participant cannot be
permitted to continue to do business as a member with In addition to the foregoing, the Commissioner shall
safety to investors, creditors, other members, participants have the following powers and functions:
or the self-regulatory organization:Provided, That the (a) Formulate policies and recommendations on
self-regulatory organization immediately notifies the issues concerning the insurance industry, advise
Commission of the action taken. Any person aggrieved by Congress and other government agencies on all aspects
a summary action pursuant to this paragraph shall be of the insurance industry and propose legislation and
promptly afforded an opportunity for a hearing by the amendments thereto;
association in accordance with the preceding paragraph. (b) Approve, reject, suspend or revoke licenses or
The Commissioner, by order, may stay a summary action certificates of registration provided for by this Code;
on his own or upon application by any person aggrieved
thereby, if the Commissioner determines summarily or (c) Impose sanctions for the violation of laws and the
after due notice and hearing (which hearing may consist rules, regulations and orders issued pursuant thereto;
solely of the submission of affidavits or presentation of (d) Prepare, approve, amend or repeal rules,
oral arguments), that a stay is consistent with the public regulations and orders, and issue opinions and provide
interest and the protection of the insuring public. guidance on and supervise compliance with such rules,
(c) A self-regulatory organization shall promptly notify regulations and orders;
the Commission of any disciplinary sanction on any (e) Enlist the aid and support of, and/or deputize any
member thereof or participant therein, any denial of and all enforcement agencies of the government in the
membership or participation in such organization, or the implementation of its powers and functions under this
imposition of any disciplinary sanction on a person Code;
associated with a member or a bar of such person from
becoming so associated. Within thirty (30) days after such (f) Issue cease and desist orders to prevent fraud or
notice, any aggrieved person may appeal to the injury to the insuring public;
Commissioner from, or the Commissioner on its own (g) Punish for contempt of the Commissioner, both
motion within such period, may institute review of, the direct and indirect, in accordance with the pertinent
decision of the self-regulatory organization, at the provisions of and penalties prescribed by the Rules of
conclusion of which, after due notice and hearing (which Court;
may consist solely of review of the record before the
self-regulatory organization), the Commissioner shall (h) Compel the officers of any registered insurance
affirm, modify or set aside the sanction. In such corporation or association to call meetings of
proceeding, the Commissioner shall determine whether stockholders or members thereof under its supervision;
the aggrieved person has engaged or omitted to engage (i) Issue subpoena duces tecum and summon
in the acts and practices as found by the self-regulatory witnesses to appear in any proceeding of the Commission
organization, whether such acts and practices constitute and, in appropriate cases, order the examination, search
willful violations of this Code, any other law administered and seizure of all documents, papers, files and records,
by the Commission, the rules or regulations thereunder, tax returns, and books of accounts of any entity or person
or the rules of the self-regulatory organization as under investigation as may be necessary for the proper
specified by such organization, whether such provisions disposition of the cases before it, subject to the provisions
were applied in a manner consistent with the purposes of of existing laws;
this Code, and whether, with due regard for the public (j) Suspend or revoke, after proper notice and hearing,
interest and the protection of investors, the sanction is the license or certificate of authority of any entity or
excessive or oppressive. person under its regulation, upon any of the grounds
provided by law;
CHAPTER X The Insurance Commissioner (k) Conduct an examination to determine compliance
with laws and regulations if the circumstances so warrant
as determined by appropriate rules and regulations;
TITLE l Administrative and Adjudicatory Powers
(l) Investigate not oftener than once a year from the
SECTION 437. The Insurance Commissioner shall be last date of examination to determine whether an
appointed by the President of the Republic of the institution is conducting its business on a safe and sound
Philippines for a term of six (6) years without basis: Provided, That, the deficiencies/irregularities found
reappointment and who shall serve as such until the by or discovered by an audit shall be immediately
successor shall have been appointed and qualified. If the addressed;
Insurance Commissioner is removed before the expiration
of his term of office, the reason for the removal must be (m) Inquire into the solvency and liquidity of the
published. institutions under its supervision and enforce prompt
corrective action;
The Insurance Commissioner shall have the duty to
see that all laws relating to insurance, insurance (n) To retain and utilize, in addition to its annual
companies and other insurance matters, mutual benefit budget, all fees, charges and other income derived from
associations, and trusts for charitable uses are faithfully


the regulation of insurance companies and other cases. The Rules of Court shall have suppletory
supervised persons or entities; application.
(o) To fix and assess fees, charges and penalties as the The party filing an action pursuant to the provisions
Commissioner may find reasonable in the exercise of of this section thereby submits his person to the
regulation; and jurisdiction of the Commissioner. The Commissioner shall
(p) Exercise such other powers as may be provided by acquire jurisdiction over the person of the impleaded
law as well as those which may be implied from, or which party or parties in accordance with and pursuant to the
are necessary or incidental to the express powers granted provisions of the Rules of Court.
the Commission to achieve the objectives and purposes The authority to adjudicate granted to the
of this Code. Commissioner under this section shall be concurrent with
The Commission shall indemnify the Commissioner, that of the civil courts, but the filing of a complaint with
Deputy Commissioner, and other officials of the the Commissioner shall preclude the civil courts from
Commission, including personnel performing supervision taking cognizance of a suit involving the same subject
and examination functions, for all costs and expenses matter.
reasonably incurred by such persons in connection with Any decision, order or ruling rendered by the
any civil or criminal actions, suits or proceedings to which Commissioner after a hearing shall have the force and
they may be made a party to by the reason of the effect of a judgment. Any party may appeal from a final
performance of their duties and functions, unless they are order, ruling or decision of the Commissioner by filing
finally adjudged in such actions, suits or proceedings to with the Commissioner within thirty (30) days from
be liable for negligence or misconduct. receipt of copy of such order, ruling or decision a notice of
In the event of settlement or compromise, appeal to the Court of Appeals in the manner provided for
indemnification shall be provided only in connection with in the Rules of Court for appeals from the Regional Trial
such matters covered by the settlement as to which the Court to the Court of Appeals.
Commission is advised by external counsel that the For the purpose of any proceeding under this section,
persons to be indemnified did not commit any the Commissioner, or any officer thereof designated by
negligence or misconduct. him is empowered to administer oaths and affirmation,
The costs and expenses incurred in defending the subpoena witnesses, compel their attendance, take
aforementioned action, suit or proceeding may be paid evidence, and require the production of any books,
by the Commission in advance of the final disposition of papers, documents, or contracts or other records which
such action, suit or proceeding upon receipt of an are relevant or material to the inquiry.
undertaking by or on behalf of the Commissioner, Deputy A full and complete record shall be kept of all
Commissioner, officer or employee to repay the amount proceedings had before the Commissioner, or the officers
advanced should it ultimately be determined by the thereof designated by him, and all testimony shall be
Commission that the person is not entitled to be taken down and transcribed by a stenographer
indemnified. appointed by the Commissioner.
SECTION 438. In addition to the administrative In order to promote party autonomy in the resolution
sanctions provided elsewhere in this Code, the Insurance of cases, the Commissioner shall establish a system for
Commissioner is hereby authorized, at his discretion, to resolving cases through the use of alternative dispute
impose upon insurance companies, their directors and/or resolution.
officers and/or agents, for any willful failure or refusal to
comply with, or violation of any provision of this Code, or
any order, instruction, regulation, or ruling of the TITLE 2 Fees and Other Sources of Funds
Insurance Commissioner, or any commission or SECTION 440. (a) For the issuance or renewal of
irregularities, and/or conducting business in an unsafe or certificates of authority, licenses and certificates of
unsound manner as may be determined by the Insurance registration, pursuant to pertinent provisions of this Code,
Commissioner, the following: the Commissioner shall collect and receive fees which
(a) Fines not less than Five thousand pesos shall be not less than the following:
(P5,000.00) and not more than Two hundred thousand For each certificate of authority issued to an
pesos (P200,000.00); and insurance company doing business in the Philippines,
(b) Suspension, or after due hearing, removal of Two hundred pesos (P200.00).
directors and/or officers and/or agents. For each special certificate of authority issued to a
SECTION 439. The Commissioner shall have the servicing insurance company, One hundred pesos
power to adjudicate claims and complaints involving any (P100.00).
loss, damage or liability for which an insurer may be For each license issued to a general agent of an
answerable under any kind of policy or contract of insurance company, Fifty pesos (P50.00).
insurance, or for which such insurer may be liable under a
For each license issued to an insurance agent,
contract of suretyship, or for which a reinsurer may be
Twenty-five pesos (P25.00).
sued under any contract of reinsurance it may have
entered into; or for which a mutual benefit association For each license issued to an agent of variable
may be held liable under the membership certificates it contract policy, Twenty-five pesos (P25.00).
has issued to its members, where the amount of any such For each license issued to an insurance broker, One
loss, damage or liability, excluding interest, cost and hundred pesos (P100.00).
attorney's fees, being claimed or sued upon any kind of
insurance, bond, reinsurance contract, or membership For each license issued to a reinsurance broker, One
certificate does not exceed in any single claim Five hundred pesos (P100.00).
million pesos (P5,000,000.00). For each license issued to an insurance adjuster, One
The power of the Commissioner does not cover the hundred pesos (P100.00).
relationship between the insurance company and its For each certificate of registration issued to an
agents/brokers but is limited to adjudicating claims and actuary, Fifty pesos (P50.00).
complaints filed by the insured against the insurance
company. For each certificate of registration issued to a resident
agent, Fifty pesos (P50.00).
The Commissioner may authorize any officer or group
of officers under him to conduct investigation, inquiry For each license issued to a rating organization, One
and/or hearing and decide claims and he may issue rules hundred pesos (P100.00).
governing the conduct of adjudication and resolution of



For each certificate of registration issued to a non-life SECTION 441. The Commissioner, in accordance with
company underwriter, Fifty pesos (P50.00). the rules and regulations of the Department of Budget
For each license issued to a mutual benefit and Management and other relevant regulatory agencies,
association, Ten pesos (P10.00). shall source the salary, allowances and other expenses
from the retained amount of the fees, charges, penalties
For each certificate of registration issued to a trust for and other income from the regulation of insurance
charitable uses, Ten pesos (P10.00). companies and other covered persons and entities, and
All certificates of authority and all other licenses, as from the Insurance Fund, which is created out of the
well as all certificates of registration, issued to any person, proceeds of taxes on insurance premiums mentioned in
partnership, association or corporation under the Section 255 of the National Internal Revenue Code, as
pertinent provisions of this Code for which no expiration amended.
date has been prescribed, shall expire on the last day of Miscellaneous Provisions
December of the third year from its issuance and shall be
renewed upon application therefor and payment of the SECTION 442. Any person, company or corporation
corresponding fee, if the licensee or holder of such license subject to the supervision and control of the
or certificate is continuing to comply with all the Commissioner who violates any provision of this Code, for
applicable provisions of existing laws, and of rules, which no penalty is provided, shall be deemed guilty of a
instructions, orders and decisions of the Commissioner. penal offense, and upon conviction be punished by a fine
not exceeding Two hundred thousand pesos
(b) For the filing of the annual statement referred to (P200,000.00) or imprisonment of six (6) months, or both,
in Section 229, the Commissioner shall collect and receive at the discretion of the court.
from the insurance company so filing a fee of not less
than Five hundred pesos (P500.00): Provided, That a fine If the offense is committed by a company or
of not less than One hundred pesos (P100.00) shall be corporation, the officers, directors, or other persons
imposed and collected by the Commissioner for each responsible for its operation, management, or
week of delay, or any fraction thereof, in the filing of the administration, unless it can be proved that they have
annual statement. taken no part in the commission of the offense, shall
likewise be guilty of a penal offense, and upon conviction
For the filing of annual statement referred to in be punished by a fine not exceeding Two hundred
Section 413, the Commissioner shall collect and receive thousand pesos (P200,000.00) or imprisonment of six (6)
from the mutual benefit association so filing a fee of not months, or both, at the discretion of the court.
less than Ten pesos (P10.00): Provided, That a fine of not
less than Ten pesos (P10.00) shall be imposed and SECTION 443. All criminal actions for the violation of
collected by the Commissioner for each week of delay, or any of the provisions of this Code shall prescribe after
any fraction thereof, in the filing of the annual statement. three (3) years from the discovery of such violation:
Provided, That such actions shall in any event prescribe
(c) For the examination prescribed in Section 253, the after ten (10) years from the commission of such violation.
Commissioner shall collect and receive fees according to
the amount of its total assets, in the case of a domestic SECTION 444. Any person, partnership, association or
company, or of its assets in the Philippines, in the case of corporation heretofore authorized, licensed or registered
a foreign company, not less than the amount as follows: by the Commissioner shall be deemed to have been
authorized, licensed or registered under the provisions of
(1) Two million pesos or more but less than Four this Code and shall be governed by the provisions thereof:
million pesos, Four hundred pesos (P400.00); Provided, however, That where any such person,
(2) Four million pesos or more but less than Six partnership, association or corporation is affected by the
million pesos, Eight hundred pesos (P800.00); new requirements of this Code, said person, partnership,
association or corporation shall, unless otherwise herein
(3) Six million pesos or more but less than Eight provided, be given a period of one (1) year from the
million pesos, One thousand two hundred pesos effectivity of this Code within which to comply with the
(P1,200.00); same.
(4) Eight million pesos or more but less than Ten SECTION 445. Transitory Provision. — Renewal of
million pesos, One thousand six hundred pesos existing licenses, certificates of authority or accreditation
(P1,600.00); which will expire on June 30, 2013 shall be valid until
(5) Ten million pesos or more, Two thousand pesos December 31, 2015. Thereafter, renewal shall be filed on
(P2,000.00); the last day of December every third year following the
date of expiry of the license, certificate of authority or
Provided, That if the said examination is made in accreditation.
places outside the Metropolitan Manila area, besides
these fees, the Commissioner shall require of the SECTION 446. Repealing Clause. — Except as
company examined the payment of the actual and expressly provided by this Code, all laws, decrees, orders,
necessary travelling and subsistence expenses of the rules and regulations or parts thereof, inconsistent with
examiner or examiners concerned. any provision of this Code shall be deemed repealed,
amended or modified accordingly.
For the examination prescribed in Section 412, the
Commissioner shall collect and receive a minimum fee of SECTION 447. Separability Clause. — If any provision
not less than One hundred pesos (P100.00) from the of this Code or any part hereof be declared invalid or
mutual benefit association examined: Provided, That if unconstitutional, the remainder of the law or other
such association has total assets of more than One provisions not otherwise affected shall remain valid and
hundred thousand pesos (P100,000.00), an additional fee subsisting.
of not less than Ten pesos (P10.00) for every Fifty SECTION 448. This Code shall take effect fifteen (15)
thousand pesos (P50,000.00) in excess thereof shall be days following its publication in a newspaper of general
imposed. circulation.
(d) For the filing of an application to withdraw from Approved: August 15, 2013.
the Philippines under Title 18, the Commissioner shall
collect and receive from the foreign company so Published in The Philippine Star on September 5,
withdrawing a fee of not less than One thousand pesos 2013.
(P1,000.00). (Amendments to P.D. No. 612, as Amended (The
(e) The Commissioner may fix and collect fees or Insurance Code), Republic Act No. 10607, [August 15, 2013])
charges for documents, transcripts, or other materials
which may be furnished by him not in excess of
reasonable cost. CA No 65 | Carriage of Goods by Sea Act



and cargo which by the contract of carriage is stated as
October 22, 1936 being carried on deck and is so carried.
COMMONWEALTH ACT NO. 65 (d) The term "ship" means any vessel used for the carriage

of goods by sea.
AN ACT TO DECLARE THAT PUBLIC ACT NUMBERED
FIVE HUNDRED AND TWENTY-ONE, KNOWN AS (e) The term "carriage of goods" covers the period from
"CARRIAGE OF GOODS BY SEA ACT," ENACTED BY THE the time when the goods are loaded on to the time when
SEVENTY-FOURTH CONGRESS OF THE UNITED STATES, they are discharged from the ship.
BE ACCEPTED, AS IT IS HEREBY ACCEPTED BY THE Risks
NATIONAL ASSEMBLY SECTION 2. Subject to the provisions of section 6, under
WHEREAS, the Seventy-fourth Congress of the United every contract of carriage of goods by sea, the carrier in
States enacted Public Act Numbered Five hundred and relation to the loading, handling, stowage,carriage,
twenty-one, entitled: custody, care, and discharge of such goods, shall be
"Carriage of Goods by Sea Act"; subject to the responsibilities and liabilities and entitled
to the rights and immunities hereinafter set forth.
WHEREAS, the primordial purpose of the said Act is to
bring about uniformity in ocean bills of lading and to give Responsibilities and Liabilities
effect to the Brussels Treaty, signed by the United States SECTION 3. (1) The carrier shall be bound, before and at
with other powers; the beginning of the voyage, to exercise due diligence
WHEREAS, the Government of the United States has left to —
it to the Philippine Government to decide whether or not (a) Make the ship seaworthy;
the said Act shall apply to carriage of goods by sea in (b) Properly man, equip, and supply the ship;
foreign trade to and from Philippine ports;
(c) Make the holds, refrigerating and cooling chambers,
WHEREAS, the said Act of Congress contains advanced and all other parts of the ship in which goods are carried,
legislation, which is in consonance with modern maritime fit and safe for their reception,carriage and preservation.
rules and the practices of the great shipping countries of
the world; (2) The carrier shall properly and carefully load, handle,
stow, carry, keep, care for, and discharge the goods
WHEREAS, shipping companies, shippers, and marine carried.
insurance companies, and various chambers of
commerce, which are directly affected by such legislation, (3) After receiving the goods into his charge the carrier, or
have expressed their desire that said Congressional Act the master or agent of the carrier, shall, on demand of the
be made applicable and extended to the Philippines; shipper, issue to the shipper a bill of lading showing
therefore, be it enacted by the National Assembly of the among other things —
Philippines: (a) The leading marks necessary for identification of the
SECTION 1. That the provisions of Public Act Numbered goods as the same are furnished in writing by the shipper
Five hundred and twenty-one of the Seventy-fourth before the loading of such goods starts, provided such
Congress of the United States, approved on April marks are stamped or otherwise shown clearly upon the
sixteenth, nineteen hundred and thirty-six, be accepted, goods if uncovered, or on the cases or coverings in which
as it is hereby accepted to be made applicable to all such goods are contained, in such a manner as should
contracts for the carriage of goods by sea to and from ordinarily remain legible until the end of the voyage.
Philippine ports in foreign trade: Provided, That nothing (b) Either the number of packages or pieces, or the
in this Act shall be construed as repealing any existing quantity or weight, as the case may be, as furnished in
provision of the Code of Commerce which is now in force, writing by the shipper.
or as limiting its application.
(c) The apparent order and condition of the goods:
SECTION 2. This Act shall take effect upon its approval. Provided,That no carrier, master, or agent of the carrier,
Approved: October 22, 1936 shall be bound to state or show in the bill of lading any
marks, number, quantity, or weight which he has
AN ACT RELATING TO THE CARRIAGE OF GOODS BY reasonable ground for suspecting not accurately to
SEA represent the goods actually received, or which he has
Be it enacted by the Senate and House of had no reasonable means of checking.
Representatives of the United States of America in (4) Such a bill of lading shall be prima facie evidence of
Congress assembled, That every bill of lading or similar the receipt by the carrier of the goods as therein
document of title which is evidence of a contract for the described in accordance with paragraphs (3) (a),(b),and (c)
carriage of goods by sea to or from ports of the United of this section: Provided,That nothing in this Act shall be
States, in foreign trade, shall have effect subject to the construed as repealing or limiting the application of any
provisions of this Act. part of the Act, as amended, entitled "An Act relating to
bills of lading in interstate and foreign commerce,"
approved August 29, 1916 (U.S.C.,title 49, secs.
TITLE I 81-124),commonly known as the "Pomerene Bills of
SECTION 1. When used in this Act — Lading Act."
(a) The term "carrier" includes the owner or the charterer (5) The shipper shall be deemed to have guaranteed to
who enters into a contract of carriage with a shipper. the carrier the accuracy at the time of shipment of the
marks, number, quantity, and weight, as furnished by
(b) The term "contract of carriage" applies only to
him; and the shipper shall indemnify the carrier against
contracts of carriage covered by a bill of lading or any
all loss, damages, and expenses arising or resulting from
similar document of title, insofar as such document
inaccuracies in such particulars. The right of the carrier to
relates to the carriage of goods by sea, including any bill
such indemnity shall in no way limit his responsibility and
of lading or any similar document as aforesaid issued
liability under the contract of carriage to any person other
under or pursuant to a charter party from the moment at
than the shipper.
which such bill of lading or similar document of title
regulates the relations between a carrier and a holder of (6) Unless notice of loss or damage and the general
the same. nature of such loss or damage be given in writing to the
carrier or his agent at the port of discharge before or at
(c) The term "goods" includes goods, wares, merchandise,
the time of the removal of the goods into the custody of
and articles of every kind whatsoever, except live animals
the person entitled to delivery thereof under the contract
of carriage, such removal shall be prima facie evidence of


the delivery by the carrier of the goods as described in (g) Arrest or restraint of princes, rulers, or people, or
the bill of lading. If the loss or damage is not apparent, seizure under legal process;
the notice must be given within three days ofthe delivery. (h) Quarantine restrictions;
Said notice of loss or damage may be endorsed upon the (i) Act or omission of the shipper or owner of the goods,
receipt for the goods given by the person taking delivery his agent or representative;
thereof.
(j) Strikes or lockouts or stoppage or restraint of labor
The notice in writing need not be given if the state of the from whatever cause, whether partial or general;
goods has at the time of their receipt been the subject of Provided,That nothing herein contained shall be
joint survey or inspection. construed to relieve a carrier from responsibility for the
In any event the carrier and the ship shall be discharged carrier's own acts;
from all liability in respect of loss or damage unless suit is (k) Riots and civil commotions;
brought within one year after delivery of the goods or the
date when the goods should have been delivered: (l) Saving or attempting to save life or property at sea;
Provided,That if a notice of loss or damage, either (m) Wastage in bulk or weight or any other loss or
apparent or concealed, is not given as provided for in this damage arising from inherent defect, quality, or vice of
section, that fact shall not affect or prejudice the right of the goods;
the shipper to bring suit within one year after the delivery
of the goods or the date when the goods should have (n) Insufficiency of packing;
been delivered. (o) Insufficiency or inadequacy of marks;
In the case of any actual or apprehended loss or damage, (p) Latent defects not discoverable by due diligence; and
the carrier and the receiver shall give all reasonable
facilities to each other for inspecting and tallying the (q) Any other cause arising without the actual fault and
goods. privity of the carrier and without the fault or neglect of
the agents or servants of the carrier, but the burden of
(7) After the goods are loaded the bill of lading to be proof shall be on the person claiming the benefit of this
issued by the carrier, master, or agent of the carrier to the exception to show that neither the actual fault or privity
shipper shall, if the shipper so demands, be a "shipped" of the carrier nor the fault or neglect of the agents or
bill of lading: Provided,That if the shipper shall have servants of the carrier contributed to the loss or damage.
previously taken up any document of title to such goods,
he shall surrender the same as against the issue of the (3) The shipper shall not be responsible for loss or
"shipped" bill of lading, but at the option of the carrier damage sustained by the carrier or the ship arising or
such document of title may be noted at the port of resulting from any cause without the act, fault, or neglect
shipment by the carrier, master, or agent with the name of the shipper, his agents, or his servants.
or names of the ship or ships upon which the goods have (4) Any deviation in saving or attempting to save life or
been shipped and the date or dates of shipment, and property at sea, or any reasonable deviation shall not be
when so noted the same shall for the purpose of this deemed to be an infringement or breach of this Act or of
section be deemed to constitute a "shipped" bill of lading. the contract of carriage, and the carrier shall not be liable
(8) Any clause, covenant, or agreement in a contract of for any loss or damage resulting therefrom: Provided,
carriage relieving the carrier or the ship from liability for however,That if the deviation is for the purpose of loading
loss or damage to or in connection with the goods, or unloading cargo or passengers it shall, prima facie,be
arising from negligence, fault, or failure in the duties and regarded as unreasonable.
obligations provided in this section, or lessening such (5) Neither the carrier nor the ship shall in any event be or
liability otherwise than as provided in this Act, shall be become liable for any loss or damage to or in connection
null and void and of no effect. A benefit of insurance in with the transportation of goods in an amount exceeding
favor of the carrier, or similar clause, shall be deemed to $500 per package lawful money of the United States, or in
be a clause relieving the carrier from liability. case of goods not shipped in packages, per customary
Rights and Immunities freight unit, or the equivalent of that sum in other
currency, unless the nature and value of such goods have
SECTION 4. (1) Neither the carrier nor the ship shall be been declared by the shipper before shipment and
liable for loss or damage arising or resulting from inserted in the bill of lading. This declaration, if embodied
unseaworthiness unless caused by want of due diligence in the bill of lading, shall be prima facie evidence, but
on the part of the carrier to make the ship seaworthy, and shall not be conclusive on the carrier.
to secure that the ship is properly manned, equipped,
and supplied, and to make the holds, refrigerating and By agreement between the carrier, master, or agent of
cool chambers, and all other parts of the ship in which the carrier, and the shipper another maximum amount
goods are carried fit and safe for their reception, carriage, than that mentioned in this paragraph may be fixed:
and preservation in accordance with the provisions of Provided,That such maximum shall not be less than the
paragraph (1) of section 3. Whenever loss or damage has figure above named. In no event shall the carrier be liable
resulted from unseaworthiness, the burden of proving for more than the amount of damage actually sustained.
the exercise of due diligence shall be on the carrier or Neither the carrier nor the ship shall be responsible in any
other persons claiming exemption under this section. event for loss or damage to or in connection with the
(2) Neither the carrier nor the ship shall be responsible for transportation of the goods if the nature or value thereof
loss or damage arising or resulting from — has been knowingly and fraudulently misstated by the
shipper in the bill of lading.
(a) Act, neglect, or default of the master, mariner, pilot, or
the servants of the carrier in the navigation or in the (6) Goods of an inflammable, explosive, or dangerous
management of the ship; nature to the shipment whereof the carrier, master or
agent of the carrier, has not consented with knowledge of
their nature and character, may at any time before
(b) Fire, unless caused by the actual fault or privity of the discharge be landed at any place or destroyed or
carrier; rendered innocuous by the carrier without compensation,
and the shipper of such goods shall be liable for all
(c) Perils, dangers, and accidents of the sea or other damages and expenses directly or indirectly arising out of
navigable waters; or resulting from such shipment. If any such goods
(d) Act of God; shipped with such knowledge and consent shall become
a danger to the ship or cargo, they may in like manner be
(e) Act of war, landed at any place, or destroyed or rendered innocuous
(f) Act of public enemies;


by the carrier without liability on the part of the carrier subject to the provisions of the Carriage of Goods by Sea
except to general average, if any. Act."
Surrender of Rights and Immunities and Increase of SECTION 11. Where under the customs of any trade the
Responsibilities and Liabilities weight of any bulk cargo inserted in the bill of lading is a
SECTION 5. A carrier shall be at liberty to surrender in weight ascertained or accepted by a third party other
whole or in part all or any of his rights and immunities or than the carrier or the shipper, and the fact that the
to increase any of his responsibilities and liabilities under weight is so ascertained or accepted is stated in the bill of
this Act, provided such surrender or increase shall be lading, then, notwithstanding any thing in this Act, the
embodied in the bill of lading issued to the shipper. bill of lading shall not be deemed to be prima facie
evidence against the carrier of the receipt of goods of the
The provisions of this Act shall not be applicable to weight so inserted in the bill of lading, and the accuracy
charter parties; but if bills of lading are issued in the case thereof at the time of shipment shall not be deemed to
of a ship under a charter party, they shall comply with the have been guaranteed by the shipper.
terms of this Act. Nothing in this Act shall be held to
prevent the insertion in a bill of lading of any lawful SECTION 12. Nothing in this Act shall be construed as
provision regarding general average. superseding any part of the Act entitled "An act relating
to navigation of vessels, bills of lading, and to certain
Special Conditions obligations, duties, and rights in connection with the
SECTION 6. Notwithstanding the provisions of the carriage of property," approved February 13, 1893, or of any
preceding sections, a carrier, master or agent of the other law which would be applicable in the absence of
carrier, and a shipper shall, in regard to any particular this Act, insofar as they relate to the duties,
goods be at liberty to enter into any agreement in any responsibilities, and liabilities of the ship or carrier prior to
terms as to the responsibility and liability of the carrier for the time when the goods are loaded on or after the time
such goods, and as to the rights and immunities of the they are discharged from the ship.
carrier in respect of such goods, or his obligation as to SECTION 13. This Act shall apply to all contracts for
seaworthiness (so far as the stipulation regarding carriage of goods by sea to or from ports of the United
seaworthiness is not contrary to public policy),or the care States in foreign trade. As used in this Act the term
or diligence of his servants or agents in regard to the "United States" includes its districts, territories, and
loading, handling, stowage, carriage, custody, care, and possessions: Provided, however,That the Philippine
discharge of the goods carried by sea: Provided,That in Legislature may by law exclude its application to
this case no bill of lading has been or shall be issued and transportation to or from ports of the Philippine Islands.
that the terms agreed shall be embodied in a receipt The term "foreign trade" means the transportation of
which shall be a non-negotiable document and shall be goods between the ports of the United States and ports
marked as such. of foreign countries. Nothing in this Act shall be held to
Any agreement so entered into shall have full legal effect: apply to contracts for carriage of goods by sea between
Provided,That this section shall not apply to ordinary any port of the United States or its possessions, and any
commercial shipments made in the ordinary course of other port of the United States or its possession: Provided,
trade but only to other shipments where the character or however,That any bill of lading or similar document of
condition of the property to be carried or the title which is evidence of a contract for the carriage of
circumstances, terms, and conditions under which the goods by sea between such ports, containing an express
carriage is to be performed are such as reasonably to statement that it shall be subject to the provisions of this
justify a special agreement. Act, shall be subjected hereto as fully as if subject hereto
by the express provisions of this Act: Provided,
SECTION 7. Nothing contained in this Act shall prevent a further,That every bill of lading or similar document of
carrier or a shipper from entering into any agreement, title which is evidence of a contract for the carriage of
stipulation, condition, reservation, or exemption as to the goods by sea from ports of the United States, in foreign
responsibility and liability of the carrier or the ship for the trade, shall contain a statement that it shall have effect
loss or damage to or in connection with the custody and subject to the provisions of this Act.
care and handling of goods prior to the loading on and
subsequent to the discharge from the ship on which the SECTION 14. Upon the certification of the Secretary of
goods are carried by sea. Commerce that the foreign commerce of the United
States in its competition with that of foreign nations is
SECTION 8. The provisions of this Act shall not affect the prejudiced by the provisions, or any of them, of Title I of
rights and obligations of the carrier under the provisions this Act, or by the laws of any foreign country or countries
of the Shipping Act, 1916, or under the provisions of relating to the carriage of goods by sea, the President of
sections 4281 to 4289, inclusive, of the Revised Statutes of the United States, may, from time to time, by
the United States, or of any amendments thereto; or proclamation, suspend any or all provisions of Title I of
under the provisions of any other enactment for the time this Act for such periods of time or indefinitely as may be
being in force relating to the limitation of the liability of designated in the proclamation. The President may at any
the owners of seagoing vessels. time rescind such suspension of Title I hereof, and any
provisions thereof which may have been suspended shall
thereby be reinstated and again apply to contracts
TITLE II thereafter made for the carriage of goods by sea. Any
SECTION 9. Nothing contained in this Act shall be proclamation of suspension or rescission of any such
construed as permitting a common carrier by water to suspension shall take effect on a date named therein,
discriminate between competing shippers similarly which date shall be not less than ten days from the issue
placed in time and circumstances, either (a) with respect of the proclamation.
to their right to demand and receive bills of lading Any contract for the carriage of goods by sea, subject to
subject to the provisions of this Act; or (b) when issuing the provisions of this Act, effective during any period
such bills of lading, either in the surrender of any of the when title I hereof, or any part thereof, is suspended, shall
carrier's rights and immunities or in the increase of any of be subject to all provisions of law now or hereafter
the carrier's responsibilities and liabilities pursuant to applicable to that part of Title I which may have thus
section 5, title I, of this Act; or (c) in any other way been suspended.
prohibited by the Shipping Act, 1916, as amended.
SECTION 15. This Act shall take effect ninety days after the
SECTION 10. Section 25 of the Interstate Commerce Act is date of its approval; but nothing in this Act shall apply
hereby amended by adding the following proviso at the during a period not to exceed one year following its
end of paragraph 4 thereof: "Provided,however,That approval to any contract for the carriage of goods by sea,
insofar as any bill of lading authorized hereunder relates made before the date on which this Act is approved, nor
to the carriage of goods by sea, such bill of lading shall be to any bill of lading or similar document of title issued,


whether before or after such date of approval in (a) The loading marks necessary for identification of the
pursuance of any such contract as aforesaid. goods as the same are furnished in writing by the shipper
SECTION 16. This Act may be cited as the "Carriage of before the loading of such goods starts, provided such
Goods by Sea Act." marks are stamped or otherwise shown clearly upon the
goods if uncovered, in such a manner as should ordinarily
Approved: April 16, 1936 remain legible until the end of the voyage.
(b) Either the number of packages or pieces, or the
quantity or weight, as the case may be, as furnished in
Public Act No 521 | Carriage of Goods by writing by the shipper.
Sea Act (c) The apparent order and conditions of the goods:
Provided, that no carrier, master, or agent of the carrier,
shall be bound to state or show in the bill of lading any
October 22, 1936 marks, number, quantity, or weight which he has
PUBLIC ACT NO. 521 reasonable ground for suspecting not accurately to
represent the good actually received or which he has had
CARRIAGE OF GOODS BY SEA ACT no reasonable means of checking.
SECTION 1. That the provisions of Public Act No. 521 of the (4) Such a bill of lading shall be prima facie evidence of
7th Congress of the United States, approved on April 16, the receipt by the carrier of the goods as therein
1936, be accepted, as it is hereby accepted to be made described in accordance with paragraphs (3) (a),(b),and
applicable to all contracts for the carriage of goods by sea (c),of this section: (The rest of the provision is not
to and from Philippine ports in foreign trade: Provided, applicable to the Philippines).
that nothing in this Act shall be construed as repealing
any existing provision of the Code of Commerce which is (5) The shipper shall be deemed to have guaranteed to
now in force, or as limiting its application. the carrier the accuracy at the time of shipment of the
marks, number, quantity, and weight, as furnished by
SECTION 2. This Act shall take effect upon its approval. him; and the shipper shall indemnify the carrier against
(Approved October 22, 1936). all loss, damages, and expenses arising or resulting from
TITLE I inaccuracies in such particulars. The right of the carrier to
such indemnity shall in no way limit his responsibility and
SECTION 1. When used in this Act — liability under the contract of carriage to any person other
(a) The term "carrier" includes the owner or the charterer than the shipper.
who enters into a contract of carriage with a shipper. (6) Unless notice or loss or damage and the general
(b) The term "contract of carriage" applies only to nature of such loss or damage by given in writing to the
contracts of carriage by covered by a bill of lading or any carrier or his agent at the port of discharge or at the time
similar document of title, insofar as such document of the removal of the goods into the custody of the
relates to the carriage of goods by sea, including any bill person entitled to delivery thereof under the contract of
of lading or any similar document as aforesaid issued carriage, such removal shall be prima facie evidence of
under or pursuant to a character party from the moment the delivery by the carrier of the goods as described in
at which such bill of lading or similar document of title the bill of lading. If the loss or damage is not apparent,
regulates the relations between a carrier and a holder of the notice must be given within three days ofthe delivery.
the same. Said notice of loss or damage may be endorsed upon the
(c) The term "goods" includes goods, wares, merchandise, receipt for the goods given by the person taking delivery
and articles of every kind whatsoever, except live animals thereof.
and cargo which by the contract of carriage is stated as The notice in writing need not be given if the state of the
being carried on deck and is so carried. goods has at the time of their receipt been the subject of
(d) The term "ship" means any vessel used for the carriage joint survey or inspection.
of goods by sea. In any event the carrier and the ship shall be discharged
(e) The term "carriage of goods" covers the period from from all liability in respect of loss or damage unless suit is
the time when the goods are loaded to the time when brought within one year after delivery of the goods or the
they are discharged from the ship. date when the goods should have been delivered:
Provided, that, if a notice of loss or damage, either
RISKS apparent or concealed, is not given as provided for in this
SECTION 2. Subject to the provisions of Section 6, under section, that fact shall not affect or prejudice the right of
every contract of carriage of goods by sea, the carrier in the shipper to bring suit within one year after the delivery
relation to the loading, handling, stowage,carriage, of the goods or the date when the goods should have
custody, care, and discharge of such goods shall be been delivered.
subject to the responsibilities and liabilities and entitled In the case of any actual or apprehended loss or damage,
to the rights and immunities hereinafter set forth. the carrier and the receiver shall give all reasonable
RESPONSIBILITIES AND LIABILITIES facilities to each other for inspecting and tallying the
SECTION 3. (1) The carrier shall be bound before and at goods.
the beginning of the voyage to exercise due diligence (7) After the goods are loaded the bill of lading to be
to — issued by the carrier, master, or agent of the carrier to the
(a) Make the ship seaworthy; shipper shall if the shipper so demands, be a "shipped"
bill of lading: Provided, that if the shipper shall have
(b) Properly man, equip, and supply the ship; previously taken up any document of title to such goods,
(c) Make the holds, refrigerating and cooling chambers, he shall surrender the same as against the issue of the
and all other parts of the ship in which goods are carried, "shipped" bill of lading, but at the option of the carrier
fit and safe for their reception,carriage, and preservation. such document of title may be noted at the port of
shipment by the carrier, master, or agent with the name
(2) The carrier shall properly and carefully load, handle, or names of the ship or ships upon which the goods have
stow, carry, keep, care for, and discharge the goods been shipped and the date or dates of shipment, and
carried. when so noted the same shall for the purpose of this
(3) After receiving the goods into his carrier, or the master section be deemed to constitute a "shipped" bill of lading.
or agent of the carrier, shall, on demand of the shipper, (8) Any clause, covenant, or agreement in a contract of
issue to the shipper a bill of lading showing among other carriage relieving the carrier of the ship from liability for
things — loss or damage to or in connection with the goods,



arising from negligence, fault, or failure in the duties and (5) Neither the carrier nor the ship shall in any event be or
obligations provide in this section or lessening such become liable for any loss or damage to or in connection
liability otherwise than as provided in this Act, shall be with the transportation of goods in an amount exceeding
null and void and of no effect. A benefit of insurance in $500 per package of lawful money of the United States, or
favor of the carrier, or similar clause, shall be deemed to in case of goods not shipped in packages, per customary
be a clause relieving the carrier from liability. freight unit, or the equivalent of that sum in other
RIGHTS AND IMMUNITIES currency, unless the nature and value of such goods have
been declared by the shipper before shipment and
SECTION 4. (1) Neither the carrier nor the ship shall be inserted in the bill of lading. This declaration, if embodied
liable for loss or damage arising or resulting from in the bill of lading, shall be prima facie evidence, but
unseaworthiness unless caused by want of due diligence shall not be conclusive on the carrier.
on the part of the carrier to make the ship seaworthy and
to secure that the ship is properly manned, equipped, By agreement between the carrier, master or agent of the
and supplied, and to make the holds, refrigerating and carrier, and the shipper another maximum amount than
cooling chambers, and all other parts of the ship in which that mentioned in this paragraph may be fixed: Provided,
goods are carried fit and safe for their reception, carriage, that such maximum shall not be less than the figure
and preservation, in accordance with the provisions of above named. In no event shall the carrier be liable for
paragraph (1) of Section (3).Whenever loss or damage has more than the amount of damage actually sustained.
resulted from unseaworthiness, the burden of proving Neither the carrier nor the ship shall be responsible in any
the exercise of due diligence shall be on the carrier or event for loss damage to or in connection with the
other person claiming exemption under this section. transportation of the goods if the nature or value thereof
(2) Neither the carrier nor the ship shall be responsible for has been knowingly and fraudulently mis-stated by the
loss or damage arising or resulting from — shipper in the bill of lading.
(a) Act, neglect, or default of the master, mariner, pilot, or (6) Goods of an inflammable, explosive, or dangerous
the servants of the carrier in the navigation or in the nature to the shipment whereof, the carrier, master or
management of the ship; agent of the carrier, has not consented with knowledge of
their nature and character, may at any time before
(b) Fire, unless caused by the actual fault or privity of the discharge be landed at any place or destroyed or
carrier; rendered innocuous by the carrier without compensation,
(c) Perils, dangers, and accidents of the sea or other and the shipper of such goods shall be liable for all
navigable water; damages and expenses directly or indirectly arising out of
or resulting from such shipment. If any such goods
(d) Act of God; shipped with such knowledge and consent shall become
(e) Act of war; a danger to the ship or cargo, they may in like manner be
landed at any place, or destroyed or rendered innocuous
(f) Act of public enemies; by the carrier without liability on the part of the carrier
(g) Arrest or restraint of princes, rulers, or people, or except to general average if any.
seizure under legal process; SURRENDER OF RIGHTS AND IMMUNITIES AND
(h) Quarantine restrictions; INCREASE OF RESPONSIBILITIES AND LIABILITIES
(i) Act or omission of the shipper or owner of the goods, SECTION 5. A carrier shall be at liberty to surrender in
his agent or representative; whole or in part all or any of his rights and immunities or
(j) Strikes or lockouts or stoppage or restraint of labor to increase any of his responsibilities and liabilities under
from whatever cause, whether partial or general: this Act, provided such surrender or increase shall be
Provided, that nothing herein contained shall be embodied in the bill of lading issued to the shipper.
construed to relieve a carrier from responsibility for the The provisions of this Act shall not be applicable to
carrier's own acts; charter parties; but if bills of lading are issued in the case
(k) Riots and civil commotions; of a ship under a charter party, they shall comply with the
terms of this Act. Nothing in this Act shall be held to
(l) Saving or attempting to save life or property at sea; prevent the insertion in a bill of lading of any lawful
(m) Wastage in bulk or weight or any other loss or provisions regarding general average.
damage arising from inherent defect, quality, or vice of SPECIAL CONDITIONS
the goods;
SECTION 6. Notwithstanding the provisions of the
(n) Insufficiency or packing; preceding section, a carrier, master or agent of the carrier,
(o) Insufficiency or inadequacy of marks; and a shipper shall, in regard to any particular goods be
at liberty to enter into any agreement in any terms as to
(p) Latent defects not discoverable by due diligence; and the responsibility and liability of the carrier for such
(q) Any other cause arising without the actual fault and goods, and as to the rights and immunities of the carrier
privity of the carrier and without the fault or neglect of in respect to such goods, or his obligation to
the agents or servants of the carrier, but the burden of seaworthiness, (so far as the stipulation regarding
proof shall be on the person claiming the benefit of this seaworthiness is contrary to public policy),or the care or
exception to show that neither the actual fault or privity diligence of his servants or agents in regard to the
of the carrier nor the fault or neglect of the agents or loading, handling, stowage, carriage, custody, care and
servants of the carrier contributed to the loss or damage. discharge of the goods carried by sea; provided, that in
this case no bill of lading has been or shall be issued and
(3) The shipper shall not be responsible for loss or that the terms agreed shall be a non-negotiable
damage sustained by the carrier or the ship arising or document and shall be marked as such.
resulting from any cause without the act, or neglect of
the shipper, his agents, or his servants. Any agreement so entered into shall have full legal effect:
Provided, that this section shall not apply to ordinary
(4) Any deviation in saving or attempting to save life or commercial shipments made in the ordinary course of
property at sea, or any reasonable deviation shall not be trade but only to other shipments where the character or
deemed to be an infringement or breach or this Act or of condition of the property to be carried or the
the contract of carriage, and carrier shall not be liable for circumstances, terms and conditions under which the
any loss or damage resulting therefrom: Provided, carriage is to be performed are such as reasonably to
however, that if the deviation is for the purpose of loading justify a special agreement.
or unloading cargo or passengers it shall, prima facie,be
regarded as unreasonable. SECTION 7. Nothing contained in this Act shall prevent a
carrier or a shipper from entering into any agreement,


stipulation, condition, reservation, or exemption as to the thereafter made for carriage of goods by sea. Any
responsibility and liability of the carrier or the ship for the proclamation of suspension or rescission of any such
loss or damage to or in connection with the custody and suspension shall take effect on the date named therein,
care and handling of goods prior to the loading on and which date shall be not less than ten days from the issue
subsequent to the discharge from the ship on which the of the proclamation.
goods are carried by sea. Any contract for the carriage of goods by sea, subject to
SECTION 8. The provisions of this Act shall not affect the the provisions of this Act, effective during any period
rights and obligations of the carrier under the provisions when Title I hereof, or any part thereof, is suspended, shall
of the Shipping Act, 1916, or under the provisions of be subject to all provisions of law now or hereafter
Section 4281 to 4292, inclusive, of the Revised Statutes of applicable to that part of Title I which may have thus
the United States, or of any amendments thereto, or been suspended.
under the provisions of any other enactment for the time SECTION 15. This Act shall take effect ninety days after the
being in force relating to the limitation of the liability of date of its approval; but nothing in this Act shall apply
the owners of seagoing vessels. during a period not to exceed one year following its
TITLE II approval to any contract for the carriage of goods by sea,
SECTION 9. Nothing contained in this Act shall be made before the date on which this Act is approved nor
construed as permitting a common carrier by water to to any bill of lading or similar document of title issued,
discriminate between competing shippers similarly whether before or after such date of approval in
placed in time and circumstances, either (a) with respect pursuance of any such contract as aforesaid.
to their right to demand and receive bills of lading SECTION 16. This Act may be cited as the "Carriage of
subject to the provisions of this Act; or (b) when issuing Goods by Sea Act."
such bills of lading either in the surrender of any of the Approved: April 16, 1936
carrier's rights and immunities or in the increase of any of
the carrier's responsibilities and liabilities pursuant to (Carriage of Goods by Sea Act , Commonwealth Act No.
Section 5, Title I, of this Act; (c) in any other way prohibited 65, [October 22, 1936])
by the Shipping Act, 1916, as amended.
SECTION 10. (Not applicable to the Philippines.)
SECTION 11. When under the custom of any trade the
RA No 4136 | Land Transportation and
weight of any bulk cargo inserted in the bill of lading is a Traffic Code
weight ascertained or accepted by a third party other
than the carrier or the shipper and the fact that the
weight as ascertained or accepted is stated in the bill of June 20, 1964
lading, then notwithstanding anything in this Act, the bill REPUBLIC ACT NO. 4136
of lading shall not be deemed to be prima facie evidence
against the carrier of the receipt of goods of the weight so AN ACT TO COMPILE THE LAWS RELATIVE TO LAND
inserted in the bills of lading, and the accuracy thereof at TRANSPORTATION AND TRAFFIC RULES, TO CREATE A
the time of shipment shall not be deemed to have been LAND TRANSPORTATION COMMISSION AND FOR
guaranteed by the shipper. OTHER PURPOSES
SECTION 12. (Not applicable to the Philippines.)
SECTION 13. This Act shall apply to all contracts for CHAPTER I Preliminary Provisions Article
carriage of goods by seas to or from ports of the United
States in foreign trade. As used in this Act the term
"United States" includes its districts, territories, and ARTICLE I Title and Scope of Act
possessions: Provided, however, that the Philippine SECTION 1.Title of Act. — This Act shall be known as the
Legislature may by law exclude its application to "Land Transportation and Traffic Code."
transportation to or from ports of the Philippine Islands.
The term "foreign trade" means the transportation of SECTION 2.Scope of Act. — The provisions of this Act shall
goods between the ports of the United States and ports control, as far as they apply, the registration and
of foreign countries. Nothing in this Act shall be held to operation of motor vehicles and the licensing of owners,
apply to contracts for carriage of goods by sea between dealers, conductors, drivers, and similar matters.
any port of the United States or its possessions and any
other port of the United States or its possessions: ARTICLE II Definitions
Provided, however, that any bill of lading or similar
document of the title which is evidence of a contract for SECTION 3.Words and Phrases Defined. — As used in
the carriage of goods by sea between such ports, this Act:
containing an express statement that it shall be subject (a)"Motor Vehicle" shall mean any vehicle propelled by
to the provisions of this Act; shall be subjected hereto as any power other than muscular power using the public
fully as if subject hereto by the express provisions of this highways, but excepting road rollers, trolley cars,
Act: Provided, further, that every bill of lading or similar street-sweepers, sprinklers, lawn mowers, bulldozers,
document of title which is evidence of a contract for the graders, fork-lifts, amphibian trucks, and cranes if not
carriage of goods by sea from ports of the United States used on public highways, vehicles which run only on rails
in foreign trade, shall contain a statement that it shall or tracks, and tractors, trailers and traction engines of all
have effect subject to the provisions of this Act. kinds used exclusively for agricultural purposes.
SECTION 14. Upon the certification of the Secretary of Trailers having any number of wheels, when propelled or
Commerce that the foreign commerce of the United intended to be propelled by attachment to a motor
States in its competition with that of foreign nations is vehicle, shall be classified as separate motor vehicle with
prejudiced by the provisions, or any of them, of the Title I no power rating.
of this Act, or by the laws of any foreign country or
(b)"Passenger automobiles" shall mean all pneumatic-tire
countries relating to the carriage of goods by sea, the
vehicles of types similar to those usually known under the
President of the United States may, from time to time by
following terms: touring car, command car, speedster,
proclamation, suspend any or all provisions of Title I of
sports car, roadster, jeep, cycle car (except motor wheel
this Act for such periods of time or indefinitely as may be
and similar small outfits which are classified with
designated in the proclamation. The President may at any
motorcycles), coupe, landaulet, closed car, limousine,
time rescind such suspension of Title I hereof, and any
cabriolet, and sedan.
provisions thereof which may have been suspended shall
thereby be reinstated and again apply to contracts


Motor vehicles with changed or rebuilt bodies, such as to take in a waiting passenger, or to load or unload a
jeepneys, jitneys, or station wagons, using a chassis of the small quantity of freight with reasonable dispatch shall
usual pneumatic-tire passenger automobile type, shall not be considered as "parked", if the motor vehicle again
also be classified as passenger automobile, if their net moves away without delay.
allowable carrying capacity, as determined by the (m)"Tourist" shall mean a foreigner who travels from place
Commissioner of Land Transportation, does not exceed to place for pleasure or culture.
nine passengers and if they are not used primarily for
carrying freight or merchandise.
The distinction between "passenger truck" and ARTICLE III Administration of Act
"passenger automobile" shall be that of common usage: SECTION 4.Creation of the Commission. — (a) There is
Provided, That a motor vehicle registered for more than created under the Department of Public Works and
nine passengers shall be classified as "truck": And Communications an office which shall be designated and
Provided, further, That a "truck with seating known as the Land Transportation Commission,
compartments at the back not used for hire shall be composed of one Commissioner and one Deputy
registered under special "S" classifications. In case of Commissioner, who shall be vested with the powers and
dispute, the Commissioner of Land Transportation shall duties hereafter specified. Whenever the word
determine the classification to which any special type of "Commission" is used in this Act, it shall be deemed to
motor vehicle belongs. mean the Land Transportation Commission, and
(c)"Articulated vehicle" shall mean any motor vehicle with whenever the word "Commissioner" is used in this Act, it
a trailer having no front axle and so attached that part of shall be taken to mean the Commissioner or Deputy
the trailer rests upon motor vehicle and a substantial part Commissioner.
of the weight of the trailer and of its load is borne by the The Commissioner and the Deputy Commissioner shall
motor vehicle. Such a trailer shall be called as be natural-born citizens and residents of the Philippines,
"semi-trailer." and they shall be appointed by the President of the
(d)"Driver" shall mean every and any licensed operator of Philippines, with the consent of the Commission on
a motor vehicle. Appointments of the Congress of the Philippines:
Provided, however, That the present Administrator,
(e)"Professional driver" shall mean every and any driver Assistant Administrator and the personnel of the Motor
hired or paid for driving or operating a motor vehicle, Vehicles Office shall continue in office without the
whether for private use or for hire to the public. necessity of reappointment.
Any person driving his own motor vehicle for hire is a (b)The Commissioner and Deputy Commissioner shall
professional driver. hold office until removed in accordance with the
(f)"Owner" shall mean the actual legal owner of a motor provisions of the Revised Administrative Code.
vehicle, in whose name such vehicle is duly registered (c)The Commissioner shall receive an annual
with the Land Transportation Commission. compensation of twelve thousand pesos and the Deputy
The "owner" of a government-owned motor vehicle is the Commissioner, an annual compensation of ten thousand
head of the office or the chief of the Bureau to which the four hundred pesos. The Commissioner shall be assisted
said motor vehicle belongs. by one head executive assistant (MV regulation adviser or
chief), one administrative officer, one registration
(g)"Dealer" shall mean every person, association, regulation chief, one inspection, examination and
partnership, or corporation making, manufacturing, licensing regulation chief, one law and traffic
constructing, assembling, remodeling, rebuilding, or enforcement regulation chief, one provincial regulation
setting up motor vehicles; and every such entity acting as chief, one utility and property regulation chief, one
agent for the sale of one or more makes, styles, or kinds of accounting officer, one internal chief auditor, and one
motor vehicles, dealing in motor vehicles, keeping the personnel officer, who shall receive an annual
same in stock or selling same or handling with a view to compensation of nine thousand pesos each; eight land
trading same. transportation regional directors who shall receive an
(h)"Garage" shall mean any building in which two or annual compensation of eight thousand four hundred
more motor vehicles, either with or without drivers, are pesos each and eight land transportation assistant
kept ready for hire to the public, but shall not include regional directors, who shall receive an annual
street stands, public service stations, or other public compensation of seven thousand pesos each and ten
places designated by proper authority as parking spaces assistant regulation chiefs, who shall receive an annual
for motor vehicles for hire while awaiting or soliciting compensation of seven thousand pesos each.
business. (d)The Commission shall have its offices in Quezon City
(i)"Gross weight" shall mean the measured weight of a where the present Motor Vehicle Office is located, and
motor vehicle plus the maximum allowable carrying shall establish a regional branch office each in
capacity in merchandise, freight and/or passenger, as Tuguegarao (Cagayan), Baguio City, Pasig (Rizal), Lipa
determined by the Commissioner of Land Transportation. City, San Fernando (La Union), Naga City, Cebu City, Iloilo
City, Cagayan de Oro City, and Davao City, to be headed
(j)"Highways" shall mean every public thoroughfare,
by a regional director who will have immediate
public boulevard, driveway, avenue, park, alley and
administration, supervision and control over all activities
callejon, but shall not include roadway upon grounds
and administration of the Commission in the respective
owned by private persons, colleges, universities, or other
regions.
similar institutions.
The Commissioner shall be responsible for the
(k)"The Commissioner of Land Transportation or his
administration of this Act and shall have, in connection
deputies" shall mean the actual or acting chief of the
therewith, the following powers and duties, in addition to
Land Transportation Commission or such representatives,
those mentioned elsewhere in this Act:
deputies, or assistants as he may, with the approval of the
Secretary of Public Works and Communications, appoint (1)With the approval of the Secretary of Public Works and
or designate in writing for the purpose contemplated by Communications, to issue rules and regulations not in
this Act. conflict with the provisions of this Act, prescribing the
procedure for the examination, licensing and bonding of
(l)"Parking or parked", for the purposes of this Act, shall
drivers; the registration and re-registration of motor
mean that a motor vehicle is "parked" or "parking" if it has
vehicles, transfer of ownership, change of status; the
been brought to a stop on the shoulder or proper edge of
replacement of lost certificates, licenses, badges, permits
a highway, and remains inactive in that place or close
or number plates; and to prescribe the minimum
thereto for an appreciable period of time. A motor vehicle
standards and specifications including allowable gross
which properly stops merely to discharge a passenger or
weight, allowable length, width and height or motor



vehicles, distribution of loads, allowable loads on tires, 1.For hire motor vehicles — on or before the last working
change of tire sizes, body design or carrying capacity day of February.
subsequent to registration and all other special cases 2.Privately-owned motor vehicles — from March one to
which may arise for which no specific provision is the last working day of May.
otherwise made in this Act.
3.All other motor vehicles — from June one to the last
(2)To compile and arrange all applications, certificates, working day of June; except when the plates of such
permits, licenses, and to enter, note and record thereon motor vehicles are returned to the Commission in
transfers, notifications, suspensions, revocations, or Quezon City or to the Office of the Motor Vehicles
judgments of conviction rendered by competent courts Registrar in the provincial or city agency of the
concerning violations of this Act, with the end in view of Commission on or before the last working day of
preserving and making easily available such documents December of the year of issue.
and records to public officers and private persons
properly and legitimately interested therein. (c)Dealers' reports — The Commissioner of Land
Transportation shall require dealers to furnish him with
(3)To give public notice of the certificates, permits, such information and reports concerning the sale,
licenses and badges issued, suspended or revoked and/or importation, manufacture, number of stocks, transfer or
motor vehicles transferred and/or drivers bonded under other transactions affecting motor vehicles as may be
the provisions of this Act. necessary for the effective enforcement of the provisions
(4)The Commissioner of Land Transportation, with the of this Act.
approval of the Secretary of Public Works and (d)Change of motor number prohibited — No repair or
Communications, may designate as his deputy and agent change in the motor vehicle involving the exchange,
any employee of the Land Transportation Commission, or elimination, effacing, or replacing of the original or
such other government employees as he may deem registered serial or motor number as stamped or
expedient to assist in the carrying out the provisions of imprinted, shall be allowed, and any motor vehicle with a
this Act. trace of having its motor number altered or tampered
(5)The Commissioner of Land Transportation and his with shall be refused registration or re-registration, unless
deputies are hereby authorized to make arrest for such is satisfactorily explained and approved by the
violations of the provisions of this Act in so far as motor Commissioner.
vehicles are concerned; to issue subpoena and subpoena (e)Encumbrances of motor vehicles — Mortgages,
duces tecum to compel the appearance of motor vehicle attachments, and other encumbrances of motor vehicles,
operators and drivers and/or other persons or conductors; in order to be valid, must be recorded in the Land
and to use all reasonable means within their powers to Transportation Commission and must be properly
secure enforcement of the provisions of this Act. recorded on the face of all outstanding copies of the
(6)The Commissioner of Land Transportation or his certificates of registration of the vehicle concerned.
deputies may at any time examine and inspect any motor Cancellation or foreclosure of such mortgages,
vehicle to determine whether such motor vehicle is attachments, and other encumbrances shall likewise be
registered, or is unsightly, unsafe, overloaded, improperly recorded, and in the absence of such cancellation, no
marked or equipped, or otherwise unfit to be operated certificate of registration shall be issued without the
because of possible excessive damage to highways, corresponding notation of mortgage, attachment and/or
bridges and/or culverts. other encumbrances.
(7)The Philippine Constabulary and the city and Records of encumbrances of motor vehicles shall be kept
municipal police forces are hereby given the authority by the Land Transportation Commission in chronological
and the primary responsibility and duty to prevent sequence and shall contain, among other things, the
violations of this Act, and to carry out the police provisions time, date and number of the entry in a "Book of Motor
hereof within their respective jurisdictions: Provided, That Vehicles" referring to the creation, cancellation or
all apprehensions made shall be submitted for final foreclosure of the aforesaid mortgages, attachments or to
disposition to the Commissioner and his deputies within other encumbrances.
twenty-four hours from the date of apprehension.
The Land Transportation Commission shall collect a fee of
(8)All cases involving violations of this Act shall be five pesos for every annotation of a mortgage,
endorsed immediately by the apprehending officer to the attachment and/or other encumbrances, or cancellation
Land Transportation Commission. Where such violations thereof.
necessitate immediate action, the same shall be
endorsed to the traffic court, city or municipal court for SECTION 6.Application and Payments for Registration.
summary investigation, hearing and disposition, but in all — Applications and payments for registration shall be
such cases, appropriate notices of the apprehensions and made either personally or by registered mail, and the
the dispositions thereof shall be given to the date of the cancellation of the postage stamps of
Commissioner of Land Transportation by the envelopes containing money order or check shall be
law-enforcement agency and the court concerned. taken as the date of the application and/or payment for
registration: Provided, That the application is properly
Notation of all such dispositions shall be entered in the prepared and the payment for registration is sufficient as
records, and copy shall be mailed to the owner and to the required by law.
driver concerned.
SECTION 7.Registration Classification. — Every motor
vehicle shall be registered under one of the following
CHAPTER II Registration of Motor Vehicles described classifications:
(a)Private passenger automobiles; (b) private trucks; and
ARTICLE I Duty to Register, Reports, Applications, (c) private motorcycles, scooters or motor wheel
attachments. Motor vehicles registered under these
Classifications classifications shall not be used for hire under any
SECTION 5.All Motor Vehicles and Other Vehicles must circumstances and shall not be used to solicit, accept, or
be Registered. — (a) No motor vehicle shall be used or be used to transport passengers or freight for pay.
operated on or upon any public highway of the Laborers necessary to handle freight on board private
Philippines unless the same is properly registered for the trucks may ride on such trucks: Provided, That seats shall
current year in accordance with the provisions of this Act. not be installed in the rear compartment thereof and that
(b)Any registration of motor vehicles not renewed on or only such number of laborers, not exceeding ten, as may
before the date fixed for different classifications, as be needed to handle the kind of freight carried, shall ride
provided hereunder shall become delinquent and invalid: on the truck: Provided, further, That the combined weight


of cargo and passengers does not exceed the registered

2,001 kilos and above 180.00
net capacity of the truck.
For the purpose of this section, a vehicle habitually used
to carry freight not belonging to the registered owner The factory or shipping weight of a private automobile
thereof, or passengers not related by consanguinity or shall be obtained from the Red Book edited by the
affinity within the fourth civil degree to such owner, shall National Market Report, Inc., of the United States of
be conclusively presumed to be "for hire." America:Provided, further, That in the case of
No person shall be allowed to register as private truck any automobiles with altered, changed or rebuilt bodies, the
truck not actually and reasonably necessary to carry out weight as obtained: by actual weighing shall be
his duly licensed business or legitimate occupation or considered the vehicles weight: Provided, furthermore,
industry regularly paying taxes. That the increase registration fees herein prescribed shall
not apply to jeeps and jeepneys for private use or for hire
(d)Public utility automobiles; (e) public utility trucks; (f) and the fees hereof shall be those prescribed for them
taxis and auto-calesas; (g) garage automobiles; (h) garage before the approval of this Act.
trucks; (i) hire trucks: and (j) trucks owned by contractors
and customs brokers and customs agents. Application for The registered passenger capacity of passenger
registration under these classifications shall be automobiles operated for hire or for private use shall be
accompanied by a certificate of public convenience or a determined as follows:
special permit issued by the Public Service Commission, 1.For each adult passenger, a horizontal rectangular area,
and motor vehicles registered under these classifications including seat and feet space, not less than thirty-five
shall be subject to the Public Service Law, rules and centimeters wide and sixty centimeters long, except in
regulations, as well as the provisions of this Act. the front seat, which shall allow an area fifty centimeters
(k)Undertakes wide for the operator.
(l)Dealers — Registrations under this classification are 2.For each half passenger, a horizontal rectangular area,
intended to cover generally and successively all the motor including seat and feet spaces, not less than seventeen
vehicles imported or handled by dealers for sale. Motor and a half centimeters wide by sixty centimeters long,
vehicles registered under the dealer's classification shall, provided that each continuous row of seats shall not be
under no circumstances, be employed to carry allowed to have more than one-half passenger.
passengers or freight in the dealer's business, or for hire. (b)Private motor trucks, passenger buses and trailers with
Such vehicles shall be operated under this classification pneumatic rubber tires, the sum of five pesos for every
only for the purpose of transporting the vehicle itself from hundred kilograms of maximum allowable gross weight
the pier or factory to the warehouse or sales room or for or fraction thereof.
delivery to a prospective purchaser or for test or (c)Private motor trucks, passenger buses and trailers with
demonstration. solid rubber tires or with part-solid and part-pneumatic
(m)Government automobiles; (n) government trucks; and rubber tires, the sum of seven pesos for every hundred
(o) government motorcycles. Motor vehicles owned by kilograms of maximum allowable gross weight or fraction
the Government of the Philippines or any of its political thereof.
subdivisions shall be registered under these (d)Private motorcycles and scooters of two or three
classifications. Motor vehicles owned by government wheels and bicycles with motor attachments, the sum of
corporations, by government employees or by foreign thirty pesos.
governments shall not be registered under this
classification. (e)The fee for registration of motor vehicles for hire shall
be sixty percent more than the fee prescribed for private
(p)Tourists bringing their own motor vehicles to the motor vehicles of the same category.
Philippines may, without registering such motor vehicles,
use the same during but not after ninety days of their (f)The fee for registration of diesel-consuming vehicles
sojourn: Provided, That the motor vehicle displays the shall be fifty percent more than that of vehicles using
number plates for the current year of some other country motor fuel other than diesel oil. The fee for registration of
or state, and said number plates as well as the name and motor vehicles for hire shall be sixty percent more than
address (permanent and temporary) of the owner thereof the fees prescribed for private motor vehicles.
are registered in the Land Transportation Commission (g)No regular registration fees shall be charged for the
prior to the operation of the motor vehicle. general registration of motor vehicles contemplated
If such tourist remain in the Philippines longer than under the dealer's classification: Provided, That the
ninety days, the motor vehicle shall not be operated Commissioner of Land Transportation shall provide
unless registered in accordance with this Act and the appropriate dealer's number plates corresponding to the
corresponding registration fees paid. classification of vehicles hereinbelow described, and
registration fee for every set of such dealer's number
(q)Special. The Commissioner of Land Transportation plates shall be in accordance with the following schedule
may, in his discretion, allow the registration under this of rates:
classification of motor vehicles which do not conform to
the foregoing described regular classification. Two hundred pesos for each truck or trailer;
One hundred pesos for each passenger automobile; and
ARTICLE II Registration Fees Twenty pesos for each motorcycle and the like.
SECTION 8.Schedule of Registration Fees. — Except as (h)Registration under the "Government Motor Vehicle"
otherwise specifically provided in this Act, each classification shall be free of charge, upon request of the
application for renewal of registration of motor vehicles chief of bureau or office concerned.
shall be accompanied by an annual registration fee in
(i)Motor vehicles not intended to be operated or used
accordance with the following schedule:
upon any public highway, or which are operated on
(a)Private automobiles with pneumatic rubber tires, an highways not constructed or maintained by the
amount based on their respective shipping weight or Government, or are intended not to be used or operated
factory weight as indicated in the following schedule: at all, shall be exempt from payment of the registration
fees provided in this Act, but shall each pay an annual
1,000 kilos or less P75.00 recording and service fee of fifteen pesos: Provided,
however, That no refund, credit for, or reimbursement of
1,000 to 1,500 kilos 100.00 registration fees or part thereof shall be made to any
owner on account of the discontinuance of the use or
1,501 to 2,000 kilos 135.00 operation of a motor vehicle subsequent to the payment


of such registration fees: Provided, further, That in the

Freight vehicles with two axles ten meters
event motor vehicles exempted under this section shall
be found operated on any public highways, the regular
registration fees and surcharges shall be collected in Passenger vehicles with two eleven meters
addition to whatever penalties may be imposed for axles
violation of this Act. The Commissioner of Land
Transportation shall provide distinctive number plates for Vehicles with three or more fourteen meters
vehicles exempted from payment of regular registration axles
fees, and the owner of the vehicles concerned shall pay
four pesos for each set of such number plates.
(j)The maximum allowable gross weight of a motor truck, (c)No motor vehicle and/or trailer combination shall
passenger bus, or trailer, upon which to compute the exceed eighteen meters in overall projected length,
registration fee thereof, shall be determined by the including any load carried on such vehicle and trailer.
Commissioner of Land Transportation. He shall, from time
to time as the need of the service may require, prepare, (d)No articulated vehicles shall be allowed to draw or pull
subject to the approval of the Secretary of Public Works a trailer and no vehicle already drawing a trailer shall
and Communications, suitable tables of maximum draw another.
allowable loads per wheel for different sizes and kinds of SECTION 10.Special Permits, Fees For. — The
tires. Commissioner with the approval of the Secretary of
(k)The registration fees provided in this Act for trucks may Public Works and Communications, shall issue
be payable in two equal installment, the first to be paid regulations and schedules of additional fees under which
on or before the last working day of February if for hire, special permits may be issued in the discretion of the
and in March if private; and the second to be paid on or Commissioner or his deputies for each of the following
before the last working day of August: Provided, That the special cases, without which special permit no vehicles
fifty per cent penalty shall apply only to the unpaid shall be operated on the public highways:
balance of the remaining period of delinquency. (a)To operate a motor vehicle or trailer outfit with wheel,
SECTION 9.Permissible Weights and Dimensions of axle, or axle group loads in excess of the limits fixed in
Vehicles in Highways Traffic. — (a) The maximum gross subsection (a) of Section nine hereof or in any regulation
weight and measurement of motor vehicles, unladen or issued by the Commissioner.
with load, permissible on public highways shall be as (b)To operate a motor vehicle the size of which exceeds
specified hereunder, subject to such regulations as the the limit of permissible dimensions specified in
Commissioner with the approval of the Secretary of paragraph (b) of Section nine hereof.
Public Works and Communications, may promulgate, (c)To operate a motor vehicle with any part of the load
from time to time, as the conditions of the public extending beyond the projected width of the vehicle.
highways may warrant and the needs of the service may
require. (d)To pull two trailers behind a motor vehicle.
Permissible maximum weights: (e)For any other special authority relating to the use of
vehicles, not otherwise specifically provided herein.

SECTION 11.Additional Fees. — In addition to the fees
1. Per most heavily loaded three thousand six elsewhere provided in this Act, for each change of
wheel hundred registration, from private to for hire or vice-versa; revision
kilograms; of gross weight rating, change of tire size; transfer of
ownership; replacement of a lost registration certificate,
2. Per most heavily loaded eight thousand number plate, driver's license or permit; badge;
axle kilograms; preparation of affidavit or certified copy of records, or for
any similar circumstances requiring the issue, revision, or
3. Per most heavily loaded fourteen thousand reissue of a certificate of registration, driver's license,
axle group (the two axles of five hundred badge, permit, or other document, a fee of two pesos
the group being at least kilograms. shall be collected.
one meter and less than
The replacement of a lost or utterly spoiled certificate,
two meters apart)
number plate, license, badge or permit shall render the
original invalid.
hundred kilograms. In case of request in writing for certification of data or
facts involving two or more vehicles, a fee of five pesos a
page or part thereof shall be collected for each
An axle weight shall be the total weight transmitted to certification.
the road by all the wheels the centers of which can be
included between the parallel transverse vertical planes SECTION 12.Fee for Original Registration for Part of
one meter apart extending across the full width of the Year. — If any application for the original registration is
vehicles. made during the first quarter of a calendar year, the total
annual fee for the year shall be paid, if made during the
No provincial, city or municipal authority shall enact or second quarter, three-fourths of the annual fee for that
enforce any ordinance or resolution regulating or year shall be paid, if made during the third quarter, one
prescribing the maximum gross weight of any motor half of the annual fee shall be paid, and if made during
vehicle. the fourth quarter, one-fourth of the annual fee shall be
(b)No motor vehicle operating as a single unit shall paid.
exceed the following dimensions: Nothing in this section shall be construed as allowing
quarterly renewals of registrations in order to avoid
payment of fees in advance for the entire year.
Overall width two and SECTION 13.Payment of Taxes Upon Registration. — No
five-tenths meters original registration of motor vehicles subject to payment
of taxes, customs duties or other charges shall be
Overall height four meters accepted unless proof of payment of the taxes due
thereon has been presented to the Commission.
Overall length:


designed and painted with different colors to distinguish

ARTICLE III Registration Certificates, Records, one class from another: Provided, furthermore, That the
Number Plates plates of motor vehicles exempted from payment of
registration fees shall be permanently assigned to such
SECTION 14.Issuance of Certificates of Registration. — A motor vehicles during their entire lifetime while
properly numbered certificate of registration shall be exempted from payment of the fees: And, provided,
issued for each separate motor vehicle after due finally, That the owner thereof shall return such plates to
inspection and payment of corresponding registration the Land Transportation Commission within a period of
fees. seven working days after such owner has lost his
SECTION 15.Use and Authority of Certificate of exemption privilege or has transferred the vehicle to a
Registration. — (a) The said certificate shall be preserved non-exempt owner.
and carried in the car by the owner as evidence of the (b)In case the design of the number plate is such that the
registration of the motor vehicle described therein, and numerals indicating the year of registry are on a
shall be presented with subsequent applications for detachable tag, the Commissioner or his deputies may, in
re-registration, transfer of ownership, or recording of their discretion, issue the said tag only for subsequent
encumbrances: Provided, That in lieu of the certificate of re-registration charging a fee of one peso for each tag
registration a true copy or photostat thereof may be issued.
carried in the motor vehicle.
SECTION 18.Use of Number Plates. — At all times, every
(b)The certificate of registration issued under the motor vehicle shall display in conspicuous places, one in
provisions of this Act for any motor vehicle shall, while the front and one in the rear thereof, the said number plates.
same is valid and effective and has not been suspended
or revoked, be the authority for the operation of such The number plates shall be kept clean and cared for, and
motor vehicle. shall be firmly affixed to the motor vehicle in such a
manner as will make it entirely visible and always legible.
(c)No motor vehicle shall be operated on the public
highways in a manner which would place it under a Except in the case of dealer's number plates which may
classification requiring the payment of a larger be used successively on various motor vehicles in stock,
registration fee than that stated in the certificate of no person shall transfer number plates from one motor
registration. vehicle to another.
No dealer's number plate shall be used on any motor
vehicle after said vehicle has been sold and delivered to a
SECTION 16.Suspension of Registration Certificate. — If purchaser, and no dealer shall allow such dealer's number
on inspection, as provided in paragraph (6) of Section four plates to be used on any motor vehicle after its sale and
hereof, any motor vehicle is found to be unsightly, unsafe, delivery to a purchaser.
overloaded, improperly marked or equipped, or otherwise
unfit to be operated, or capable of causing excessive
damage to the highways, or not conforming to minimum CHAPTER III Operation of Motor Vehicle
standards and specifications, the Commissioner may
refuse to register the said motor vehicle, or if already
registered, may require the number plates thereof to be ARTICLE I License to Drive Motor Vehicles
surrendered to him, and upon seventy-two hours notice SECTION 19.Duty to Procure License. — Except as
to the owner of the motor vehicle, suspend such otherwise specifically provided in this Act, no person shall
registration until the defects of the vehicle are corrected operate any motor vehicle without first procuring a
and/or the minimum standards and specifications fully license to drive a motor vehicle for the current year, nor
complied with. while such license is delinquent, invalid, suspended or
Whenever it shall appear from the records of the revoked.
Commission that during any twelve-month period more The license shall be carried by the driver at all times when
than three warnings for violations of this Act have been operating a motor vehicle, and shall be shown and/or
given to the owner of a motor vehicle, or that the said surrendered for cause and upon demand to any person
owner has been convicted by a competent court more with authority under this Act to confiscate the same.
than once for violation of such laws, the Commissioner
may, in his discretion, suspend the certificate of SECTION 20.License for Enlisted Men Operating
registration for a period not exceeding ninety days and, Government Motor Vehicles. — Enlisted men operating a
thereupon, shall require the immediate surrender of the motor vehicle owned by the Government of the
number plates. Philippines shall be licensed in accordance with the
provisions of this Act, but no license or delinquency fees
Whenever a motor vehicle is found to be underweighed shall be collected therefrom. All licenses so issued shall
the owner thereof shall pay the difference in the bear the words "For Government Vehicles Only" plainly
registration fees corresponding to the shortage in weight marked or stamped in red ink across the face thereof.
plus a fifty per cent surcharge, and until such payment is
made, the certificate of registration of the motor vehicle A license so marked or stamped shall not authorize the
concerned shall be suspended by the Commissioner. holder thereof to operate a private-owned motor vehicle.
After two such suspension, re-registration of the vehicle SECTION 21.Operation of Motor Vehicles by Tourists. —
concerned for one year may be denied. Bona fide tourist and similar transients who are duly
licensed to operate motor vehicles in their respective
The Commissioner shall notify the owner of the motor countries may be allowed to operate motor vehicles
vehicle of any action taken by him under this section. during but not after ninety days of their sojourn in the
SECTION 17.Number Plates, Preparation and Issuance Philippines.
of . — (a) The Commissioner shall cause number plates to If any accident involving such tourist or transient occurs,
be prepared and issued to owners of motor vehicles and which upon investigation by the Commissioner or his
trailers registered under this Act, charging a fee of four deputies indicates that the said tourist or transient is
pesos for each pair including the numerals indicating the incompetent to operate motor vehicles, the
year of registry: Provided, however, That in case no Commissioner shall immediately inform the said tourist
number plates are available, the Commissioner or his or transient in writing that he shall no longer be
deputies may issue, without charge, a written permit permitted to operate a motor vehicle.
temporarily authorizing the operation of any motor
vehicles with other means of identification: Provided, After ninety days, any tourist or transient desiring to
further, That all motor vehicles exempted from payment operate motor vehicles shall pay fees and obtain and
of registration fees, motor vehicles for hire, and carry a license as hereinafter provided.
privately-owned motor vehicles shall bear plates so



SECTION 22.Driver's License, Fees, Examination. — Every fee of five pesos and, in the case of professional
person who desires personally to operate any motor chauffeurs, three copies of a readily-recognized
vehicle shall file an application to the Commissioner or photograph of the applicant, which photograph shall
his deputies for a license to drive motor vehicles: have been taken not exceeding three years prior to the
Provided, however, That no person shall be issued a date of applicant for renewal.
professional driver's license who is suffering from highly Lost license. — In case the license for the previous year
contagious diseases, such as, advanced tuberculosis, has been lost or cannot be produced, the applicant shall
gonorrhea, syphilis, and the like. obtain a duplicate in accord with Section eleven of this
Each such application except in the case of enlisted men Act, on penalty of refusal, by the Commissioner or his
operating government-owned vehicles, shall be deputies, to renew the license: Provided, however, That
accompanied by a fee of five pesos, and shall contain the Commissioner or his deputies may, in their discretion
such information respecting the applicant and his ability accept in lieu of the previous years license, the duly
to operate motor vehicles, as may be required by the signed and sworn statement of an operator to the effect
Commission. that he has not operated any motor vehicle in the
The Commissioner or his deputies shall also ascertain Philippines during the year or years to which no license
that the applicant's sight and hearing are normal, and was issued in his name.
may in their discretion, require a certificate to that effect, The Commissioner and his deputies are hereby
signed by a reputable physician. authorized to administer the oath in connection with
An examination or demonstration to show any applicant's such affidavit.
ability to operate motor vehicles may also be required in SECTION 27.Suspension, Revocation of Driver's License.
the discretion of the Commissioner or his deputies. — (a) The Commissioner may suspend for a period not
SECTION 23.Issuance of Driver's License. — If, after such exceeding three months or, after hearing, revoke any
examination, the Commissioner or his deputy believes driver's license issued under the provisions of this Act,
that the applicant possesses the necessary qualifications and may order any such license to be delivered to him
and is proficient in the operation of motor vehicles, a whenever he has reason to believe that the holder thereof
license shall be issued to such applicant upon payment of is an improper person to operate motor vehicles, or in
five pesos, but prior to the issuance of said license, the operating or using a motor vehicle in, or as an accessory
applicant shall furnish three copies of his recent to, the commission of any crime or act which endangers
photograph to be securely attached to the license, and the public. Any deputy of the Commissioner may, for the
two copies to be filed and kept as provided by this Act. All same cause, suspend for a period not exceeding three
driver's licenses shall bear the signature and right-hand months any driver's license issued under the provisions of
thumb print of the licensee. this Act: Provided, That such suspension may be appealed
to the Commissioner who may, after reviewing the case,
SECTION 24.Use of Driver's License and Badge. — Every confirm, reverse or modify the action taken by such
license issued under the provisions of this Act to any deputy.
driver shall entitle the holder thereof, while the same is
valid and effective and not suspended or revoked, to (b)Whenever during any twelve-month period a driver
operate the motor vehicles described in such license: shall have been convicted at least three times for the
Provided, however, That every licensed professional driver, violations of any provisions of this Act or of any regulation
before operating a public service motor vehicle registered issued by the Commissioner or any municipal or city
under classifications (d) to (j) inclusive of Section seven ordinance relating to motor vehicle traffic not in conflict
hereof, shall secure from the Commissioner, upon with any of the provisions of this Act, the Commissioner
payment of the sum of one peso, a driver's badge which may, in his discretion, revoke or suspend the license of
he shall, at all times while so operating a motor vehicle, such driver for a period not exceeding two years.
display in plain sight on the band of his cap or on his coat (c)The license suspended or revoked under the provisions
or shirt. Such driver's badge shall be of metal with a of subsections (a) and (b) of this section shall not be
plainly readable number assigned to the licensee reinstated unless the driver has furnished a bond in
stamped thereon. accordance with Section twenty-nine of this Act and only
It shall be unlawful for any duly licensed driver to transfer, after the Commissioner has satisfied himself that such
lend or otherwise allow any person to use his license for driver may again safely be permitted to operate a motor
the purpose of enabling such person to operate a motor vehicle.
vehicle. (d)A decision of the Commissioner revoking or refusing
No owner of a motor vehicle shall engage, employ, or hire the reinstatement of a license under the provisions of this
any person to operate such motor vehicle, unless the Section may be appealed to the Secretary of Public Works
person sought to be employed is a duly licensed and Communications.
professional driver. SECTION 28.Driver's Bond. — The Commissioner before
SECTION 25.Driver's Records. — Any driver who changes reinstating any driver's license which has been
his address shall, within fifteen days, notify the suspended or revoked under the provisions of the
Commissioner in writing of his new address, name and preceding section or of any provisions of this Act, may
address of his new employer, the number of the motor require such driver to post a bond in the sum of one
vehicle he is employed to operate, and such other thousand pesos conditioned upon the satisfaction and
information as the Commissioner may require. payment of any claim which may be filed or of any
execution which may be issued against such driver in any
SECTION 26.Renewal of License. — Any license not case wherein said driver may be held answerable while
renewed on or before the last working day of the month operating motor vehicles. The bond required in this
when the applicant was born shall become delinquent section shall be in such form as to render sureties liable at
and invalid, except when the license is surrendered to the least for a period of not less than one year nor more than
Commissioner or his deputies before the last working day three years: Provided, however, That upon written
of the month of his birth in order to avoid payment of the application to the Commissioner for release from such a
delinquency fees. bond, the Commissioner may after revoking or
The fee for renewal of delinquent license shall be five suspending the driver's license, authorize the release of
pesos in addition to the basic fee as hereinabove the bondsmen from further responsibility thereunder:
prescribed. Provided, further, That should the Commissioner decide
not to revoke the license of a driver who has been
Every applicant for renewal of license to operate any convicted of homicide through reckless imprudence, or of
motor vehicle shall present to the Commissioner, in the violation of the speed limit or of reckless driving at
person or by mail or messenger, the license issued to the least three times within a twelve-month period, the said
applicant for the previous year, together with the proper driver shall post a bond in the sum of not less than two



thousand pesos, conditioned upon the payment of any Passenger trucks may be allowed to construct any cargo
claim which may be filed or any execution which may be carrying device at the rear or at the side of the truck,
issued against him in any case wherein said driver may be subject to the approval of the Commissioner:Provided,
held answerable while operating motor vehicles. however, That the total weight of the device, including
SECTION 29.Confiscation of Driver's Licenses. — Law the cargo, shall not exceed one hundred kilos.
enforcement and peace officers duly designated by the (b)Carrying of passengers and freight on top of vehicles.
Commissioner shall, in apprehending any driver for — No person operating a motor vehicle shall allow any
violations of this Act or of any regulations issued pursuant passenger to ride on the cover or top of such vehicles:
thereto, or of local traffic rules and regulations, confiscate Provided, however, That subject to such conditions as
the license of the driver concerned and issue a receipt may be contained in permits that may be issued by the
prescribed and issued by the Commission therefor which Commissioner, baggage or freight may be carried on the
shall authorize the driver to operate a motor vehicle for a top of a truck provided the weight thereof does not
period not exceeding seventy-two hours from the time exceed twenty kilos per square meter and is distributed in
and date of issue of said receipt. The period so fixed in the such a manner as not to endanger the passengers or
receipt shall not be extended, and shall become invalid stability of the truck.
thereafter. Failure of the driver to settle his case within (c)Riding on running boards. — No driver shall permit any
fifteen days from the date of apprehension will cause person to ride on the running board, step board, or
suspension and revocation of his license. mudguard of his motor vehicle for any purpose except to
SECTION 30.Student-Driver's Permit. — Upon proper make repair or adjustment in the motor or to collect fares.
application and the payment of three pesos, the SECTION 33.Passenger or Freight Capacity Marked on
Commissioner or his deputy may issue student-driver's Vehicle. — All passengers automobiles for hire shall have
permits, valid for six months to persons not under the registered passenger capacity plainly and
eighteen years of age, who desire to learn to operate conspicuously marked on both sides thereof, in letters
motor vehicles. No application for driver's license shall be and numerals not less than five centimeters in height.
received unless the applicant has undergone instruction
in the operation of motor vehicles for at least a month All motor trucks, whether for passenger or freight, private,
and has a valid student-driver's permit: Provided,however, or for hire, shall have the registered passenger gross and
That any person who has a license to operate vehicles in net weight capacities plainly and conspicuously marked
other countries may, upon presentation of appropriate on both sides thereof, in letters and numerals not less
evidence of such license, be allowed to pay for a driver's than five centimeters in height.
license without presenting a student driver's permit.
A student driver who fails in the examination shall ARTICLE IV Accessories of Motor Vehicles
continue as a student driver for at least one additional
SECTION 34.(a) Tires of Motor Vehicles. — No motor
month. No student driver shall operate a motor vehicle
vehicle with metallic tires shall be operated upon any
unless accompanied by a duly licensed driver.
public highway, and solid tires whenever used shall be of
The licensed driver acting as instructor to the student sufficient thickness to prevent the metal rims thereof
driver shall likewise be responsible and liable for any from coming in direct contact with the road.
violation of the provisions of this Act and for any injury or
(b)Brakes. — Every motor vehicle with four or more
damage done by the motor vehicle on account or as a
wheels shall be provided with dual hydraulic brake
result of its operation by a student under his direction.
system so that in case of hydraulic line failure affecting
the braking efficiency of any of the four wheels at least
ARTICLE II Illegal Use of Licenses, Number Plates, either the front or rear wheels shall retain normal braking
Etc. capabilities. In the absence of such dual braking system
every motor vehicle with four or more wheels shall be
SECTION 31.Imitation and False Representations. — No provided with safety valve devices of such design and
person shall make or use or attempt to make or use a make so that failure of the hydraulic braking system of
driver's license, badge, certificate of registration, number the vehicle because of leakage in the line or other parts of
plate, tag, or permit in imitation or similitude of those the system will not affect all wheels but rather render at
issued under this Act, or intended to be used as or for a all times effective the braking power of either the two
legal license, badge, certificate, plate, tag or permit, or front wheels or the two rear wheels when brakes are
with intent to sell or otherwise dispose of the same to applied. This requirement, however, does not apply to
another. No person shall falsely or fraudulently represent motor vehicles equipped with pneumatic braking system.
as valid and in force any driver's license, badge, certificate,
plate, tag or permit issued under this Act which is (b-1) Horns. — Every motor vehicle shall be provided with
delinquent or which has been revoked or suspended. a horn or signalling devise in good working order:
Provided, however, That no horn or signalling device
No person shall, knowingly and with intent to deceive, emitting an exceptionally loud, startling, or disagreeable
make one or more false or fraudulent statements in an sound shall be installed or used on any motor vehicle.
application for the registration of vehicles, or for a driver's
license. All authorized emergency vehicles, such as ambulance
and police cars and fire wagons used for emergency calls
shall be equipped with a bell, siren, or exhaust whistle of a
ARTICLE III Passengers and Freight type approved by the Commissioner, and no such device
SECTION 32.Exceeding Registered Capacity. — No shall be installed or used in any other vehicle.
person operating any vehicle shall allow more passenger No vehicle not classified as a motor vehicle under this Act
or more freight or cargo in his vehicle than its registered shall be equipped with a horn or signalling device similar
carrying capacity. In the case of public utility trucks or to the horn customarily used on motor vehicles.
buses, the conductor shall be exclusively liable for
(c)Headlights. — Every motor vehicle of more than one
violations of this section or of Section thirty-two, letter (c)
meter of projected width, while in use on any public
hereof: Provided, That the conductor, before being
highway shall bear two headlights, one on each side, with
employed by any public service operator, shall get a
white or yellowish light visible from the front, which, not
permit or license from the Commission and pay five
later than one-half hour after sunset and until at least
pesos annually for said license or permit issued in his
one-half four before sunrise and whenever weather
favor, and the same is renewable on or before the last
conditions so require, shall both be lighted.
working day of the month of his birth, attaching a readily
recognizable photograph and after presentation of a Additional lamps and light may be carried, but no red
medical certificate of fitness of applicant. lights shall be visible forward or ahead of the vehicle.
Trucks, buses, trailers, and other similar vehicles must


carry, while in use on any public highway during drive any motor vehicle upon a highway at such a speed
night-time, colored riding lights on each of the four as to endanger the life, limb and property of any person,
corners not more than ten centimeters from the top. nor at a speed greater than will permit him to bring the
All motor vehicles shall be equipped with devices for vehicle to a stop within the assured clear distance ahead.
varying the intensity of light, and the driver must dim the (b)Subject to the provisions of the preceding paragraph,
headlights or tilt the beams downward whenever the the rate of speed of any motor vehicle shall not exceed
vehicle is being operated on well-lighted streets within the following:
the limits of cities, municipalities, and thickly populated
barrios or districts, or whenever such vehicle meets
another vehicle on any public highway.
(d)Taillights. — Every motor vehicle and trailer shall,
during the above-mentioned hours, also bear on each
side in the rear a lamp showing a red light visible at least
one hundred meters from the rear of the vehicle and a MAXIMUM ALLOWABLE SPEEDS
lamp throwing a white light upon the number plate
issued for such vehicle. Passenge Motor
(e)Stop lights. — Every motor vehicle shall be equipped at Cars and trucks
the rear with at least one lamp which shall throw a Motorcycle and
sustained bright red light visible under all conditions, buses
even under bright sunlight, when the brakes are applied.
Each bus, truck, trailer or similar vehicle shall be 1. On open country roads, 80 km. per 50 km.
equipped, as its stop light at or near its rear center, with a with no "blinds corners" not hour per hour
lamp at least twelve centimeters in diameter with the closely bordered by
word "stop" inscribed in the center. habitations.
(f)Motorcycle and other vehicle lights. — Every motor 2. On "through streets" or 40 km. per 30 km.
vehicle of less than one meter of projected width shall be boulevards, clear of traffic, hour per hour
subject to the preceding provisions of this section, except with no " blind corners,"
that one headlight and one taillight shall be required. No when so designated.
signal light shall be necessary.
Additional lamps may be carried provided they comply 3. On city and municipal 30 km. per 30 km.
with the preceding provisions of this section. streets, with light traffic, hour per hour
Every motor vehicle, or whatever style, kind, make, when not designated
character, or nature, when upon a highway during the "through streets."
hours above-mentioned, whether in motion or not, shall
have one or more lights so arranged that the same shall 4. Through crowded streets, 20 km. per 20 km.
be visible at least fifty meters from the front and the rear approaching intersections hour per hour
of such vehicle. at "blind corners," passing
school zones, passing other
(g)Lights when parked or disabled. — Appropriate vehicles which are
parking lights or flares visible one hundred meters away stationary, or for similar
shall be displayed at a corner of the vehicle whenever dangerous circumstances.
such vehicle is parked on highways or in places that are
not well-lighted or is placed in such manner as to
endanger passing traffic.
(c)The rates of speed hereinabove prescribed shall not
(h)Windshield wiper. — Every motor vehicle shall be apply to the following:
equipped with a mechanically or electrically operated
(1)A physician or his driver when the former responds to
device for wiping off raindrops or other moisture from its
emergency calls;
front windshield.
(2)The driver of a hospital ambulance on the way to and
(i)Use of red flag. — Whenever the load of any vehicle
from the place of accident or other emergency;
extends more than one meter beyond the bed or body
thereof, there shall be displayed at every projecting end (3)Any driver bringing a wounded or sick person for
of such load a red flag not less than thirty centimeters emergency treatment to a hospital, clinic, or any other
both in length and width, except that during the hours similar place;
fixed under subsection (c), there shall be displayed, in lieu (4)The driver of a motor vehicle belonging to the Armed
of the required red flags, red lights visible at least fifty Forces while in use for official purposes in times of riot,
meters away. insurrection or invasion;
(j)Mufflers. — Every motor vehicle propelled by an internal (5)The driver of a vehicle, when he or his passengers are in
combustion engine shall be equipped with a muffler, and pursuit of a criminal;
whenever said motor vehicle passes through a street of
any city, municipality, or thickly populated district or (6)A law-enforcement officer who is trying to overtake a
barrio, the muffler shall not be cut out or disconnected. violator of traffic laws; and
No motor vehicle shall be operated in such a manner as (7)The driver officially operating a motor vehicle of any
to cause it to emit or make any unnecessary or fire department, provided that exemption shall not be
disagreeable odor, smoke or noise. construed to allow unless or unnecessary fast driving of
drivers aforementioned.
CHAPTER IV Traffic Rules SECTION 36.Speed Limits Uniform Throughout the

Philippines. — No provincial, city or municipal authority
shall enact or enforce any ordinance or resolution
ARTICLE I Speed Limit and Keeping to the Right specifying maximum allowable speeds other than those
provided in this Act.
SECTION 35.Restriction as to Speed. — (a) Any person
driving a motor vehicle on a highway shall drive the same SECTION 37.Driving on Right Side of Highway. — Unless
at a careful and prudent speed, not greater nor less than a different course of action is required in the interest of
is reasonable and proper, having due regard for the the safety and the security of life, person or property, or
traffic, the width of the highway, and of any other because of unreasonable difficulty of operation in
condition then and there existing; and no person shall compliance herewith, every person operating a motor


vehicle or an animal-drawn vehicle on a highway shall placing of official temporary warning or caution signs
pass to the right when meeting persons or vehicles indicating that men are working on the highway.
coming toward him, and to the left when overtaking (e)The driver of a vehicle shall not overtake or pass, or
persons or vehicles going the same direction, and when attempt to overtake or pass, any other vehicle proceeding
turning to the left in going from one highway to another, in the same direction in any "no-passing or overtaking
every vehicle shall be conducted to the right of the center zone."
of the intersection of the highway.
SECTION 38.Classification of Highways. — Public
highways shall be properly classified for traffic purposes ARTICLE III Right of Way and Signals
by the provincial board, municipal board or city council SECTION 42.Right of Way. — (a) When two vehicles
having jurisdiction over them, and said provincial board, approach or enter an intersection at approximately the
municipal board or city council shall provide appropriate same time, the driver of the vehicle on the left shall yield
signs therefor, subject to the approval of the the right of way to the vehicle on the right, except as
Commissioner. It shall be the duty of every provincial, city otherwise hereinafter provided. The driver of any vehicle
and municipal secretary to certify to the Commissioner traveling at an unlawful speed shall forfeit any right of
the names, locations, and limits of all "through streets" way which he might otherwise have hereunder.
designated as such by the provincial board, municipal
(b)The driver of a vehicle approaching but not having
board or council.
entered an intersection, shall yield the right of way to a
vehicle within such intersection or turning therein to the
ARTICLE II Overtaking and Passing a Vehicle, left across the line of travel of such first-mentioned
and Turning at Intersections vehicle, provided the driver of the vehicle turning left has
given a plainly visible signal of intention to turn as
SECTION 39.Overtaking a Vehicle. — The driver of any required in this Act.
motor vehicle overtaking another vehicle proceeding in
the same direction shall pass at a safe distance to the left (c)The driver of any vehicle upon a highway within a
thereof, and shall not again drive to the right side of the business or residential district shall yield the right of way
highway until safely clear of such overtaken vehicle to a pedestrian crossing such highway within a crosswalk,
except that on a highway, within a business or residential except at intersections where the movement of traffic is
district, having two or more lanes for the movement of being regulated by a peace officer or by traffic signal.
traffic in one direction, the driver of a vehicle may Every pedestrian crossing a highway within a business or
overtake and pass another vehicle on the right. Nothing residential district, at any point other than a crosswalk
in this section shall be construed to prohibit a driver shall yield the right of way to vehicles upon the highway.
overtaking and passing, upon the right, another vehicle (d)The driver of a vehicle upon a highway shall bring to a
which is making or about to make a left turn. full stop such vehicle before traversing any "through
SECTION 40.Driver to Give Way to Overtaking Vehicle. highway" or railroad crossing: Provided, That when it is
— The driver of a vehicle about to be overtaken and apparent that no hazard exists, the vehicle may be slowed
passed by another vehicle approaching from the rear down to five miles per hour instead of bringing it to a full
shall give way to the overtaking vehicle on suitable and stop.
audible signal being given by the driver of the overtaking SECTION 43.Exception to the Right of Way Rule. — (a)
vehicle, and shall not increase the speed of his vehicle The driver of a vehicle entering a highway from a private
until completely passed by the overtaking vehicle. road or drive shall yield the right of way to all vehicles
SECTION 41.Restrictions on Overtaking and Passing. — approaching on such highway.
(a)The driver of a vehicle shall not drive to the left side of (b)The driver of a vehicle upon a highway shall yield the
the center line of a highway in overtaking or passing right of way to police or fire department vehicles and
another vehicle proceeding in the same direction, unless ambulances when such vehicles are operated on official
such left side is clearly visible, and is free of oncoming business and the drivers thereof sound audible signal of
traffic for a sufficient distance ahead to permit such their approach.
overtaking or passing to be made in safety. (c)The driver of a vehicle entering a "through highway" or
(b)The driver of a vehicle shall not overtake or pass a "stop intersection" shall yield the right of way to all
another vehicle proceeding in the same direction, when vehicles approaching in either direction on such "through
approaching the crest of a grade, not upon a curve in the highway": Provided, That nothing in this subsection shall
highway, where the driver's view along the highway is be construed as relieving the driver of any vehicle being
obstructed within a distance of five hundred feet ahead, operated on a "through highway" from the duty of driving
except on a highway having two or more lanes for with due regard for the safety of vehicles entering such
movement of traffic in one direction where the driver of a "through highway" nor as protecting the said driver from
vehicle may overtake or pass another vehicle: Provided, the consequence of an arbitrary exercise of such right of
That on a highway within a business or residential district, way.
having two or more lanes for movement of traffic in one SECTION 44.Signals on Starting, Stopping or Turning. —
direction, the driver of a vehicle may overtake or pass
another vehicle on the right. (a)The driver of any vehicle upon a highway, before
starting, stopping or turning from a direct line, shall first
(c)The driver of a vehicle shall not overtake or pass any see that such movement can be made in safety, and if
other vehicle proceeding in the same direction, at any any pedestrian may be affected by such movement, shall
railway grade crossing, nor at any intersection of give a clearly audible signal by sounding the horn, and
highways unless such intersection or crossing is whenever the operation of any other vehicle approaching
controlled by traffic signal, or unless permitted to do so or following may be affected by such movement, shall
by a watchman or a peace officer, except on a highway give a signal plainly visible to the driver of such other
having two or more lanes for movement of traffic in one vehicles of the intention to make such movement.
direction where the driver of a vehicle may overtake or
pass another vehicle on the right. Nothing in this section (b)The signal herein required shall be given by means of
shall be construed to prohibit a driver overtaking or extending the hand and arm beyond the left side of the
passing upon the right another vehicle which is making vehicle, or by an approved mechanical or electrical signal
or about to make a left turn. device.
(d)The driver of a vehicle shall not overtake or pass, or
attempt to pass, any other vehicle, proceeding in the ARTICLE IV Turning and Parking
same direction, between any points indicated by the SECTION 45.Turning at Intersections. — (a) The driver of
a vehicle intending to run to the right at an intersection


shall approach such intersection in the lane for traffic any sidewalk, path or alley not intended for vehicular
nearest to the right-hand side of the highway and, in traffic or parking.
turning, shall keep as close as possible to the right-hand SECTION 53.Driving while under the Influence of Liquor
curb or edge of the highway. or Narcotic Drug. — No person shall drive a motor vehicle
(b)The driver of a vehicle intending to turn to the left shall while under the influence of liquor or narcotic drug.
approach such intersection in the lane for traffic to the SECTION 54.Obstruction of Traffic. — No person shall
right of and nearest to the center line of the highway, and, drive his motor vehicle in such a manner as to obstruct or
in turning, shall pass to the left of the center of the impede the passage of any vehicle, nor, while discharging
intersection, except that, upon highways laned for traffic or taking on passengers or loading or unloading freight,
and upon one-way highways, a left turn shall be made obstruct the free passage of other vehicles on the
from the left lane of traffic in the direction in which the highway.
vehicle is proceeding.
SECTION 55.Duty of Driver in Case of Accident. — In the
(c)For the purpose of this section, the center of the event that any accident should occur as a result of the
intersection shall mean the meeting point of the medial operation of a motor vehicle upon a highway, the driver
lines of the highways intersecting one another, except present, shall show his driver's license, give his true name
when it is occupied by a monument, grass plot or any and address and also the true name and address of the
permanent structure, other than a traffic control device. owner of the motor vehicle.
SECTION 46.Parking Prohibited in Specified Places. — No driver of a motor vehicle concerned in a vehicular
No driver shall park a vehicle, or permit it to stand, accident shall leave the scene of the accident without
whether attended or unattended, upon a highway in any aiding the victim, except under any of the following
of the following places: circumstances:
(a)Within an intersection. 1.If he is in imminent danger of being seriously harmed by
(b)On a crosswalk. any person or persons by reason of the accident;
(c)Within six meters of the intersection of curb lines. 2.If he reports the accident to the nearest officer of the
(d)Within four meters of the driveway entrance to and fire law; or
station. 3.If he has to summon a physician or nurse to aid the
(e)Within four meters of a fire hydrant. victim.
(f)In front of a private driveway.

(g)On the roadway side of any vehicle stopped or parked CHAPTER V Penal and Other Provisions
at the curb or edge of the highway.
(h)At any place where official signs have been erected ARTICLE I Penalties
prohibiting parking. SECTION 56.Penalty for Violation. — The following
SECTION 47.Parked Vehicle. — Whenever a motor penalties shall be imposed for violations of this Act:
vehicle is parked unattended on any highway, the driver (a)For registering later than seven days after acquiring
thereof must turn off the ignition switch and stop the title to an unregistered motor vehicle or after conversion
motor and notch effectively the hand brake. of a registered motor vehicle requiring larger registration
fee than that for which it was originally registered, or for
ARTICLE V Miscellaneous Traffic Rules renewal of a delinquent registration, the penalty shall be
a fine fifty per cent of the registration fees corresponding
SECTION 48.Reckless Driving. — No person shall operate to the portion of the year for which the vehicle is
a motor vehicle on any highway recklessly or without registered for use.
reasonable caution considering the width, traffic, grades,
crossing, curvatures, visibility and other conditions of the (b)For failure to sign driver's license or to carry same while
highway and the conditions of the atmosphere and driving, twenty pesos fine.
weather, or so as to endanger the property or the safety (c)Driving a vehicle with a delinquent or invalid driver's
or rights of any person or so as to cause excessive or license, fifty pesos fine.
unreasonable damage to the highway.
(d)Driving a motor vehicle with delinquent, suspended or
SECTION 49.Right of Way for Police and Other invalid registration, or without registration or without the
Emergency Vehicles. — Upon the approach of any police proper license plate for the current year, three hundred
or fire department vehicle, or of an ambulance giving pesos fine.
audible signal, the driver of every other vehicle shall
immediately drive the same to a position as near as (e)Driving a motor vehicle without first securing a driver's
possible and parallel to the right-hand edge or curb of license, three hundred pesos fine.
the highway, clear of any intersection of highways, and (f)Driving a motor vehicle while under the influence of
shall stop and remain in such position, unless otherwise liquor or narcotic drug, a fine of not less than two
directed by a peace officer, until such vehicle shall have hundred pesos nor more than five hundred pesos, or
passed. imprisonment of not more than three months, or both, at
SECTION 50.Tampering with Vehicles. — No the discretion of the Court.
unauthorized person shall sound the horn, handle the (g)Violation of Section thirty-two, thirty-four (a), (b) and
levers or set in motion or in any way tamper with a (b-1), thirty-five and forty-six a fine not exceeding one
damage or deface any motor vehicle. hundred pesos: Provided, however, That in the case of
SECTION 51.Hitching to a Vehicle. — No person shall violation of Section 34 (b) the vehicle or vehicles affected
hang on to, or ride on, the outside or the rear end of any may not be allowed to operate unless the requirements
vehicle, and no person on a bicycle, roller skate or other provided in this section are complied with.
similar device, shall hold fast to or hitch on to any moving (h)Violations of Sections forty-nine, fifty and fifty-two, a
vehicle, and no driver shall knowingly permit any person fine not exceeding fifty pesos.
to hang on to or ride, the outside or rear end of his vehicle
(i)For making, using or attempting to make or use a
or allow any person on a bicycle, roller skate or other
driver's license, badge, certificate or registration, number
similar device to hold fast or hitch to his vehicle.
plate, tag or permit in imitation or similitude of those
SECTION 52.Driving or Parking on Sidewalk. — No issued under this Act, or intended to be used as or for a
person shall drive or park a motor vehicle upon or along legal license, badge, certificate, plate, tag or permit or
with intent to sell or otherwise dispose of the same to
another, or falsely or fraudulently represent as valid and



in force any driver's license, badge, certificate, plate, tag of such public roads, as may be authorized by the
or permit issued under this Act which is delinquent or President of the Philippines upon recommendation of
which has been suspended or revoked, a fine of not the Secretary of Public Works and Communications, but
exceeding three hundred pesos. in none of these cases shall any toll fees be charged or
(j)For using private passenger automobiles, private trucks, collected until and unless the approved schedule of tolls
private motorcycles, and motor wheel attachments for has been posted legibly in a conspicuous place at such
hire, in violation of Section seven, subsections (a), (b), and toll station.
(c), of this Act, a fine of two hundred pesos and SECTION 60.The Lien Upon Motor Vehicles. — Any
suspension of driver's license for a period of three months balance of fees for registration, re-registration or
for the first conviction; a fine of three hundred pesos and delinquent registration of a motor vehicle, remaining
six months imprisonment for the second conviction; and unpaid and all fines imposed upon any vehicle owner,
an imprisonment of one year and permanent revocation shall constitute a first lien upon the motor vehicle
of the driver's license for the third conviction. concerned.
(k)For permitting, allowing, consenting to, or tolerating The Commission is hereby vested with authority to issue a
the use of a privately-owned motor vehicle for hire in warrant of constructive or actual distraint or and levy to
violation of Section seven, subsections (a), (b), and (c), of any owner of motor vehicle who has any balance of fees
this Act, there shall be imposed upon the owner of the for registration, re-registration or delinquent registration
vehicle a fine of five hundred pesos and the certificate of of a motor vehicle remaining unpaid, which upon
registration shall be suspended for a period of three demand by the Commissioner of the Land Transportation
months for the first conviction, and an increase of one Commission or any of his deputies executing such
hundred pesos in the fine and one month's suspension of warrant, the owner of the said vehicle shall surrender
the registration for each subsequent conviction. same at the time demanded, except when the
(l)For violation of any provisions of this Act or regulations attachment or execution is under any judicial process.
promulgated pursuant hereto, not hereinbefore Any owner who fails or refuses to surrender any of such
specifically punished, a fine of not less than ten or more property or vehicle not so surrendered shall be punished
than fifty pesos shall be imposed. by a fine not exceeding the amount of the fees (including
penalties and interests, if any) for the collection of which
(m)In the event an offender cannot pay any fine imposed such warrant has been issued, together with the costs
pursuant to the provisions of this Act, he shall be made to and interests, if any, from the time of such surrender. In
undergo subsidiary imprisonment as provided for in the addition, such owner shall be punished by a fine of not
Revised Penal Code. more than three hundred pesos or an imprisonment not
(n)If, as the result of negligence or reckless or more than six months, or both.
unreasonable fast driving, any accident occurs resulting SECTION 61.Disposal of Monies Collected. — Monies
in death or injury of any person, the motor vehicle collected under the provisions of this Act shall be
operator at fault shall, upon conviction, be punished deposited in a special trust account in the National
under the provisions of the Revised Penal Code. Treasury to constitute the Highway Special Fund, which
SECTION 57.Punishment for Other Offenses. — The shall be apportioned and expended in accordance with
conviction of any person for any offense under this Act the provisions of the "Philippine Highway Act of 1953":
shall not bar his prosecution for any other offense which Provided, however, That the amount necessary to
may have been committed by such person concurrently maintain and equip the Land Transportation Commission
with the commission of the offense of which he was but not to exceed fifteen per cent of the total collections
convicted or in doing the act or series of acts which during any one year, shall be set aside for the purpose.
constituted the offense of which he was convicted.
SECTION 58.Duty of Clerks of Court. — It is hereby made ARTICLE III Final Provisions
the duty of clerks of the Court of First Instance, the City SECTION 62.No provincial board, city or municipal board
Court of Municipal Court trying traffic violation cases to or council shall enact or enforce any ordinance or
certify to the Commission the result of any case, whether resolution in conflict with the provisions of this Act, or
criminal or civil, involving violations of any provision of prohibiting any deputy or agent of the Commission to
this Act or of other laws and ordinances relating to motor enforce this Act within their respective territorial
vehicles. Said certificate shall specifically contain the jurisdiction and the provisions of any charter to the
name of the driver or owner of the vehicle involved, his contrary notwithstanding.
address, the number of his license and/or of the
certificate or registration of his vehicle, and the date SECTION 63.Repeal of Laws and Ordinances. — Act
thereof, and the offense of which he was convicted or Numbered Thirty-nine hundred ninety-two, as amended,
acquitted. and all laws, executive orders, ordinances, resolutions,
regulations, or parts thereof in conflict with the provisions
of this Act are repealed: Provided, however, That nothing
ARTICLE II Collection of Fees, Taxes and Fines, contained in this Act shall be construed as limiting or
Liens, Allotment of Funds superseding any provisions of the Public Service Act, as
SECTION 59.(a) Collection of Fees; National and Local amended, with respect to the control by the Public
Taxes; Toll Fees. — The collection of all fees, taxes, and Service Commission of motor vehicles operating as public
fines, under the provisions of this Act shall be made in service, nor shall any provision of this Act be construed as
accordance with regulations to be prescribed by the limiting or abridging the powers conferred upon and
Commissioner and approved jointly by the Auditor exercised by the Public Service Commission with regards
General. to the control and supervision of the operation of such
motor vehicles as public service.
(b)No taxes or fees other than those prescribed in this Act
shall be imposed for the registration or operation or on SECTION 64.Appropriation. — To carry out effectively the
the ownership of any motor vehicle, or for the exercise of provisions of this Act, the amount of two hundred fifty
the profession of chauffeur, by any municipal corporation, thousand pesos is hereby appropriated out of the fees
the provisions of any city charter to the contrary collected under this Act, in addition to the appropriations
notwithstanding: Provided, however, That any provincial provided in the General Appropriations Act, for the
board, city or municipal council or board or other expense of this Commission for the fiscal year beginning
competent authority may enact and collect such July first, nineteen hundred and sixty-four, to June
reasonable and equitable toll fees for the use of such thirtieth, nineteen hundred and sixty-five: Provided,
bridges and ferries, within their respective jurisdiction, as however, That any savings in the appropriations of the
may be authorized and approved by the Secretary of Motor Vehicles Office for the fiscal year beginning July
Public Works and Communications, and also for the use first, nineteen hundred and sixty-three, to June thirtieth,


nineteen hundred and sixty-four shall likewise be not a party to this convention. Transportation without
available for this purpose. such an agreed stopping place between territories
SECTION 65.Separability. — If any provisions of this Act or subject to the sovereignty, suzerainty, mandate, or
the application thereof to any person or circumstance is authority of the same High Contracting Party shall not be
held invalid, the remainder of the Act, and the application deemed to be international for the purposes of this
of such provision to other persons or circumstances, shall convention.
not be affected thereby. (3) Transportation to be performed by several successive
SECTION 66.Effectivity. — This Act shall take effect upon air carriers shall be deemed, for the purposes of this
its approval. convention, to be one undivided transportation, if it has
been regarded by the parties as a single operation,
Approved: June 20, 1964 whether it has been agreed upon under the form of a
Published in the Official Gazette, Vol. 61, No. 15, p. 2168 on single contract or of a series of contracts, and it shall not
April 12, 1965 lose its international character merely because one
contract or a series of contracts is to be performed
(Land Transportation and Traffic Code, Republic Act No. entirely within a territory subject to the sovereignty,
4136, [June 20, 1964]) suzerainty, mandate, or authority of the same High
Contracting Party.
ARTICLE 2. (1) This convention shall apply to
Warsaw Convention transportation performed by the state or by legal entities
constituted under public law provided it falls within the
conditions laid down in Article 1.
October 12, 1929
2. This convention shall not apply to transportation
WARSAW CONVENTION FOR THE UNIFICATION OF performed under the terms of any international postal
CERTAIN RULES RELATING TO INTERNATIONAL convention.
CARRIAGE BY AIR *
The President of the German Reich, the Federal President
of the Republic of Austria, His Majesty the King of the CHAPTER II Transportation Documents
Belgians, the President of the United States of Brazil, His
Majesty the King of the Bulgarians, the President of the
Nationalist Government of China, His Majesty the King of SECTION I Passenger Ticket
Denmark and Iceland, His Majesty the King of Egypt, His ARTICLE 3. (1) For the transportation of passengers the
Majesty the King of Spain, the Chief of State of the carrier must deliver a passenger ticket which shall
Republic of Estonia, the President of the Republic of contain the following particulars:
Finland, the President of the French Republic, His Majesty (a) The place and date of issue;
the King of Great Britain, Ireland, and the British
Dominions beyond the Seas, Emperor of India, the (b) The place of departure and of destination;
President of the Hellenic Republic, His Most Serene (c) The agreed stopping places, provided that the carrier
Highness the Regent of the Kingdom of Hungary, His may reserve the right to alter the stopping places in case
Majesty the King of Italy, His Majesty the Emperor of of necessity, and that if he exercises that right, the
Japan, the President of the Republic of Latvia, Her Royal alteration shall not have the effect of depriving the
Highness the Grand Duchess of Luxemburg, the transportation of its international character;
President of the United Mexican States, His Majesty the
King of Norway, Her Majesty the Queen of the (d) The name and address of the carrier or carriers;
Netherlands, the President of the Republic of Poland, His (e) A statement that the transportation is subject to the
Majesty the King of Rumania, His Majesty the King of rules relating to liability established by this convention.
Sweden, the Swiss Federal Council, the President of the
Czechoslovak Republic, the Central Executive Committee (2) The absence, irregularity, or loss of the passenger
of the Union of Soviet Socialist Republics, the President of ticket shall not affect the existence or the validity of the
the United States of Venezuela, His Majesty the King of contract of transportation, which shall none the less be
Yugoslavia: subject to the rules of this convention. Nevertheless, if the
carrier accepts a passenger without a passenger ticket
Having recognized the advantage of regulating in a having been delivered he shall not be entitled to avail
uniform manner the conditions of international himself of those provisions of this convention which
transportation by air in respect of the documents used for exclude or limit his liability.
such transportation and of the liability of the carrier,
Having nominated to this end their respective SECTION II Baggage Check
Plenipotentiaries, who, being thereto duly authorized,
have concluded and signed the following convention: ARTICLE 4. (1) For the transportation of baggage, other
than small personal objects of which the passenger takes
charge himself, the carrier must deliver a baggage check.
CHAPTER I Scope of Definitions (2) The baggage check shall be made out in duplicate,
ARTICLE 1. (1) This convention shall apply to all one part for the passenger and the other part for the
international transportation of persons, baggage, or carrier.
goods performed by aircraft for hire. It shall apply equally (3) The baggage check shall contain the following
to gratuitous transportation by aircraft performed by an particulars:
air transportation enterprise.
(a) The place and date of issue;
(2) For the purposes of this convention the expression
"international transportation" shall mean any (b) The place of departure and of destination;
transportation in which, according to the contract made (c) The name and address of the carrier or carriers;
by the parties, the place of departure and the place of (d) The number of the passenger ticket;
destination, whether or not there be a break in the
transportation or a transshipment, are situated either (e) A statement that delivery of the baggage will be made
within the territories of two High Contracting Parties, or to the bearer of the baggage check;
within the territory of a single High Contracting Party, if (f) The number and weight of the packages;
there is an agreed stopping place within a territory
subject to the sovereignty, suzerainty, mandate or (g) The amount of the value declared in accordance with
authority of another power, even though that power is article 22 (2);


(h) A statement that the transportation is subject to the (n) The number of parts of the air waybill;
rules relating to liability established by this convention. (o) The documents handed to the carrier to accompany
(4) The absence, irregularity, or loss of the baggage check the air waybill;
shall not affect the existence or the validity of the contract (p) The time fixed for the completion of the
of transportation which shall nonetheless be subject to transportation and a brief note of the route to be
the rules of this convention. Nevertheless, if the carrier followed, if these matters have been agreed upon;
accepts baggage without a baggage check having been
delivered, or if the baggage check does not contain the (q) A statement that the transportation is subject to the
particulars set out at (d), (f), and (h) above, the carrier shall rules relating to liability established by this convention.
not be entitled to avail himself of those provisions of the ARTICLE 9. If the carrier accepts goods without an air
convention which exclude or limit his ability. waybill having been made out, or if the air waybill does
not contain all the particulars set out in Article 8 (a) to (i),
SECTION III Air Waybill inclusive, and (q), the carrier shall not be entitled to avail
himself of the provisions of this convention which exclude
ARTICLE 5. (1) Every carrier of goods has the right to or limit his liability.
require the consignor to make out and hand over to him
a document called an "air waybill"; every consignor has ARTICLE 10. (1) The consignor shall be responsible for the
the right to require the carrier to accept this document. correctness of the particulars and statements relating to
the goods which he inserts in the air waybill.
(2) The absence, irregularity, or loss of this document shall
not affect the existence or the validity of the contract of (2) The consignor shall be liable for all damages suffered
transportation which shall, subject to the provisions of by the carrier or any other person by reason of the
Article 9, be none the less governed by the rules of this irregularity, incorrectness or incompleteness of the said
convention. particulars and statements.
ARTICLE 6. (1) The air waybill shall be made out by the ARTICLE 11. (1) The air waybill shall be prima facie
consignor in three original parts and be handed over with evidence of the conclusion of the contract, of the receipt
the goods. of the goods and of the conditions of transportation.
(2) The first part shall be marked "for the carrier", and shall (2) The statements in the air waybill relating to the
be signed by the consignor. The second part shall be weight, dimensions, and packing of the goods, as well as
marked "for the consignee"; it shall be signed by the those relating to the number of packages, shall be prima
consignor and by the carrier and shall accompany the facie evidence of the facts stated; those relating to the
goods. The third part shall be signed by the carrier and quantity, volume and condition of the goods shall not
handed by him to the consignor after the goods have constitute evidence against the carrier except so far as
been accepted. they both have been, and are stated in the air waybill to
have been, checked by him in the presence of the
(3) The carrier shall sign on acceptance of the goods. consignor, or relate to the apparent condition of the
(4) The signature of the carrier may be stamped; that of goods.
the consignor may be printed or stamped. ARTICLE 12. (1) Subject to his liability to carry out all his
(5) If, at the request of the consignor, the carrier makes obligations under the contract of transportation, the
out the air waybill, he shall be deemed, subject to proof to consignor shall have the right to dispose of the goods by
the contrary, to have done so on behalf of the consignor. withdrawing them at the airport of departure or
destination, or by stopping them in the course of the
ARTICLE 7. The carrier of goods has the right to require journey on any landing, or by calling for them to be
the consignor to make out separate waybills when there delivered at the place of destination, or in the course of
is more than one package. the journey to a person other than the consignee named
ARTICLE 8. The air waybill shall contain the following in the air waybill, or by requiring them to be returned to
particulars: the airport of departure. He must not exercise this right of
disposition in such a way as to prejudice the carrier or
(a) The place and date of its execution;
other consignors, and he must repay any expenses
(b) The place of departure and of destination; occasioned by the exercise of this right.
(c) The agreed stopping places, provided that the carrier (2) If it is impossible to carry out the orders of the
may reserve the right to alter the stopping places in case consignor the carrier must so inform him forthwith.
of necessity, and that if he exercises that right the
(3) If the carrier obeys the orders of the consignor for the
alteration shall not have the effect of depriving the
disposition of the goods without requiring the production
transportation of its international character;
of the part of the air waybill delivered to the latter, he will
(d) The name and address of the consignor; be liable, without prejudice to his right of recovery from
(e) The name and address of the first carrier; the consignor, for any damage which may be caused
thereby to any person who is lawfully in possession of that
(f) The name and address of the consignee, if the case so part of the air waybill.
requires;
(4) The right conferred on the consignor shall cease at the
(g) The nature of the goods; moment when that of the consignee begins in
(h) The number of packages, the method of packing, and accordance with Article 13, below. Nevertheless, if the
the particular marks or numbers upon them; consignee declines to accept the waybill or the goods, or
if he cannot be communicated with, the consignor shall
(i) The weight, the quantity, the volume, or dimensions of resume his right of disposition.
the goods;
ARTICLE 13. (1) Except in the circumstances set out in the
(j) The apparent condition of the goods and of the preceding article, the consignee shall be entitled, on
packing; arrival of the goods at the place of destination, to require
(k) The freight, if it has been agreed upon, the date and the carrier to hand over to him the air waybill and to
place of payment, and the person who is to pay it; deliver the goods to him, on payment of the charges due
and on complying with the conditions of transportation
(l) If the goods are sent for payment on delivery, the price
set out in the air waybill.
of the goods, and, if the case so requires, the amount of
the expenses incurred; (2) Unless it is otherwise agreed, it shall be the duty of the
carrier to give notice to the consignee as soon as the
(m) The amount of the value declared in accordance with
goods arrive.
Article 22 (2).


(3) If the carrier admits the loss of the goods, or if the injured person the court may, in accordance with the
goods have not arrived at the expiration of seven days provisions of its own law, exonerate the carrier wholly or
after the date on which they ought to have arrived, the partly from his liability.
consignee shall be entitled to put into force against the ARTICLE 22. (1) In the transportation of passengers the
carrier the rights which flow from the contract of liability of the carrier for each passenger shall be limited
transportation. to the sum of 125,000 francs. Where, in accordance with
ARTICLE 14. The consignor and the consignee can the law of the court to which the case is submitted,
respectively enforce all the rights given them by Articles damages may be awarded in the form of periodical
12 and 13, each in his own name, whether he is acting in payments, the equivalent capital value of the said
his own interest or in the interest of another, provided payments shall not exceed 125,000 francs. Nevertheless,
that he carries out the obligations imposed by the by special contract, the carrier and the passenger may
contract. agree to a higher limit of liability.
ARTICLE 15. (1) Articles 12, 13, and 14 shall not affect either (2) In the transportation of checked baggage and of
the relations of the consignor and the consignee with goods, the liability of the carrier shall be limited to a sum
each other or the relations of third parties whose rights of 250 francs per kilogram, unless the consignor has
are derived either from the consignor or from the made, at the time when the package was handed over to
consignee. the carrier, a special declaration of the value at delivery
(2) The provisions of Article 12, 13, and 14 can only be and has paid a supplementary sum if the case so requires.
varied by express provision in the air waybill. In that case the carrier will be liable to pay a sum not
exceeding the declared sum, unless he proves that the
ARTICLE 16. (1) The consignor must furnish such sum is greater than the actual value to the consignor at
information and attach to the air waybill such documents delivery.
as are necessary to meet the formalities of customs,
octroi, or police before the goods can be delivered to the (3) As regards objects of which the passenger takes
consignee. The consignor shall be liable to the carrier for charge himself the liability of the carrier shall be limited
any damage occasioned by the absence, insufficiency, or to 5,000 francs per passenger.
irregularity of any such information or documents, unless (4) The sums mentioned above shall be deemed to refer
the damage is due to the fault of the carrier or his agents. to the French franc consisting of 65½ milligrams of gold
(2) The carrier is under no obligation to enquire into the at the standard of fineness of nine hundred thousandths.
correctness or sufficiency of such information or These sums may be converted into any national currency
documents. in round figures.
ARTICLE 23. Any provision tending to relieve the carrier of
liability or to fix a lower limit than that which is laid down
CHAPTER III Liability of the Carrier in this convention shall be null and avoid, but the nullity
of any such provision shall not involve the nullity of the
ARTICLE 17. The carrier shall be liable for damage
whole contract, which shall remain subject to the
sustained in the event of the death or wounding of a
provisions of this convention.
passenger or any other bodily injury suffered by a
passenger, if the accident which caused the damage so ARTICLE 24. (1) In the cases covered by Articles 18 and 19
sustained took place on board the aircraft or in the course any action for damages, however founded, can only be
of any of the operations of embarking or disembarking. brought subject to the conditions and limits set out in
this convention.
ARTICLE 18. (1) The carrier shall be liable for damage
sustained in the event of the destruction or loss of, or of (2) In the cases covered by Article 17 the provisions of the
damage to, any checked baggage or any goods, if the preceding paragraph shall also apply, without prejudice
occurrence which caused the damage so sustained took to the questions as to who are the persons who have the
place during the transportation by air. right to bring suit and what are their respective rights.
(2) The transportation by air within the meaning of the ARTICLE 25. (1) The carrier shall not be entitled to avail
preceding paragraph shall comprise the period during himself of the provisions of this convention which exclude
which the baggage or goods are in charge of the carrier, or limit his liability, if the damage is caused by his wilful
whether in an airport or on board an aircraft, or, in the misconduct or by such default on his part as, in
case of a landing outside an airport, in any place accordance with the law of the court to which the case is
whatsoever. submitted, is considered to be equivalent to wilful
misconduct.
(3) The period of the transportation by air shall not extend
to any transportation by land, by sea, or by river (2) Similarly the carrier shall not be entitled to avail
performed outside an airport. If, however, such himself of the said provisions, if the damage is caused
transportation takes place in the performance of a under the same circumstances by any agent of the carrier
contract for transportation by air, for the purpose of acting within the scope of his employment.
loading, delivery or transshipment, any damage is ARTICLE 26. (1) Receipt by the person entitled to the
presumed, subject to proof to the contrary, to have been delivery of baggage or goods without complaint shall be
the result of an event which took place during the prima facie evidence that the same have been delivered
transportation by air. in good condition and in accordance with the document
ARTICLE 19. The carrier shall be liable for damage of transportation.
occasioned by delay in the transportation by air of (2) In case of damage, the person entitled to delivery
passengers, baggage, or goods. must complain to the carrier forthwith after the discovery
ARTICLE 20. (1) The carrier shall not be liable if he proves of the damage, and, at the latest, within 3 days from the
that he and his agents have taken all necessary measures date of receipt in the case of baggage and 7 days from
to avoid the damage or that it was impossible for him or the date of receipt in the case of goods. In case of delay
them to take such measures. the complaint must be made at the latest within 14 days
from the date on which the baggage or goods have been
(2) In the transportation of goods and baggage the carrier
placed at his disposal.
shall not be liable if he proves that the damage was
occasioned by an error in piloting, in the handling of the (3) Every complaint must be made in writing-upon the
aircraft, or in navigation and that, in all other respects, he document of transportation or by separate notice in
and his agents have taken all necessary measures to writing dispatched within the times aforesaid.
avoid the damage. (4) Failing complaint within the times aforesaid, no action
ARTICLE 21. If the carrier proves that the damage was shall lie against the carrier, save in the case of fraud on his
caused by or contributed to by the negligence of the part.


ARTICLE 27. In the case of the death of the person liable, ARTICLE 33. Nothing contained in this convention shall
an action for damages lies in accordance with the terms prevent the carrier either from refusing to enter into any
of this convention against those legally representing his contract of transportation or from making regulations
estate. which do not conflict with the provisions of this
ARTICLE 28. (1) An action for damages must be brought, convention.
at the option of the plaintiff, in the territory of one of the ARTICLE 34. This convention shall not apply to
High Contracting Parties, either before the court of the international transportation by air performed by way of
domicile of the carrier or of his principal place of business experimental trial by air navigation enterprises with the
or where he has a place of business through which the view to the establishment of regular lines of air
contract has been made or before the court at the place navigation, nor shall it apply to transportation performed
of destination. in extraordinary circumstances outside the normal scope
(2) Questions of procedure shall be governed by the law of an air carrier's business.
of the court to which the case is submitted. ARTICLE 35. The expression "days" when used in this
ARTICLE 29. (1) The right to damages shall be convention means current days, not working days.
extinguished if an action is not brought within 2 years, ARTICLE 36. This convention is drawn up in French in a
reckoned from the date of arrival at the destination, or single copy which shall remain deposited in the archives
from the date on which the aircraft ought to have arrived, of the Ministry for Foreign Affairs of Poland and of which
or from the date on which the transportation stopped. one duly certified copy shall be sent by the Polish
(2) The method of calculating the period of limitation Government to the Government of each of the High
shall be determined by the law of the court to which the Contracting Parties.
case is submitted. ARTICLE 37. (1) This convention shall be ratified. The
ARTICLE 30. (1) In the case of transportation to be instruments of ratification shall be deposited in the
performed by various successive carriers and falling archives of the Ministry for Foreign Affairs of Poland,
within the definition set out in the third paragraph of which shall give notice of the deposit to the Government
Article 1, each carrier who accepts passengers, baggage of each of the High Contracting Parties.
or goods shall be subject to the rules set out in this (2) As soon as this convention shall have been ratified by
convention, and shall be deemed to be one of the five of the High Contracting Parties it shall come into
contracting parties to the contract of transportation force as between them on the ninetieth day after the
insofar as the contract deals with that part of the deposit of the fifth ratification. Thereafter it shall come
transportation which is performed under his supervision. into force between the High Contracting Parties which
(2) In the case of transportation of this nature, the shall have ratified and the High Contracting Party which
passenger or his representative can take action only deposits its instrument of ratification on the ninetieth day
against the carrier who performed the transportation after the deposit.
during which the accident or the delay occurred, save in (3) It shall be the duty of the Government of the Republic
the case where, by express agreement, the first carrier of Poland to notify the Government of each of the High
has assumed liability for the whole journey. Contracting Parties of the date on which this convention
(3) As regards baggage or goods, the passenger or comes into force as well as the date of the deposit of each
consignor shall have a right of action against the first ratification.
carrier, and the passenger or consignee who is entitled to ARTICLE 38. (1) This convention shall, after it has come
delivery shall have a right of action against the last carrier, into force, remain open for adherence by any state.
and further, each may take action against the carrier who (2) The adherence shall be effected by a notification
performed the transportation during which the addressed to the Government of the Republic of Poland,
destruction, loss, damage, or delay took place. These which shall inform the Government of each of the High
carriers shall be jointly and severally liable to the Contracting Parties thereof.
passenger or to the consignor or consignee.
(3) The adherence shall take effect as from the ninetieth
day after the notification made to the Government of the
CHAPTER IV Provisions Relating to Combined Republic of Poland.
Transportation ARTICLE 39. (1) Any one of the High Contracting Parties
may denounce this convention by a notification
ARTICLE 31. (1) In the case of combined transportation addressed to the Government of the Republic of Poland,
performed partly by air and partly by any other mode of which shall at once inform the Government of each of the
transportation, the provisions of this convention shall High Contracting Parties.
apply only to the transportation, by air, provided that the
transportation by air falls within the terms of Article 1. (2) Denunciation shall take effect six months after the
notification of denunciation, and shall operate only as
(2) Nothing in this convention shall prevent the parties in regards the party which shall have proceeded to
the case of combined transportation from inserting in denunciation.
the document of air transportation conditions relating to
other modes of transportation, provided that the ARTICLE 40. (1) Any High Contracting Party may, at the
provisions of this convention are observed as regards the time of signature or of deposit of ratification or of
transportation by air. adherence, declare that the acceptance which it gives to
this convention does not apply to all or any of its colonies,
protectorates, territories under mandate, or any other
CHAPTER V General and Final Provisions territory subject to its sovereignty or its authority, or any
other territory under its suzerainty.
ARTICLE 32. Any clause contained in the contract and all
special agreements entered into before the damage (2) Accordingly any High Contracting Party may
occurred by which the parties purport to infringe the subsequently adhere separately in the name of all or any
rules laid down by this convention, whether by deciding of its colonies, protectorates, territories under mandate, or
the law to be applied, or by altering the rules as to any other territory subject to its sovereignty or to its
jurisdiction, shall be null and void. Nevertheless for the authority or any other territory under its suzerainty which
transportation of goods arbitration clauses shall be have been thus excluded by its original declaration.
allowed, subject to this convention, if the arbitration is to (3) Any High Contracting Party may denounce this
take place within one of the jurisdictions referred to in the Convention, in accordance with its provisions, separately
first paragraph of article 28. or for all or any of its colonies, protectorates, territories
under mandate, or any other territory subject to its


sovereignty or to its authority, or any other territory under Philippines Union of Soviet Socialist

its suzerainty. Republics
ARTICLE 41. Any High Contracting Party shall be entitled
not earlier than two years after the coming into force of Poland United Arab Republic
this convention to call for the assembling of a new Portugal United Kingdom 5
international conference in order to consider any
improvements which may be made in this convention. To Rumania United States 2, 6
this end it will communicate with the Government of the
Rwanda Upper Volta
French Republic which will take the necessary measures
to make preparations for such conference. Senegal Venezuela
ADDITIONAL PROTOCOL With Reference to Article 2 Sierra Leone Vietnam
The High Contracting Parties reserve to themselves the
right to declare at the time of ratification or of accession Somali Republic Western Samoa
that the first paragraph of Article 2 of this convention South Africa Yugoslavia
shall not apply to international transportation by air
performed directly by the state, its colonies, protectorates, Spain Zambia
or mandated territories, or by any other territory under its
Sweden
sovereignty, suzerainty, or authority.
Parties to the Convention as of December 31, 1965: Switzerland

Footnotes
Algeria India
1.Including Papua, Norfolk Islands and the trust territories
Argentina Indonesia of New Guinea and Nauru.
Australia 1 Ireland 2.With reservation.
Austria Israel 3.Including Land Berlin.

4.Including Surinam and Curacao.
Belgium Italy
5.Including Aden and Protectorate of South Arabia,
Brazil Ivory Coast Antigua, Ascencion Islands, Bahamas, Barbados,
Bulgaria Jamaica Basutoland, Bechuanaland, Bermuda, British Guiana,
British Honduras British Solomon Islands, Brunei, Caicos,
Burma Japan Caymen Islands, Channel Islands, Dominica, Falkland
Islands, Fiji Islands, Gibraltar, Gilbert and Ellice Islands,
Cameroon Kenya Grenada, Hong Kong, Isle of Man, Mauritius, Montserrat,
Canada 2 People's Democratic Rhodesia, St. Christopher, Nevis, St. Helena, St. Lucia, St.
Republic of Korea Vincent, Seychelles, Swaziland, Tonga, Turks, Virgin
Islands.
Ceylon Laos 6.Notification of denunciation received November 15,
People's Republic of China Latvia 1965, effective May 15, 1966.
Congo (Brazzaville) Lebanon (Warsaw Convention for the Unification of Certain Rules
Relating to International Carriage by Air, [1929])
Congo (Leopoldville) Liberia
Cuba 2 Liechtenstein
Code of Commerce for Maritime Law
Cyprus Luxembourg

Czechoslovakia Madagascar December 1, 1888
Dahomey Malawi CODE OF COMMERCE
Denmark Malaysia
Ethiopia Mali BOOK II Special Commercial Contracts
Finland Malta
TITLE VII Commercial Contracts for
France Mauritania
Transportation Overland
Gambia Mexico ARTICLE 360. The shipper may, without changing the
German Democratic Mongolian People's place where the delivery is to be made, change the
Republic Republic consignment of the goods delivered to the carrier, and
the latter shall comply with his orders, provided that at
Federal Republic of Morocco the time of making the change of the consignee the bill
Germany 3 of lading subscribed by the carrier be returned to him, if
one were issued, exchanging it for another containing the
Ghana Netherlands 4 novation of the contract.
Greece New Zealand The expenses arising from the change of consignment
shall be defrayed by the shipper.
Guinea Niger
ARTICLE 361. Merchandise shall be transported at the risk
Hungary Syrian Arab Republic and venture of the shipper, if the contrary was not
Iceland Tanzania expressly stipulated.
Therefore, all damages and impairment suffered by the
Nigeria Trinidad and Tobago goods during the transportation, by reason of accident,
Norway Tunisia force majeure, or by virtue of the nature or defect of the
articles, shall be for the account and risk of the shipper.
Pakistan 2 Uganda


The proof of these accidents is incumbent on the carrier. interested shall make use of their rights in the proper
ARTICLE 362. The carrier, however, shall be liable for the manner.
losses and damages arising from the causes mentioned ARTICLE 368. The carrier must deliver to the consignee
in the foregoing article if it is proved that they occurred without any delay or difficulty the merchandise received
on account of his negligence or because he did not take by him, by reason of the mere fact of being designated in
the precautions usually adopted by careful persons, the bill of lading to receive it; and should said carrier not
unless the shipper committed fraud in the bill of lading, do so he shall be liable for the damages which may arise
making him believe that the goods were of a class or therefrom.
quality different from what they really were. ARTICLE 369. Should the consignee be not found at the
If, notwithstanding the precaution referred to in this domicile indicated in the bill of lading, or should refuse to
article, the goods transported run the risk of being lost on pay the transportation charges and expenses, or to
account of the nature or by reason of an unavoidable receive the goods, the deposit of said goods shall be
accident, without there being time for the owners of the ordered by the municipal judge, where there is no judge
same to dispose thereof, the carrier shall proceed to their of first instance, to be placed at the disposal of the
sale, placing them for this purpose at the disposal, of the shipper or sender, without prejudice to a person having a
judicial authority or the officials determined by special better right, this deposit having all the effects of a
provisions. delivery.
ARTICLE 363. With the exception of the cases prescribed ARTICLE 370. If a period has been fixed for the delivery of
in the second paragraph of Article 361, the carrier shall be the goods, it must be made within the same, and
obliged to deliver the goods transported in the same otherwise the carrier shall pay the indemnity agreed
condition in which, according to the bill of lading, they upon in the bill of lading, neither the shipper nor
were at the time of their receipt, without any detriment consignee being entitled to anything else.
or impairment, and should he not do so, he shall be Should no indemnity have been agreed upon and the
obliged to pay the value of the goods not delivered at the delay exceeds the time fixed in the bill of lading, the
point where they should have been and at the time the carrier shall be liable for the damages which may have
delivery should have taken place. been caused by the delay.
If part of the goods transported should be delivered the ARTICLE 371. In cases of delay on account of the fault of
consignee may refuse to receive them, when he proves the carrier, referred to in the foregoing articles, the
that he can not make use thereof without the others. consignee may leave the goods transported on the hands
ARTICLE 364. If the effect of the damage referred to in of the carrier, informing him thereof in writing before the
Article 361 should be only a reduction in the value of the arrival of the same at the point of destination.
goods, the obligation of the carrier shall be reduced to When this abandonment occurs, the carrier shall satisfy
the payment of the amount of said reduction in value, the total value of the goods, as if they had been lost or
after appraisal by experts. mislaid.
ARTICLE 365. If, on account of the damage, the goods are Should the abandonment not occur the indemnity for
rendered useless for purposes of sale or consumption in loss and damages on account of the delays can not
the use for which they are properly destined the exceed the current price of the goods transported on the
consignee shall not be bound to receive them, and may day and at the place where the delivery was to have been
leave them on the hands of the carrier, demanding made. The same provision shall be observed in all cases
payment therefor at current market prices. where this indemnity is due.
If among the goods damaged there should be some in ARTICLE 372. The appraisement of the goods which the
good condition and without any defect whatsoever, the carrier must pay in case of their being lost or mislaid shall
foregoing provision shall be applicable with regard to the be fixed in accordance with what is stated in the bill of
damaged ones, and the consignee shall receive those lading, no proofs being allowed on the part of the shipper
which are sound, this separation being made by distinct that there were among the goods declared therein
and separate articles, no object being divided for the articles of greater value, and money.
purpose, unless the consignee proves the impossibility of
conveniently making use thereof in this form. Horses, vehicles, vessels, equipment, and all the other
principal and accessory means of transportation, shall be
The same provision shall be applied to merchandise in especially obligated in favor of the shipper, although with
bales or packages, with distinction of the packages which relation to railroads said obligation shall be subordinated
appear sound. to the provisions of the laws of concession with regard to
ARTICLE 366. Within the twenty-four hours following the property and to those of this Code with regard to the
receipt of the merchandise a claim may be brought manner and form of making attachments and retentions
against the carrier on account of damage or average against the said companies.
found therein on opening the packages, provided that ARTICLE 373. A carrier who delivers merchandise to a
the indications of the damage or average giving rise to consignee by virtue of agreements or combined services
the claim can not be ascertained from the exterior of said with other carriers shall assume the obligations of the
packages, in which case said claim would only be carriers who preceded him, reserving his right to proceed
admitted on the receipt of the packages. against the latter if he should not be directly responsible
After the periods mentioned have elapsed, or after the for the fault which gives rise to the claim of the shipper or
transportation charges have been paid, no claim of the consignee.
whatsoever shall be admitted against the carrier with The carrier making the delivery shall also assume all the
regard to the condition in which the goods transported actions and rights of those who may have preceded him
were delivered. in the transportation.
ARTICLE 367. If there should occur doubts and disputes The sender and the consignee shall have an immediate
between the consignee and the carrier with regard to the right of action against the carrier who executed the
condition of goods transported at the time of their transportation contract, or against the other carriers who
delivery to the former, the said goods shall be examined received the goods transported without reserve.
by experts appointed by the parties, and a third one, in
case of disagreement, appointed by the judicial authority, The reservations made by the latter shall not exempt
the result of the examination being reduced to writing; them, however, from the liabilities they may have
and if the persons interested should not agree to the incurred by reason of their own acts.
report of the experts and could not settle their disputes, ARTICLE 374. The consignees to whom the remittance
said judicial authority shall order the deposits of the may have been made can not defer the payment of the
merchandise in a safe warehouse, and the parties expenses and transportation charges on the goods that



they received after twenty-four hours have elapsed from ARTICLE 575. Part owners of vessels shall enjoy the right
the time of the delivery; and in case of delay in making of option of purchase and withdrawal in the sales made
this payment, the carrier may request the judicial sale of to strangers; but they can only exercise it within the nine
the goods he transported to a sufficient amount to cover days following the record of the sale in the registry and by
the transportation charges and the expenses incurred. delivering the price at once.
ARTICLE 375. The goods transported shall be specifically ARTICLE 576. The rigging, tackle, stores, and engine of a
obligated to answer for the transportation charges and vessel, if it is a steamer, shall always be understood as
for the expenses and fees caused by the same during included in the sale thereof if they are owned by the
their transportations, or until the time of their delivery. vendor at the time of the sale.
This special right shall be limited to eight days after the The arms, munitions of war, provisions, and fuel shall not
delivery has been made, and after said prescription the be considered as included in the sale.
carrier shall have no further right of action than that The vendor shall be under the obligation to deliver to the
corresponding to an ordinary creditor. purchaser a certificate of the record of the vessel in the
ARTICLE 376. The preference of the carrier to the payment registry up to the date of the sale.
of what is due him for the transportation and expenses of ARTICLE 577. If the alienation of the vessel should take
the goods delivered to the consignee shall not be place while said vessel is on a voyage, the purchaser shall
affected by the bankruptcy of the latter, provided the receive all the freights it earns from the time it received
action is brought within the eight days mentioned in the its last cargo, and the payment of the crew and other
foregoing article. persons which go to make up its complement shall be
ARTICLE 377. The carrier shall be liable for all the paid by the purchaser for the said voyage.
consequences arising from noncompliance on his part If the sale takes place after the arrival of the vessel at the
with the formalities prescribed by the laws and port of its destination, the freights shall belong to the
regulations of the public administration during the entire vendors and he shall pay the crew and other persons
course of the trip and on the arrival at the point of which go to make up its complement, unless there is an
destination, except when his omission arises from his agreement to the contrary in either case.
having been induced into error by false statements of the
shipper in the declaration of the merchandise. ARTICLE 578. If, the steamer being on a voyage or in a
foreign port, her owner or owners should voluntarily
If the carrier has acted in accordance with a formal order alienate her either to Spaniards * or to foreigners
received from the shipper or consignee of the domiciled in the capital or in a port of another country,
merchandise both shall incur liability. the bill of sale shall be executed before the consul of
ARTICLE 378. Transportation agents shall be obliged to Spain * of the port where she terminates her voyage, and
keep a special registry, with the formalities required by said instrument shall have no effect with regard to third
Article 36, in which there shall be entered, in progressive persons if it is not recorded in the registry of the
order of numbers and dates, all the goods the consulate. The consul shall immediately forward a true
transportation of which is undertaken, stating the copy of the bill of purchase of the vessel to the
circumstances required by Articles 350 et seq. for the [commercial registry] of the port where said vessel is
responsive bills of lading. recorded and registered.
ARTICLE 379. The provisions contained in Articles 349 et In every case the alienation of the vessel must be stated,
seq. shall also be understood as relating to persons who, indicating whether the vendor receives the full price or
although they do not personally effect the transportation part thereof, or whether he retains any interest in said
of commercial goods, contract to do so through others, vessel in full or in part. In case the sale is made to a
either as contractors for a special and fixed transaction or Spaniard, * this fact shall be stated in the certificate of
as freight and transportation agents. navigation.
In either case they shall be subrogated to the place of the When, the ship being on a voyage, it should be rendered
carriers with regard to the obligations and liability of the useless for navigation, the captain shall apply to the judge
latter, as well as with regard to their right. or court of competent jurisdiction of the port of arrival,
should it be a foreign port, to the consul of Spain, * should
there be one or to the judge, or court, or local authority in
BOOK III Maritime Commerce the absence of the former; and the consul, or the judge,
or court, or in their absence, the local authority, shall
order an examination of the vessel to be made.
TITLE I Vessels
If the consignee or the underwriter should reside at said
ARTICLE 573. Merchant vessels constitute property which port, or should have representatives there, they must be
may be acquired and transferred by any of the means cited in order to take part in the proceedings for the
recognized by law. The acquisition of a vessel must be account of whom it may concern.
included in a written instrument, which shall not produce
any effect with regard to third persons if not recorded in ARTICLE 579. After the damage to the vessel has been
the mercantile registry. proven as well as the impossibility of her being repaired,
to continue the voyage, her sale at public auction shall be
The ownership of a vessel shall also be acquired by the ordered, subject to the following rules:
possession thereof in good faith for three years, with a
good title duly recorded. 1. The hull of the vessel, her rigging, engines, stores, and
other articles shall be appraised by means of an inventory,
In the absence of any of these requisites, uninterrupted said proceedings being brought to the notice of the
possession for ten years shall be necessary in order to persons who may wish to take part in the auction.
acquire ownership.
2. The order or decree ordering the public auction shall be
A captain can not acquire by prescription the ship of posted in the usual places, and shall be advertised in the
which he is in command. newspapers of the port where the auction is to be held,
ARTICLE 574. The builders of vessels may employ the should there be any, and in the other newspapers which
material and with regard to their construction and the court may determine.
rigging may follow the system which is most convenient The period which may be fixed for the auction can not be
to their interests. Ship agents and seamen shall be less than twenty days.
subject to the provisions of the laws and regulations of
the public administration on navigation, customs, health, 3. These advertisements shall be repeated every ten days,
safety of the vessels, and other similar provisions. and their publication shall be stated in the proceedings.


4. The auction shall be held on the day fixed, with the their rights against the vessel until her return to the port
formalities prescribed in the common law for judicial of her registry, and three months after the record of sale
sales. in the commercial registry, or after her arrival.
5. If the sale should take place when the vessel is in a ARTICLE 583. If the ship being on a voyage the captain
foreign country, the special provisions governing such should find it necessary to contract one or more of the
cases shall be observed. obligations mentioned in Nos. 8 and 9 of Article 580, he
ARTICLE 580. In all judicial sales of vessels for the shall apply to the judge or court if he is in Spanish *
payment of creditors, the said creditors shall have territory, and otherwise to the consul of Spain, * should
preference in the order stated: there be one, and, in his absence to the judge or court or
to the proper local authority, presenting the certificate of
1. The credits in favor of the public treasury proven by the registry of the vessel treated of in Article 612, and the
means of an official certificate of the competent instruments proving the obligation contracted.
authority.
The judge or court, the consul or the local authority as the
2. The judicial costs of the proceedings, according to an case may be, in view of the result of the proceedings
appraisement approved by the judge or court. instituted, shall make a temporary memorandum in the
3. The pilotage charges, tonnage dues, and the other sea certificate of their result, in order that it may be recorded
or port charges, proven by means of proper certificates of in the registry when the vessel returns to the port of her
the officers intrusted with the collection. registry, or so that it can be admitted as a legal and
preferred obligation in case of sale before the return, by
4. The salaries of the caretakers and watchmen of the reason of the sale of the vessel by virtue of a declaration
vessel and any other expense connected with the of unseaworthiness.
preservation of said vessel, from the time of arrival until
her sale, which appear to have been paid or are due by The lack of this formality shall make the captain
virtue of a true account approved by the judge or court. personally liable to the creditors who may be prejudiced
through his fault.
5. The rent of the warehouse where the rigging and stores
of the vessel have been taken care of, according to ARTICLE 584. The vessels subject to the liability for the
contract. credits mentioned in Article 580 may be attached and
judicially sold in the manner prescribed in Article 579, in
6. The salaries due the captain and crew during their last the port in which they are, at the instance of any of the
voyage, which shall be verified by virtue of the liquidation creditors; but if they should be freighted and ready to sail
made from the rolls of the crew and account books of the the attachment can not take place except for debts
vessel, approved by the chief of the Bureau of Merchant contracted for the preparation and provisioning of the
Marine where there is one, and in his absence by the vessel for the same voyage, and even then the
consul, or judge, or court. attachment shall be dissolved if any person interested in
7. The reimbursement for the parts of the freight the her sailing should give bond for the return of the vessel
captain may have sold in order to repair the vessel, within the period fixed in the certificate of navigation,
provided the sale has been ordered by a judicial and binding himself to pay the debt in so far as it may be
instrument executed with the formalities required in such legal, should the vessel be delayed in her return even if it
cases, and recorded in the certificate of the registry of the were caused by some fortuitous event.
vessel. For debts of any other kind whatsoever not included in
8. The part of the price which has not been paid the last the said Article 580, the vessel can only be attached in the
vendor, the credits pending for the payment of material port of her registry.
and work in the construction of the vessel, when it has ARTICLE 585. For all purposes of law not modified or
not navigated, and those arising from the repair and restricted by the provisions of this Code, vessels shall
equipment of the vessel and its provisioning with victuals continue to be considered as personal property.
and fuel during its last voyage.
In order that the credits provided for in this subdivision
TITLE II Persons Who May Take Part in Maritime
may enjoy the preference they must appear by contracts
recorded in the commercial registry, or if they were Commerce
contracted for the vessel while on a voyage and said
vessel has not returned to the port of her registry, they SECTION I Owners of Vessels and Ship Agents
must be made under the authority required for such
cases and entered in the certificate of registry of the said ARTICLE 586. The owner of a vessel and the agent shall be
vessel. civilly liable for the acts of the captain and for the
obligations contracted by the latter to repair, equip, and
9. The amounts borrowed on bottomry bonds before the provision the vessel, provided the creditor proves that the
departure of the vessel, proven by means of the contracts amount claimed was invested therein.
executed according to law and recorded in the
commercial registry; the amounts borrowed during the By agent is understood the person intrusted with the
voyage with the authority mentioned in the foregoing provisioning of a vessel, or who represents her in the port
subdivision, filling the same requisites, and the insurance in which she happens to be.
premium, proven by the policy of the contract or ARTICLE 587. The agent shall also be civilly liable for the
certificate taken from the books of the broker. indemnities in favor of third persons which arise from the
10. The indemnity due the shippers for the value of the conduct of the captain in the care of the goods which the
goods shipped, which were not delivered to the vessel carried; but he may exempt himself therefrom by
consignees, or for averages suffered for which the vessel abandoning the vessel with all her equipments and the
is liable, provided either appear in a judicial or arbitration freight he may have earned during the voyage.
decision. ARTICLE 588. Neither the owner of the vessel nor the
ARTICLE 581. If the proceeds of the sale are not sufficient agent shall be liable for the obligations contracted by the
to pay all the creditors included in one number or grade, captain if the latter exceeds his powers and privileges
the amount shall be divided among them pro rata. which are his by reason of his position or have been
conferred upon him by the former.
ARTICLE 582. After the bill of the judicial sale at auction
has been executed and recorded in the commercial However, if the amounts claimed were made use of for
registry, all the other liabilities of the vessel in favor of the the benefit of the vessel, the owner or agent shall be
creditors shall be considered canceled. liable.
But if the sale should have been voluntary, and took place
while the vessel was on a voyage, the creditors shall retain



ARTICLE 589. If two or more persons should be part If two or more co-owners request the position of captain,
owners of a merchant vessel, an association shall be the disagreement shall be decided by a vote of the
presumed as established by the part owners. members; and if the vote should result in a tie, the
This association shall be governed by the resolutions of a position shall be given to the part owner having the
majority of the members. larger interest in the vessel.
A majority shall be the relative majority of the voting If the interest of the petitioners should be the same, and
members. there should be a tie, the matter shall be decided by lot.
If there should be only two part owners, in case of ARTICLE 597. The agent shall select and come to an
disagreement the vote of the member having the largest agreement with the captain, and shall contract in the
interest shall be decisive. If the interests are equal, it shall name of the owners, who shall be bound in all that refers
be decided by lot. to repairs, details of equipment, armament, provisions,
fuel, and freight of the vessel, and, in general, in all that
The representation of the smallest part in the ownership relates to the requirements of navigation.
shall have one vote; and proportionately the other part
owners as many votes as they have parts equal to the ARTICLE 598. The agent can not order a new voyage, nor
smallest one. make contracts for a new charter, nor insure the vessel,
without the authority of her owner or by virtue of a
A vessel can not be detained, attached or levied upon resolution of the majority of the co-owners, unless these
execution in her entirety for the private debts of a part privileges were granted him in the certificate of his
owner, but the proceedings shall be limited to the appointment.
interest the debtor may have in the vessel, without
interfering with her navigation. If he should insure the vessel without authority therefor
he shall be secondarily liable for the solvency of the
ARTICLE 590. The owners of a vessel shall be civilly liable underwriter.
in the proportion of their contribution to the common
fund, for the results of the acts of the captain, referred to ARTICLE 599. The managing agent of an association, shall
in Article 587. give his co-owners an account of the results of each
voyage of the vessel, without prejudice to always having
Each part owner may exempt himself from this liability by the books and correspondence relating to the vessel and
the abandonment before a notary of the part of the to its voyages at the disposal of the same.
vessel belonging to him.
ARTICLE 600. After the account of the managing agent
ARTICLE 591. All the part owners shall be liable, in has been approved by a relative majority, the co-owners
proportion to their respective ownership, for the expenses shall satisfy the expenses in proportion to their interest,
of repairs to the vessel, and for other expenses which are without prejudice to the civil or criminal actions which
incurred by virtue of a resolution of the majority. the minority may deem fit to institute afterwards.
They shall likewise be liable in the same proportion for In order to enforce the payment, the managing agent
the expenses of maintenance, equipment, and shall have a right of action to secure execution, which
provisioning of the vessel, necessary for navigation. shall be instituted by virtue of a resolution of the majority,
ARTICLE 592. The resolutions of the majority with regard and without further proceedings than the
to the repair, equipment, and provisioning of the vessel in acknowledgment of the signatures of the persons who
the port of departure shall bind the majority unless the voted the resolution.
partners in the minority renounce their participation ARTICLE 601. Should there be any profits, the co-owners
therein, which must be acquired by the other part owners may demand of the managing agent the amount due
after a judicial appraisement of the value of the portion or them, by means of an executory action without further
portions assigned. requisites than the acknowledgment of the signatures of
The resolutions of the majority relating to the dissolution the instrument approving the account.
of the association and sale of the vessel shall also be ARTICLE 602. The agent shall indemnify the captain for all
binding on the minority. the expenses he may have incurred from his own funds
The sale of the vessel must take place at a public auction, or from those of other persons, for the benefit of the
subject to the provisions of the law of civil procedure vessel.
unless the part owners unanimously agree otherwise, the ARTICLE 603. Before a vessel goes out to sea the agent
right of option to purchase and to withdraw mentioned in shall have at his discretion, a right to discharge the
Article 575 being always reserved in favor of said part captain and members of the crew whose contract did not
owners. state a definite period nor a definite voyage, paying them
ARTICLE 593. The owners of a vessel shall have preference the salaries earned according to their contracts, and
in her charter to other persons, offering equal conditions without any indemnity whatsoever, unless there is a
and price. If two or more of the former should claim said special and specific agreement in respect thereto.
right the one having greater interest shall be preferred, ARTICLE 604. If the captain or any other member of the
and should they have an equal interest it shall be decided crew should be discharged during the voyage, they shall
by lot. receive their salary until the return to the place where the
ARTICLE 594. The part owners shall elect the manager contract was made, unless there are good reasons for the
who is to represent them in the capacity of agent. discharge, all in accordance with Articles 636 et seq. of
this Code.
The appointment of director or agent shall be revocable
at the will of the members. ARTICLE 605. If the contracts of the captain and members
of the crew with the agent should be for a definite period
ARTICLE 595. The agent, be he at the same time an owner or voyage, they can not be discharged until the
of a vessel or a manager for an owner or for an association fulfillment of their contracts, except for reasons of
of co-owners, must be qualified to trade and must be insubordination in serious matters, robbery, theft,
recorded in the merchant's registry of the province. habitual drunkenness, and damage caused to the vessel
The agent shall represent the ownership of the vessel, or to its cargo by malice or manifest or proven
and may in his own name and in such capacity take negligence.
judicial and extrajudicial steps in all that relates to ARTICLE 606. If the captain should be a part owner in the
commerce. vessel, he can not be discharged without the agent
ARTICLE 596. The agent may discharge the duties of returning him the amount of his interest therein, which,
captain of the vessel, subject, in every case, to the in the absence of an agreement between the parties,
provisions contained in Article 609. shall be appraised by experts appointed in the manner
established in the law of civil procedure.


ARTICLE 607. If the captain who is a part owner should 4. By borrowing the amount required by means of a
have obtained the command of the vessel by virtue of a bottomry bond.
special agreement contained in the articles of 5. By selling a sufficient amount of the cargo to cover the
co-partnership, he can not be deprived thereof except for amount absolutely necessary to repair the vessel, and to
the reasons mentioned in Article 605. equip her to pursue the voyage.
ARTICLE 608. In case of the voluntary sale of the vessel, all In the two latter cases he must apply to the judicial
contracts between the agent and captain shall terminate, authority of the port, if in Spain * and to the Spanish *
the right to proper indemnity being reserved in favor of consul, if in a foreign country; and where there should be
the captain, according to the agreements made with the none, to the local authority, proceeding in accordance
agent. with the prescriptions of Article 583, and with the
They vessel sold shall remain subject to the security of the provisions of the law of civil procedure.
payment of said indemnity if, after the action against the ARTICLE 612. The following obligations are inherent in the
vendor has been instituted, the latter should be insolvent. office of captain:
1. To have on board before starting on a voyage a detailed
SECTION II Captains and Masters of Vessels inventory of the hull, engines, rigging, tackle, stores, and
ARTICLE 609. Captains and masters of vessels must be other equipments of the vessel; the navigation certificate;
Spaniards * having legal capacity to bind themselves in the roll of the persons who make up the crew of the
accordance with this Code, and must prove that they vessel, and the contracts entered into with the crew; the
have the skill, capacity, and qualifications required to list of passengers; the health certificate; the certificate of
command and direct the vessel, as established by marine the registry proving the ownership of the vessel, and all
laws, ordinances, or regulations, or by those of navigation, the obligations which encumber the same up to that
and that they are not disqualified according to the same date; the charters or authenticated copies thereof; the
for the discharge of the duties of that position. t invoices or manifest of the cargo, and the instrument of
the expert visit or inspection, should it have been made at
If the owner of a vessel desires to be the captain thereof
the port of departure.
and does not have the legal qualifications therefor, he
shall limit himself to the financial administration of the 2. To have a copy of this Code on board.
vessel, and shall intrust her navigation to a person 3. To have three folioed and stamped books, placing at
possessing the qualifications required by said ordinances the beginning of each one a note of the number of folios
and regulations. it contains, signed by the maritime official, and in his
ARTICLE 610. The following powers are inherent in the absence by the competent authority.
position of captain or master of a vessel: In the first book, which shall be called "log book," he shall
1. To appoint or make contracts with the crew in the enter every day the condition of the atmosphere, the
absence of the agent and propose said crew, should said prevailing winds, the course sailed, the rigging carried,
agent be present; but the agent shall not be permitted to the horsepower of the engines, the distance covered, the
employ any member against the captain's express maneuvers executed, and other incidents of navigation.
refusal. He shall also enter the damage suffered by the vessel in
her hull, engines, rigging, and tackle, no matter what is its
2. To command the crew and direct the vessel to the port
cause, as well as the imperfections and averages of the
of its destination, in accordance with the instructions he
cargo, and the effects and consequence of the jettison,
may have received from the agent.
should there be any; and in cases of grave resolutions
3. To impose, in accordance with the agreements and the which require the advice or a meeting of the officers of
laws and regulations of the merchants marine, on board the vessel, or even of the passengers and crew, he shall
the vessel, correctional punishment upon those who do record the decision adopted. For the informations
not comply with his orders or who conduct themselves indicated he shall make use of the binnacle book, and of
against discipline, holding a preliminary investigation on the steam or engine book kept by the engineer.
the crimes committed on board the vessel on the high
In the second book, called the "accounting book," he shall
seas, which shall be turned over to the authorities, who
enter all the amounts collected and paid for the account
are to take cognizance thereof, at the first port touched.
of the vessel, entering specifically article by article, the
4. To make contracts for the charter of the vessel in the sources of the collection, and the amounts invested in
absence of the agent or of her consignee, acting in provisions, repairs, acquisition of rigging or goods, fuel,
accordance with the instructions received and protecting outfits, wages, and all other expenses. He shall
the interests of the owner most carefully. furthermore enter therein a list of all the members of the
5. To adopt all the measures which may be necessary to crew, stating their domiciles, their wages and salaries,
keep the vessel well supplied and equipped, purchasing and the amounts they may have received on account,
for the purpose all that may be necessary, provided there either directly or by delivery to their families.
is no time to request instructions of the agent. In the third book, called "freight book," he shall record the
6. To make, in similar urgent cases and on a voyage, the entry and exit of all the goods, stating their marks and
repairs to the hull and engines of the vessel and to her packages, names of the shippers and of the consignees,
rigging and equipment which are absolutely necessary in ports of loading and unloading, and the freight earned. In
order for her to be able to continue and conclude her the same book he shall record the names and places of
voyage; but if she should arrive at a point where there is a sailing of the passengers and the number of packages of
consignee of the vessel, he shall act in concurrence with which their baggage consists, and the price of the
the latter. passage.
ARTICLE 611. In order to comply with the obligations 4. To make, before receiving the freight, with the officers
mentioned in the foregoing article, the captain, when he of the crew, and the two experts, if required by the
has no funds and does not expect to receive any from the shippers and passengers, an examination of the vessel, in
agent, shall procure the same in the successive order order to ascertain whether she is watertight, and whether
stated below: the rigging and engines are in good condition; and if she
has the equipment required for good navigation,
1. By requesting said funds of the consignees or preserving a certificate of the memorandum of this
correspondents of a vessel. inspection, signed by all the persons who may have taken
2. By applying to the consignees of the cargo or to the part therein, under their liability.
persons interested therein. The experts shall be appointed one by the captain of the
3. By drawing on the agent. vessel and the other one by the persons who request the


examination, and in case of disagreement a third shall be hours, stating therein all the incidents of the wreck, in
appointed by the marine authority of the port. accordance with case 8 of this article.
5. To remain constantly on board the vessel with the crew 16. To comply with the obligations imposed by the laws
during the time the freight is taken on board and and rules of navigation, customs, health, and others.
carefully watch the stowage thereof; not to consent to ARTICLE 613. A captain who navigates for freight in
any merchandise or goods of a dangerous character to be common or on shares can not make any transaction for
taken on, such as inflammable or explosive substances, his exclusive account, and should he do so the profit shall
without the precautions which are recommended for belong to the other persons in interest, and the losses
their packing, management and isolation; not to permit shall be for his own exclusive account.
that any freight be carried on deck which by reason of its
disposition, volume, or weight makes the work of the ARTICLE 614. A captain who, having made an agreement
sailors difficult, and which might endanger the safety of to make a voyage, should not fulfill his obligation, without
the vessel; and if, on account of the nature of the being prevented by an accident case or by force majeure,
merchandise, the special character of the shipment, and shall pay for all the losses his action may cause, without
principally the favorable season it takes place, he allows prejudice to criminal penalties which may be proper.
merchandise to be carried on deck, he must hear the ARTICLE 615. Without the consent of the agent, the
opinion of the officers of the vessel, and have the consent captain can not have himself substituted by another
of the shippers and of the agent. person; and should he do so, besides being liable for all
6. To demand a pilot at the expense of the vessel the acts of the substitute and bound to the indemnities
whenever required by navigation, and principally when a mentioned in the foregoing article, the substitute as well
port, canal, or river, or a roadstead or anchoring place is to as the captain may be discharged by the agent.
be entered with which neither he, the officers nor the ARTICLE 616. If the provisions and fuel of the vessel are
crew are acquainted. consumed before arriving at the port of destination, the
7. To be on deck at the time of sighting land and to take captain shall decide, with the consent of the officers of
command on entering and leaving ports, canals, the same, to make the nearest port to get a supply of
roadsteads, and rivers, unless there is a pilot on board either; but if there are persons on board who have
discharging his duties. He shall not spend the night away provisions of their own he may force them to turn said
from the vessel except for serious causes or by reason of provisions over for the common consumption of all
official business. persons on board, paying the price thereof immediately,
or at the latest, at the first port reached.
8. To present himself, when making a port in distress, to
the maritime authority if in Spain * and to the Spanish * ARTICLE 617. The captain can not contract loans on
consul if in a foreign country, before twenty-four hours respondentia, and should he do so the contracts shall be
have elapsed, and make a statement of the name, void.
registry, and port of departure of the vessel, of its cargo, Neither can he borrow money on bottomry for his own
and reason of arrival, which declaration shall be vised by transactions, except on the portion of the vessel he owns,
the authority or by the consul if after examining the same provided no money has been previously borrowed on the
it is found to be acceptable, giving the captain the proper whole vessel, and provided there does not exist any other
certificate in order to show his arrival under stress and kind of lien or obligation thereon. When he is permitted
the reasons therefor. In the absence of marine officials or to do so, he must necessarily state what interest he has in
of the consul, the declaration must be made before the the vessel.
local authority.
In case of violation of this article the principal, interest,
9. To take the steps necessary before the competent and costs shall be charged to the private account of the
authority in order to enter in the certificate of the captain, and the agent may furthermore have the right to
Commercial Registry of the vessel the obligations which discharge him.
he may contract in accordance with Article 583.
ARTICLE 618. The captain shall be civilly liable to the
10. To put in a safe place and keep all the papers and agent, and the latter to the third persons who may have
belongings of any members of the crew who might die made contracts with the former —
on the vessel, drawing up a detailed inventory, in the
presence of passengers as witnesses, and, in their 1. For all the damages suffered by the vessel and his cargo
absence, of members of the crew. by reason of want of skill or negligence on his part. If a
misdemeanor or crime has been committed he shall be
11. To conduct himself according to the rules and precepts liable in accordance with the Penal Code.
contained in the instructions of the agent, being liable for
all that he may do in violation thereof. 2. For all the thefts committed by the crew, reserving his
right of action against the guilty parties.
12. To give an account to the agent from the port where
the vessel arrives, of the reason thereof, taking advantage 3. For the losses, fines, and confiscations imposed an
of the semaphore, telegraph, mail, etc., according to the account of violation of the laws and regulations of
cases; notify him the freight he may have received, customs, police, health, and navigation.
stating the name and domicile of the shippers, freight 4. For the losses and damages caused by mutinies on
earned, and amounts borrowed on bottomry bond, advise board the vessel, or by reason of faults committed by the
him of his departure, and give him any information and crew in the service and defense of the same, if he does
data which may be of interest. not prove that he made full use of his authority to prevent
13. To observe the rules on the situation of lights and or avoid them.
evolutions to prevent collisions. 5. For those arising by reason of an undue use of powers
14. To remain on board in case of danger to the vessel, and non-fulfillment of the obligations which are his in
until all hope to save her is lost, and before abandoning accordance with Articles 610 and 612.
her to hear the officers of the crew, abiding by the 6. For those arising by reason of his going out of his
decision of the majority; and if he should have to take a course or taking a course which he should not have taken
boat he shall take with him, before anything else, the without sufficient cause, in the opinion of the officers of
books and papers, and then the articles of most value, the vessel, at a meeting with the shippers or
being obliged to prove in case of the loss of the books supercargoes who may be on board.
and papers that he did all he could to save them.
No exception whatsoever shall exempt him from this
15. In case of wreck he shall make the proper protest in obligation.
due form at the first port reached, before the competent
authority or the Spanish * consul, within twenty-four


7. For those arising by reason of his voluntarily entering a The statement of the captain shall be believed if it is in
port other than his destination, with the exception of the accordance with those of the crew and passengers; if they
cases or without the formalities referred to in Article 612. disagree, the latter shall be accepted, unless there is proof
8. For those arising by reason of the non-observance of to the contrary.
the provisions contained in the regulations for lights and ARTICLE 625. The captain, under his personal liability, as
evolutions for the purpose of preventing collisions. soon as he arrives at the port of destination, obtains the
ARTICLE 619. The captain shall be liable for the cargo from necessary permission from the health and customs
the time it is turned over to him at the dock, or afloat officers and fulfills the other formalities required by the
alongside the ship, at the port of loading until he delivers regulations of the administration, shall turn over the
it on the shores or on the discharging wharf, of the port of cargo, without any defalcation, to the consignees, and, in
unloading unless the contrary has been expressly agreed a proper case, the vessel, rigging, and freights to the
upon. agent.
ARTICLE 620. The captain shall not be liable for the If, by reason of the absence of the consignee or on
damages caused to the vessel or to the cargo by reason account of the nonappearance of a legal holder of the
of force majeure; but he shall always be so — no invoices, the captain does not know to whom he is to
agreement to the contrary being valid — for those make the legal delivery of the cargo, he shall place it at
arising through his own fault. the disposal of the proper judge or court or authority, in
order that he may decide with regard to its deposit,
Neither shall he be personally liable for the obligations he preservation, and custody.
may have contracted for the repair, equipment, and
provisioning of the vessel, which shall be incurred by the
agent, unless the former has expressly bound himself SECTION III Officers and Crews of Vessels
personally or signed a draft or promissory note in his ARTICLE 626. In order to be a sailing mate it shall be
name. necessary:
ARTICLE 621. A captain who borrows money on bottomry, 1. To have the conditions required by the marine or
or who pledges or sells merchandise or provisions in navigation laws or regulations.
other cases and without the formalities prescribed in this
2. Not to be disqualified in accordance therewith for the
Code, shall be liable for the principle, interest, and costs,
discharge of the position.
and shall indemnify for the damages he may cause.
ARTICLE 627. The sailing mate, as the second chief of the
The captain who commits fraud in his accounts shall
vessel and unless the agent orders otherwise, shall take
reimburse the amount defrauded, and shall be subject to
the place of the captain in cases of absence, sickness, or
the provisions contained in the Penal Code.
death, and shall then assume all his powers, obligations,
ARTICLE 622. If when on a voyage the captain should and responsibilities.
receive news of the appearance of privateers or men of
ARTICLE 628. The sailing mate must supply himself with
war against his flag, he shall be obliged to make the
charts of the waters which are to be navigated, with the
nearest neutral port, inform his agent or shippers, and
maps and quadrants or sextants which are in use and
await an occasion to sail under convoy or until the danger
which are necessary for the discharge of his duties, being
is over or to receive final orders from the agent or
liable for the accidents which may arise by reason of his
shippers.
fault in this matter.
ARTICLE 623. If he should find himself being attacked by
ARTICLE 629. The sailing mate shall personally and
a privateer and after having done all that was possible to
specially keep a book folioed and stamped on all its
avoid the encounter and have resisted the delivery of the
pages, called the "binnacle book", with a memorandum
equipment of the vessel or of its cargo, they should be
at the beginning stating the number of folios it contains,
forcibly taken away from him, or he should be obliged to
signed by the competent authority, and shall enter
deliver them, he shall make an entry in his freight book
therein daily the distance and course travelled, the
and shall prove the fact before the competent authority
variations of the needle, the leeway, the direction and
at the first port he touches.
force of the wind, the condition of the atmosphere and of
After the force majeure has been proven, he shall be the sea, the rigging set, the latitude and longitude
exempted from liability. observed, the number of furnaces fired, the steam
ARTICLE 624. A captain whose vessel has gone through a pressure, the number of revolutions, and under the name
hurricane or who believes that the cargo has suffered of "incidents" the revolutions made, the meetings with
damages or averages, shall make a protest thereon other vessels, and all the particulars and accidents which
before the competent authority at the first port he may occur during the voyage.
touches within the twenty-four hours following his arrival, ARTICLE 630. In order to change the course and to take
and shall ratify it within the same period when he arrives the one most convenient for a good voyage of the vessel,
at the place of his destination, immediately preceding the sailing mate shall come to an agreement with the
with the proof of the facts, it not being permitted to open captain. If the latter should object, the sailing mate shall
the hatches until this has been done. make the remarks he may consider necessary in the
The captain shall proceed in the same manner if, the presence of the other officers of the vessel. If the captain
vessel having been wrecked, he is saved alone or with should still insist on his objection, the sailing mate shall
part of his crew, in which case he shall appear before the make the proper protest, signed by him and by another
nearest authority, and make a sworn statement of the one of the officers in the log book, and shall obey the
facts. captain, who shall be the only one liable for the
consequences of his order.
The authority or the consul abroad shall verify the said
facts, receiving a sworn statement of the members of the ARTICLE 631. The sailing mate shall be liable for all the
crew and passengers who may have been saved, and damages suffered by the vessel and cargo by reason of
taking the other steps which may assist in arriving at the his negligence or want of skill, without prejudice to the
facts, drafting a certificate of the result of the criminal liability which may arise, if a felony or
proceedings in the log book and in that of the sailing misdemeanor were committed.
mate, and shall deliver the original records of the ARTICLE 632. It shall be the duty of the second mate:
proceedings to the captain, stamped and folioed, with a
1. To watch over the preservation of the hull, and rigging
memorandum of the folios, which he must rubricate, for
of the vessel, and to take charge of the tackle and
their presentation to the judge or court of the port of
equipment which make up her outfit, suggesting to the
destination.
captain the repairs necessary and the replacement of the


goods and implements which are rendered useless and captain and sailing mate, assuming in such case their
lost. powers and liability.
2. To take care that the cargo is well arranged, keeping ARTICLE 634. The captain may make up his crew with the
the vessel always ready for evolutions. number he may consider advisable, and in the absence of
3. To preserve order, discipline, and good service among Spanish * sailors he may ship foreigners residing in the
the crew, requesting the necessary orders and country, the number thereof not to exceed one-fifth of
instructions of the captain, and quickly informing him of the total crew. If in foreign ports the captain should not
any occurrence in which the intervention of his authority find a sufficient number of Spanish *sailors, he may make
may be necessary. up the crew with foreigners, with the consent of the
consul or marine authorities.
4. To assign to each sailor the work he is to do on board, in
accordance with the instructions received, and see that it The agreements which the captain may make with the
is exactly and carefully carried out. members of the crew and others who go to make up the
complement of the vessels, to which reference is made in
5. To take charge by inventory of the rigging and all the Article 612, must be reduced to writing in the account
equipments of the vessel, if it should be laid up, unless book without the intervention of a notary public or clerk,
the agent has ordered otherwise. signed by the parties thereto, and vised by the marine
With regard to engineers the following rules shall govern: authority if they are executed in Spanish * territory, or by
the consuls or consular agents of Spain * if executed
1. In order to be taken on board as a marine engineer abroad, stating therein all the obligations which each one
forming part of the complement of a merchant vessel it contracts and all the rights they acquire, said authorities
shall be necessary to possess the qualifications which the taking care that these obligations and rights are recorded
laws and regulations require, and not to be disqualified in in a concise and clear manner, which will not give rise to
accordance therewith to hold said position. Engineers doubts or claims.
shall be considered as officers of the vessel, but they shall
exercise no command nor intervention except that which The captain shall take care to read to them the articles of
refers to the motive power. this Code, which concern them, stating that they were
read in the said document.
2. When there are two or more engineers on one vessel,
one of them shall be the chief, and the other engineers If the book includes the requisites prescribed in Article
and all the personnel of the engines shall be under his 612, and there should not appear any signs of alterations
orders; he shall furthermore have the motive power in its clauses, it shall be admitted as evidence in questions
under his charge, as well as the spare pieces, instruments, which may arise between the captain and the crew with
and implements belonging thereto, the fuel, the regard to the agreements contained therein and the
lubricating material and, finally, all which comes under amounts paid on account of the same.
the jurisdiction of an engineer on board a vessel. Every member of the crew may request a copy of the
3. He shall keep the engines and boilers in good condition captain, signed by the latter, of the agreement and of the
and in state of cleanliness, and shall order what may be liquidation of his wages, as they appear in the book.
proper in order that they may always be ready for regular ARTICLE 635. A sailor who has been contracted to serve
use, being liable for the accidents or damages which may on a vessel can not rescind his contract nor fail to comply
arise by reason of his want of skill or negligence to the therewith except by reason of a legitimate impediment
motive apparatus, or to the vessel and cargo, without which may have occurred.
prejudice to the criminal liability which may be proper if a
felony or misdemeanor is proven. Neither can he pass from the service of one vessel to
another without obtaining the written consent of the
4. He shall make no change in the motive apparatus, nor vessel on which he may be.
shall he repair the averages he may have noticed in the
same, nor change the normal speed of its movement If, without obtaining said permission, the sailor who has
without the prior authority of the captain, to whom, if he signed for one vessel should sign for another one, the
should object to their being made, he shall state the second contract shall be void, and the captain may
reasons he may deem proper in the presence of the other choose between forcing him to fulfill the service to which
engineers or officers; and if, notwithstanding this, the he first bound himself or look for a person to substitute
captain should insist on his objection, the chief engineer him at his expense.
shall make the proper protest, entering the same in the Said sailor shall furthermore lose the wages earned on his
engine book, and shall obey the captain, who shall be the first contract to the benefit of the vessel for which he may
only one liable for the consequences of his order. have signed.
5. He shall inform the captain of any average which may A captain who, knowing that a sailor is in the service of
occur to the motive apparatus, and shall inform him another vessel, should have made a new agreement with
when it may be necessary to stop the engines for some him, without having requested the permission referred to
time, or when any other incident occurs in his in the foregoing paragraphs, shall be personally liable to
department of which the captain should be immediately the captain of the vessel to which the sailor first belonged
informed, frequently advising him furthermore of the for that part of the indemnity, referred to in the third
consumption of fuel and lubricating material. paragraph of this article, which the sailor could not pay.
6. He shall keep a book or registry called the "Engine ARTICLE 636. Should a fixed period for which a sailor has
Book," in which there shall be entered all the data that signed not be stated, he can not be discharged until the
refer to the work of the engines, such as, for example, the end of the return voyage to the port where he enrolled.
number of furnaces fired, the steam pressure in the ARTICLE 637. Neither can the captain discharge a sailor
boilers and cylinders, the vacuum in the condenser, the during the time of his contract except for sufficient cause,
temperatures, the degree of saturation of the water, the the following being considered as such:
consumption of fuel and lubricating material, and under
the heading of "Noteworthy occurrences" the average 1. The perpetration of a crime which disturbs order on the
and imperfections which occur in the engines and vessel.
boilers, the causes therefor, and the means employed to 2. Repeated offenses of insubordination, against
repair the same. There shall also be stated, taking the discipline, or against the fulfillment of the service.
information from the binnacle book, and direction of the
wind, the rigging set, and the speed of the vessel. 3. Repeated incapacity or negligence in the fulfillment of
the service to be rendered.
ARTICLE 633. The second mate shall take command of
the vessel in case of the impossibility or disability of the 4. Habitual drunkenness.


5. Any occurrence which incapacitates the sailor to carry charterers, and the vessel should not have left the port,
out the work under his charge, with the exception of the the members of the crew shall not have any other right
provisions contained in Article 644. than to receive the wages earned up to the day on which
6. Desertion. the revocation took place.
The captain may, however, before setting out on a voyage ARTICLE 640. The following shall be just causes for the
and without giving any reason whatsoever, refuse to revocation of the voyage:
permit a sailor he may have engaged from going on 1. A declaration of war or interdiction of commerce with
board and may leave him on land, in which case he will the power to whose territory the vessel was bound.
be obliged to pay him his wages as if he had rendered 2. The blockade of the port of destination or the breaking
services. out of an epidemic after the agreement.
This indemnity shall be paid from the funds of the vessel 3. The prohibition to receive in said port the goods which
if the captain should have acted for reasons of prudence make up the cargo of the vessel.
and in the interest of the safety and good service of the
former. Should this not be the case, it shall be paid by the 4. The detention or embargo of the same by order of the
captain personally. Government, or for any other reason independent of the
will of the agent.
After the vessel has sailed, and during the voyage and
until the conclusion thereof, the captain can not abandon 5. The inability of the vessel to navigate.
any member of his crew on land or on the sea, unless, by ARTICLE 641. If, after a voyage has been begun, any of the
reason of being guilty of some crime, his imprisonment first three causes mentioned in the foregoing article
and delivery to the competent authority is proper in the should occur, the sailors shall be paid at the port the
first port touched, which will be obligatory on the captain. captain may deem it advisable to make for the benefit of
ARTICLE 638. If, the crew having been engaged, the the vessel and cargo, according to the time they may
voyage is revoked by the will of the agent or of the have served thereon; but if the vessel is to continue the
charterers before or after the vessel has put to sea or if voyage, the captain and the crew may mutually demand
the vessel is in the same manner given a different the enforcement of the contract.
destination than that fixed in the agreement with the In case of the occurrence of the fourth cause, the crew
crew, the latter shall be indemnified because of the shall continue to be paid half wages, if the agreement is
rescission of the contract according to the case, viz: by month but if the detention should exceed three
1. If the revocation of the voyage should be decided before months, the engagement shall be rescinded and the
the departure of the vessel from the port, each sailor crew shall be paid what they should have earned,
engaged shall be given one month's salary, besides what according to the contract, if the voyage had been made.
may be due him in accordance with his contract, for the And if the agreement had been made for a fixed sum for
services rendered to the vessel up to the date of the the voyage, the contract must be complied within the
revocation. terms agreed upon.
2. If the agreement should have been for a fixed amount In the fifth case, the crew shall not have any other right
for the whole voyage, there shall be graduated what may than be entitled to recover the wages earned; but if the
be due for said month and days, calculating the same in disability of the vessel should have been caused by the
proportion to the estimated duration of the voyage, in the negligence or lack of skill of the captain, engineer, or
judgment of experts, in the manner established in the sailing mate, they shall indemnify the crew for the loss
law of civil procedure; and if the proposed voyage should suffered, always reserving the criminal liability which may
be of such short duration that it is calculated at one be proper.
month more or less, the indemnity shall be fixed for ARTICLE 642. If the crew has been engaged to work on
fifteen days, discounting in all cases the sums advanced. shares they shall not be entitled, by reason of the
3. If the revocation should take place after the vessel has revocation, delay, or greater extension of the voyage, to
put to sea, the sailors engaged for a fixed amount for the anything but the proportionate part of the indemnity
voyage shall receive the salary which may have been paid into the common funds of the vessel by the persons
offered them in full as if the voyage had terminated, and liable for said occurrences.
those engaged by the month shall receive the amount ARTICLE 643. If the vessel and her freight should be
corresponding to the time they might have been on totally lost, by reason of capture or wreck, all rights of the
board and to the time they may require to arrive at the crew to demand any wages whatsoever shall be
port of destination, the captain being obliged, extinguished, as well as that of the agent for the recovery
furthermore, to pay said sailors the passage to the said of the advances made.
port or to the port of sailing of the vessel, as may be
convenient for them. If a portion of the vessel or freight should be saved, or
part of either, the crew engaged on wages, including the
4. If the agent or the charterers of the vessel should give captain, shall retain their rights on the salvage, so far as
said vessel a destination other than that fixed in the they go, on the remainder of the vessel as well as value of
agreement, and the members of the crew should not the freightage or the cargo saved; but sailors who are
agree thereto, they shall be given by way of indemnity engaged on shares shall not have any right whatsoever to
half the amount fixed in case No. 1, besides what may be the salvage of the hull, but only on the portion of the
owed them for the part of the monthly wages freightage saved. If they should have worked to collect
corresponding to the days which have elapsed from the the remainder of the ship-wrecked vessel, they shall be
date of their agreements. given an award in proportion to the efforts made and to
If they accept the change, and the voyage, on account of the risks encountered in order to accomplish the salvage.
the greater distance or for other reasons, should give rise ARTICLE 644. A sailor who falls sick shall not lose his right
to an increase of wages, the latter shall be privately to wages during the voyage, unless the sickness is the
regulated, or through amicable arbitrators in case of result of his own fault. At any rate, the costs of the
disagreement. Even though the voyage may be to a attendance and cure shall be defrayed from the common
nearer point, this shall not give rise to a reduction in the funds, in the form of a loan.
wages agreed upon.
If the sickness should be caused by an injury received in
If the revocation or change of the voyage should originate the service or defense of the vessel the sailor shall be
from the shippers or charterers, the agent shall have a attended and cured from the common funds, there
right to demand of them the indemnity which is justly being deducted before anything else from the proceeds
due. of the freight, the cost of the attendance and cure.
ARTICLE 639. If the revocation of the voyage should arise
from a just cause independent of the will of the agent or



ARTICLE 645. If a sailor should die during the voyage his ARTICLE 651. Supercargoes can not, without special
heir shall be given the wages earned and not received, authorization or agreement, make any transaction for
according to his engagement and the reason for his their own account during the voyage, with the exception
death, namely — of the ventures which, in accordance with the custom of
If he should have died a natural death and should have the port of destination, they are permitted to do.
been engaged on wages there shall be paid what may Neither shall they be permitted to invest in the return trip
have been earned up to the date of his death. more than the profits from the ventures, unless there is a
If the engagement had been made for a fixed sum for the special authorization thereto from the principals.
whole voyage there shall be paid half the amount earned
if the sailor died on the voyage out, and the whole TITLE III Special Contracts of Maritime Commerce
amount if he died on the return voyage.
And if the engagement had been made on shares and SECTION I Charter Parties
the death should have occurred after the voyage was
begun, the heirs shall be paid the entire portion due the 1. Forms and Effects of Charter Parties
sailor; but should the latter have died before the ARTICLE 652. A charter party must be drawn in duplicate
departure of the vessel from the port, the heirs shall not and signed by the contracting parties, and when either
be entitled to claim anything. does not know how or can not do so, by two witnesses at
If the death should have occurred in the defense of the their request.
vessel, the sailor shall be considered as living, and his The charter party shall include, besides the conditions
heirs shall be paid, at the end of the voyage, the full unrestrictedly stipulated, the following statements:
amount of wages or the full part of the profits due him as
to the others of his grade. 1. The kind, name, and tonnage of the vessel.
The sailor shall likewise be considered as present in the 2. Her flag and port of registry.
event of his capture when defending the vessel, in order 3. The name, surname, and domicile of the captain.
to enjoy the same benefits as the rest; but should he have 4. The name, surname, and domicile of the agent, if the
been captured on account of carelessness or other latter should make the charter party.
accident not related to the service, he shall only receive
the wages due up to the day of his capture. 5. The name, surname, and domicile of the charterer, and
if he states that he is acting by commission, that of the
ARTICLE 646. The vessel with her engines, rigging, person for whose account he makes the contract.
equipment, and freights shall be liable for the wages
earned by the crew engaged per month or for the trip, 6. The port of loading and unloading.
the liquidation and payment ought to take place 7. The capacity, number of tons or weight, or measure
between one voyage and the other. which they respectively bind themselves to load and
After a new voyage has been undertaken, credits such as transport, or whether it is the total cargo.
the former shall lose their right of preference. 8. The freightage to be paid, stating whether it is to be a
ARTICLE 647. The officers and the crew of the vessel shall fixed amount for the voyage or so much per month, or for
be exempted from all obligations contracted, if they the space to be occupied, or for the weight or measure of
deem it proper, in the following cases: the goods of which the cargo consists, or in any other
manner whatsoever agreed upon.
1. If, before the beginning of the voyage, the captain
attempts to change it, or there occurs a naval war with 9. The amount of primage to be paid to the captain.
the power to which the vessel was destined. 10. The days agreed upon for loading and unloading.
2. If a disease should break out and be officially declared 11. The lay days and extra lay days to be allowed and the
epidemic in the port of destination. rate of demurrage.
3. If the vessel should change owner or captain. ARTICLE 653. If the freight should be received without the
ARTICLE 648. By the complement of a vessel shall be charter party having been signed, the contract shall be
understood all the persons embarked, from the captain understood as executed in accordance with what appears
to the cabin boy, necessary for the management, in the bill of lading, which shall be the only instrument
evolutions, and service, and there shall, therefore, be with regard to the freight to determine the rights and
understood as included in the complement the crew, obligations of the owner, of the captain, and of the
sailing mates, engineers, stokers, and other persons not charterer. t
having a specific name; but there shall not be included ARTICLE 654. The charter parties executed with the
the passengers nor the persons the vessel is only intervention of a broker, who certifies to the authenticity
transporting. of the signatures of the contracting parties made in his
presence, shall be full evidence in court; and if said
SECTION IV Supercargoes signatures should not agree the ones identical with the
signatures the broker must keep in his registry, if kept in
ARTICLE 649. Supercargoes shall discharge on board the accordance to law, shall be final.
vessel the administrative duties which the agent or
shippers may have assigned them; they shall keep an The contracts shall also be admitted as evidence, even
account and record of their transactions in a book which though a broker has not taken part therein, if the
shall have the same conditions and requisites as required contracting parties acknowledge the signatures to be the
for the accounting book of the captain, and shall respect same as their own.
the latter in his duties as chief of the vessel. Should no broker have taken part in the charter party and
The powers and liabilities of the captain shall cease, when should the signatures not have been acknowledged,
there is a supercargo, with regard to that part of the doubts shall be decided by what is provided for in the bill
administration legitimately conferred upon the latter, but of lading, and in the absence thereof by the proofs
shall continue in force for all acts which are inseparable submitted by the parties.
from his authority and office. ARTICLE 655. Charter parties executed by the captain in
ARTICLE 650. All the provisions contained in the second the absence of the agent shall be valid and efficient, even
section of Title III, Book II, with regard to qualifications, though in executing them he should have acted in
manner of making contracts, and liabilities of factors shall violation of the orders and instructions of the agent or
be applicable to supercargoes. shipowner; but the latter shall have a right of action
against the captain to recover damages.


ARTICLE 656. If in the charter party the time in which the ARTICLE 662. If the vessel or the merchandise should be
loading and unloading is to take place is not stated, the recovered, or should the goods of the shipwreck be
customs of the port where these acts take place shall be picked up, the freight corresponding to the distance
observed. After the period stipulated or the customary covered by the vessel transporting the cargo shall be
one has passed, and should there not be in the freight paid; and should the vessel be repaired and transport said
contract an express clause fixing the indemnification for merchandise to the port of destination, the full freight
the delay, the captain shall be entitled to demand shall be paid, without prejudice to what may be due by
demurrage for the usual and extra lay days which may reason of the average.
have elapsed in loading and unloading. ARTICLE 663. Merchandise which is damaged or reduced
ARTICLE 657. If during the voyage the vessel should be on account of its own defects or bad quality and
rendered unseaworthy the captain shall be obliged to condition of the packing, or by reason of an accidental
charter another one at his expense, in good condition, to case, shall pay full freight, and as was stipulated in the
take the cargo to its destination, for which purpose he charter party.
shall be obliged to look for a vessel not only at the port of ARTICLE 664. The natural increase in weight or size of the
arrival but in the other ports within a distance of 150 merchandise loaded on the vessel shall accrue to the
kilometers. benefit of the owner, and shall pay the proper freight
If the captain should not furnish a vessel to take the cargo fixed in the contract for the same.
to its destination, either through indolence or malice, the ARTICLE 665. The cargo shall be specially liable for the
freighters, after a demand of the captain to charter a payment of the freight expenses, and duties arising
vessel within an unextendible period, may charter one therefrom, which must be reimbursed by the shippers, as
and apply to the judicial authority requesting that the well as for the part of the general average which may be
charter party which may have been made be due, but it shall not be legal for the captain to delay
immediately approved. unloading on account of delay in complying with this
The same authority shall judicially compel the captain to obligation.
confirm the charter made by the shippers for his account Should there be reasons for distrust, the judge or court, at
and under his responsibility. the instance of the captain, may order the deposit of the
If the captain, notwithstanding his efforts, should not find merchandise until he has been paid in full.
a vessel to charter, he shall deposit the cargo at the ARTICLE 666. The captain may request the sale of the
disposal of the freighters, to whom he shall communicate cargo to the amount necessary to pay the freight,
the facts on the first opportunity presenting itself, the expenses, and averages due him, reserving the right to
charter being regulated in such cases by the distance demand the balance due him therefor if the proceeds of
covered by the vessel, there being no right to any the sale should not have sufficed to cover his credit.
indemnification whatsoever.
ARTICLE 667. The goods loaded shall be liable in the first
ARTICLE 658. The freight shall be paid according to the place for their freight and expenses during twenty days,
conditions stipulated in the contract, and should they not to be counted from the date of their delivery or deposit.
be specific, or should they be ambiguous, the following During this period, the sale of the same may be
rules shall be observed: requested, even though there be other creditors and the
1. If the vessel has been chartered by months or by days, case of bankruptcy of the freighter or consignee should
the freight shall begin to run from the day the loading of occur.
the vessel is begun. This right can not be made use of, however, on the goods
2. In charters made for a fixed period, the freight shall which after being delivered, were turned over to a third
begin from that very day. person without malice on the part of the latter and for a
3. If the freight is charged according to weight, the valuable consideration.
payment shall be made according to gross weight, ARTICLE 668. If the consignee should not be found or
including the containers, such as barrels or any other should refuse to receive the cargo, the judge or court, at
objects containing the cargo. the instance of the captain, shall order its deposit and the
ARTICLE 659. The merchandise sold by the captain to pay sale of the merchandise in so far as necessary to pay the
for the necessary repairs to the hull, machinery or freight and other expenses on the same.
equipment, or for unavoidable and urgent requirements, The sale shall likewise take place when the goods
shall pay freight. t deposited run the risk of deteriorating or by reason of
The price of this merchandise shall be fixed according to their condition or for other reasons the expenses of
the success of the voyage, namely: preservation and custody should be disproportionate to
the value thereof.
1. If the vessel should arrive safely at the port of
destination, the captain shall pay the price which the sale 2. Rights and Obligations of Owners
of merchandise of the same kind brings at that port. ARTICLE 669. The owners or the captain shall observe in
2. If the vessel should be lost, the captain shall pay the charter parties the capacity of the vessel or that expressly
price said merchandise would have brought in the sale. designated in the registry of the same, a difference
greater than 2 per cent between that stated and her true
The same rule shall be observed in the payment of the capacity not being permissible.
freight which shall be in full if the vessel arrives at her
destination, and in proportion to the distance covered if If the owners or the captain should contract to carry a
she should be lost beforehand. greater amount of cargo than the vessel can hold, in view
of her tonnage, they shall indemnify the freighters whose
ARTICLE 660. Merchandise jettisoned for the common contracts they do not fulfill for the losses they may have
safety shall not pay freight; but its value shall be caused them by reason of their default, according to the
considered as general average, and shall be computed in cases, viz:
proportion to the distance covered when it was
jettisoned. If the vessel has been chartered by one freighter only, and
there should appear to be an error or fraud in her
ARTICLE 661. Neither shall merchandise which was lost by capacity, and the charterer should not wish to rescind the
reason of shipwreck or stranding pay freight, nor that contract, when he has a right to do so, the charter should
seized by pirates or enemies. be reduced in proportion to the cargo the vessel can not
If the freight should have been paid in advance, it shall be receive, the person from whom the vessel is chartered
returned, unless there was an agreement to the contrary. being furthermore obliged to indemnify the charterer for
the losses he may have caused.


If, on the contrary, there should be several charter parties, Should the captain not receive an answer within the time

and by reason of the want of space all the cargo necessary therefor, he shall make efforts to find freight;
contracted for can not be received, and none of the and should he not find any after the lay days and extra lay
charterers desires to rescind the contract, preference shall days have elapsed, he shall make a protest and return to
be given to the person who has already loaded and the port where the charter was made.
arranged the freight in the vessel, and the rest shall take The charterer shall pay the freightage in full, discounting
the place corresponding to them in the order of the dates that which may have been earned on the merchandise
of their contracts. which may have been carried on the voyage out or on the
Should there be no priority, the charterers may load, if return trip, if carried for the account of third persons.
they wish, pro rata of the amounts of weight or space The same shall be done if a vessel, having been chartered
they may have engaged, and the person from whom the for the round trip, should not be given any cargo for her
vessel was chartered shall be obliged to indemnify them return.
for the loss and damage.
ARTICLE 676. The captain shall lose the freightage and
ARTICLE 670. If the person from whom the vessel is shall indemnify the charterers if the latter should prove,
chartered, after receiving a part of the freight, should not even against the certificate of inspection, should one
find sufficient to make up at least three-fifths of the have taken place at the port of departure, that the vessel
amount which the vessel can hold, at the price he may was not in a condition to navigate at the time of receiving
have fixed, he may substitute for the transportation the cargo.
another vessel inspected and declared suitable for the
same voyage, the expenses of transfer being defrayed by ARTICLE 677. The charter party shall be enforced if the
him, as well as the increase, should there be any, in the captain should not have any instructions from the
price of the charter. Should he not be able to make this charterer, and a declaration of war or a blockade should
change, the voyage shall be undertaken at the time take place during the voyage.
agreed upon; and should no time have been fixed, within In such case the captain shall be obliged to make the
fifteen days from the time of beginning to load, should nearest safe and neutral port, and request and await
nothing to the contrary have been stipulated. orders from the freighter; and the expenses incurred and
If the owner of the part of the freight already loaded salaries earned during the detention shall be paid as
should procure some more at the same price and under general average.
similar or proportionate conditions to those accepted for If, by orders of the freighter, the cargo should be
the freight received, the person from whom the vessel is discharged at the port of arrival, the freight for the voyage
chartered or the captain can not refuse to accept the rest out shall be paid in full.
of the cargo; and should he do so, the freighter shall have
a right to demand that the vessel put to sea with the ARTICLE 678. If the time necessary, in the opinion of the
cargo she may have on board. judge or court, in which to receive orders from the
freighters should have elapsed without the captain
ARTICLE 671. After three-fifths of the vessel is loaded, the having received any instructions, the cargo shall be
person from whom she is chartered can not, without the deposited, and it shall be liable for the payment of the
consent of the charterers or freighters substitute the freight and expenses incurred by reason of the delay
vessel designated in the charter party by another one, which shall be paid from the proceeds of the part first
under the penalty of making himself thereby liable for all sold.
the losses and damages occurring during the voyage to
the cargo of the person who did not consent to the 3. Obligations of Charterers
change. ARTICLE 679. The charterer of an entire vessel may
ARTICLE 672. If the vessel has been chartered in whole, subcharter the whole or part thereof for the amounts he
the captain can not, without the consent of the person may consider most convenient, without the captain
chartering her, accept freight from any other person; and being allowed to refuse to receive on board the freight
should he do so, said charterer may oblige him to unload delivered by the second charterers, provided the
it and require him to indemnify him for the losses conditions of the first charter are not changed, and that
suffered thereby. the person from whom the vessel is chartered be paid
the full price agreed upon even though the full cargo is
ARTICLE 673. The person from whom the vessel is not embarked, with the limitation established in the next
chartered shall be liable for all the losses caused the article.
charterer by reason of the voluntary delay of the captain
in putting to sea, according to the rules prescribed, ARTICLE 680. A charterer who does not make up the full
provided he has been requested to put to sea at the cargo he bound himself to ship shall pay the freightage of
proper time through a notary or judicially. the amount he fails to ship, if the captain did not take
other freight to make up the cargo of the vessel, in which
ARTICLE 674. If the charterer should carry to the vessel case he shall pay the first charterer the difference should
more freight than that contracted for, the excess may be there be any.
admitted in accordance with the price stipulated in the
contract, if it can be well stowed without injuring the ARTICLE 681. If the charterer should ship goods different
other freighters, but if in order to stow said freight it from those indicated at the time of executing the charter
should be necessary to stow it in such manner as to throw party, without the knowledge of the person from whom
the vessel out of trim the captain must refuse it or unload the vessel was chartered or of the captain, and should
it at the expense of its owner. thereby give rise to losses, by reason of confiscation,
embargo, detention, or other causes, to the person from
The captain may likewise, before leaving the port, unload whom the vessel was chartered or to the shippers, the
the merchandise placed on board clandestinely, or person giving rise thereto shall be liable with the value of
transport it, if he can do so and keep the vessel in trim, his shipment and furthermore with his property, for the
demanding by way of freightage the highest price which full indemnity to all those injured through his fault.
may have been stipulated for said voyage.
ARTICLE 682. If the merchandise shipped should have
ARTICLE 675. If the vessel has been chartered to receive been for the purpose of illicit commerce, and was taken
the cargo in another port, the captain shall appear before on board with the knowledge of the person from whom
the consignee designated in the charter party, and, the vessel was chartered or of the captain, the latter,
should the latter not deliver the cargo to him, he shall jointly with the owner of the same, shall be liable for all
inform the charterer and await his instructions, and in the the losses which may be caused the other shippers, and
meantime the lay days agreed upon shall begin to run, or even though it may have been agreed, they can not
those allowed by custom in the port, unless there is a demand any indemnity whatsoever of the charterer for
special agreement to the contrary. the damage caused the vessel.


ARTICLE 683. In case of making a port to repair the hull, When the delay does not exceed thirty days, the
machinery, or equipment of the vessel, the freighters freighters shall pay the full freight for the voyage out.
must wait until the vessel is repaired, being permitted to Should the delay exceed thirty days, they shall only pay
unload her at their own expense should they deem it the freight in proportion to the distance covered by the
advisable. vessel.
If, for the benefit of the cargo subject to deterioration, the ARTICLE 689. At the request of the person from whom
freighters or the court, or the consul, or the competent the vessel is chartered the charter party may be
authority in a foreign land should order the merchandise rescinded:
to be unloaded, the expenses of loading and unloading
shall be for the account of the former. 1. If the charterer at the termination of the extra lay days
does not place the cargo alongside the vessel.
ARTICLE 684. If the charterer, without the occurrence of
any of the cases of force majeure mentioned in the In such case the charterer must pay half the freight
foregoing article, should wish to unload his merchandise stipulated besides the demurrage for the lay days and
before arriving at the port of destination, he shall pay the extra lay days elapsed.
full freight, the expenses of the stop made at his request, 2. If the person from whom the vessel was chartered
and the losses and damages caused the other freighters, should sell her before the charterer has begun to load her
should there be any. and the purchaser should load her for his own account.
ARTICLE 685. In charters for transportation of general In such case the vendor shall indemnify the charterer for
freight any of the freighters may unload the merchandise the losses he may suffer.
before the beginning of the voyage, by paying one-half
the freight, the expense of stowing and restowing the If the new owner of the vessel should not load her for his
cargo, and any other damage which may be caused the own account the charter party shall be respected, and the
other shippers. vendor shall indemnify the purchaser if the former did
not inform him of the charter pending at the time of
ARTICLE 686. After the vessel has been unloaded and the making the sale.
cargo placed at the disposal of the consignee, the latter
must immediately pay the captain the freight due and ARTICLE 690. The charter party shall be rescinded and all
the other expenses to which he may be liable for said action arising therefrom shall be extinguished if, before
cargo. the vessel puts to sea from the port of departure, any of
the following cases should occur:
The primage must be paid in the same proportion and at
the same time as the freight, all the changes and 1. A declaration of war or interdiction of commerce with
modifications to which the latter should be subject also the power to whose ports the vessel was going to sail.
governing the former. 2. A condition of blockade of the port of destination of
ARTICLE 687. The charters and freighters can not said vessel, or the breaking out of an epidemic after the
abandon merchandise damaged on account of the contract was executed.
inherent vice of the goods or by reason of an accidental 3. The prohibition to receive the merchandise of the
case, for the payment of the freight and other expenses. vessel at the said port.
The abandonment shall be proper, however, if the cargo 4. An indefinite detention, by reason of an embargo of the
should consist of liquids and should they have leaked out, vessel by order of the government or for any other reason
there not remaining in the containers more than independent of the will of the agent.
one-quarter of their contents.
5. The impossibility of the vessel to navigate, without fault
4. Total or Partial Rescissions of Charter Parties of the captain or agent.
ARTICLE 688. A charter party may be annulled at the The unloading shall be made for the account of the
request of the charterer: charterer.
1. If before loading the vessel he should abandon the ARTICLE 691. If the vessel can not put to sea on account of
charter, paying half of the freightage agreed upon. the closing of the port of departure, or any other
2. If the capacity of the vessel should not agree with that temporary cause, the charter shall be in force without any
stated in the certificate of the tonnage, or if there is an of the contracting parties having a right to claim
error in the statement of the flag under which she sails. damages.
3. If the vessel should not be placed at the disposal of the The subsistence and wages of the crew shall be
charterer within the period and in the manner agreed considered as general average.
upon. During the interruption the charterer may, at the proper
4. If, after the vessel has put to sea, she should return to time and for his own account, unload and load the
the port of departure, on account of risk of pirates, merchandise, paying demurrage if the reloading should
enemies, or bad weather, and the freighters should agree continue after the reason for the detention has ceased.
to unload her. ARTICLE 692. A charter party shall be partially rescinded,
In the second and third cases the person from whom the unless there is an agreement to the contrary, and the
vessel was chartered shall indemnify the charterer for the captain shall only be entitled to the freight for the voyage
losses he may suffer. out, if, by reason of a declaration of war, closing of ports,
or interdiction of commercial relations during the voyage,
In the fourth case the person from whom the vessel was the vessel should make the port designated for such a
chartered shall have a right to the freightage in full for case in the instructions of the charterer.
the voyage out.
5. Passengers on Sea Voyages
If the charter should have been made by the months, the
charterers shall pay the full freightage for one month, if ARTICLE 693. Should the passage price not have been
the voyage were to a port in the same waters, and two agreed upon, the judge or court shall summarily fix it,
months, if the voyage were to a port in different waters. after a statement of experts.
From one port to another of the Peninsula and adjacent ARTICLE 694. Should the passenger not arrive on board at
islands, the freightage for one month only shall be paid. the time fixed, or should leave the vessel without
permission from the captain, when the latter is ready to
5. If a vessel should make a port during the voyage in leave the port, the captain may continue the voyage and
order to make urgent repairs and the freighters should demand the full passage price.
prefer to dispose of the merchandise.


ARTICLE 695. The right to passage, if issued to a specified ARTICLE 704. The captain, in order to collect the price of
person, can not be transferred without the consent of the the passage and expenses of maintenance, may retain
captain or of the consignee. the goods belonging to the passenger, and in case of the
ARTICLE 696. If before beginning the voyage the sale of the same he shall be given preference over the
passenger should die, his heirs shall only be obliged to other creditors, acting in the same way as in the
pay half of the passage agreed upon. collection of freight.
If there should be understood in the price stipulated the ARTICLE 705. In case of the death of a passenger during
expenses of subsistence, the judge, or court, hearing the voyage the captain is authorized, with regard to the
experts if he considers it necessary, shall fix the amount body, to take the steps required by the circumstances,
to be paid the vessel. and shall carefully take care of the papers and goods
there may be on board belonging to the passenger,
Should another passenger be received in the place of the observing the provisions of Case No. 10 of Article 612 with
deceased, nothing shall be paid by said heirs. regard to members of the crew.
ARTICLE 697. If before beginning the voyage it should be 6. Bills of Lading
suspended through the sole fault of the captain or agent,
the passengers shall be entitled to have their passage ARTICLE 706. The captain and the freighter of the vessel
refunded and to recover for losses and damages; but if are obliged to draft the bill of lading, in which there shall
the suspension was due to an accidental cause, or to be stated:
force majeure, or to any other cause beyond the control 1. The name, registry, and tonnage of the vessel.
of the captain or agent, the passengers shall only be 2. The name of the captain and his domicile.
entitled to the return of the passage money.
3. The port of loading and that of unloading.
ARTICLE 698. In case a voyage already begun should be
interrupted the passengers shall be obliged only to pay 4. The name of the shipper.
the passage in proportion to the distance covered, and 5. The name of the consignee, if the bill of lading is issued
shall not be entitled to recover for losses and damages if to order.
the interruption is due to an accidental cause or to force
majeure, but have a right to indemnity if the interruption 6. The quantity, quality, number of packages, and marks
should have been caused by the captain exclusively. If the of the merchandise.
interruption should be by reason of the disability of the 7. The freight and the primage stipulated.
vessel, and the passenger should agree to await her
repair, he can not be required to pay any increased price The bill of lading may be issued to bearer, to order, or in
of passage, but his living expenses during the delay shall the name of a specific person, and must be signed within
be for his own account. twenty-four hours after the cargo has been received on
board, the freighter being able to request the unloading
In case the departure of the vessel is delayed the thereof at the expense of the captain should he not sign
passengers have a right to remain on board and to be it, and in every case indemnity for the losses and
furnished with food for the account of the vessel, unless damages suffered thereby.
the delay is due to an accidental cause or to force
majeure. If the delay should exceed ten days, the ARTICLE 707. Four true copies of the original bill of lading
passengers who request it shall be entitled to the return shall be made, all of which shall be signed by the captain
of the passage; and if it were due exclusively to the and by the freighter. Of these copies the freighter shall
captain or agent they may furthermore demand keep one and send another to the consignee; the captain
indemnity for losses and damages. shall take two, one for himself and another for the agent.
A vessel which is exclusively destined to the There may, furthermore, be made as many copies of the
transportation of passengers must take them directly to bill of lading as may be considered necessary by the
the port or ports of destination, no matter what the persons interested; but when they are issued to order or
number of passengers may be, making all the stops to the bearer there shall be stated in all the copies, be
indicated in her itinerary. they either of the first four or of the subsequent ones, the
destination of each one, stating whether it is for the
ARTICLE 699. After the contract has been rescinded, agent, for the captain, for the freighter, or for the
before or after the commencement of the voyage, the consignee. If the copy sent to the latter should be
captain shall have a right to claim payment for what he duplicated there must be stated in said duplicate this
may have furnished the passengers. fact, and that it is not valid except in case of the loss of the
ARTICLE 700. In all that relates to the preservation of first one.
order and police on board the vessel the passengers shall ARTICLE 708. The bills of lading issued to the bearer sent
conform to the orders given by the captain, without any to the consignee shall be transferable by the actual
distinction whatsoever. delivery of the instrument; and by virtue of an
ARTICLE 701. The convenience or the interest of the indorsement, those issued to order.
passengers shall not obligate nor empower the captain to In either case, the person to whom the bill of lading is
stand in shore or enter places which may take the vessel transferred shall acquire all the rights and actions of the
out of her course, nor to remain in the ports he must or is assignor or indorser with regard to the merchandise
under the necessity of touching for a period longer than mentioned in the same.
that required for the business of the navigation.
ARTICLE 709. A bill of lading drawn up in accordance with
ARTICLE 702. In the absence of an agreement to the the provisions of this title shall be proof as between all
contrary, it shall be understood that the maintenance of those interested in the cargo and between the latter and
the passengers during the voyage is included in the price the underwriters, proof to the contrary being reserved by
of the passage; but should said maintenance be for the the latter.
account of the latter, the captain shall be under the
obligation, in case of necessity, to furnish them the ARTICLE 710. Should the bills of lading not agree, and
victuals at a reasonable price necessary for their there should not be observed any correction or erasure in
maintenance. any of them, those possessed by the freighter or
consignee signed by the captain shall be proof against
ARTICLE 703. A passenger shall be looked upon as a the captain or agent in favor of the consignee or freighter;
shipper in so far as the goods he carries on board are and those possessed by the captain or agent signed by
concerned, and the captain shall not be liable for what the freighter shall be proof against the freighter or
said passenger may preserve under his immediate and consignee in favor of the captain or agent.
special custody unless the damage arises from an act of
the captain or of the crew. ARTICLE 711. The legitimate holder of a bill of lading who
does not present it to the captain of the vessel before her



unloading, obliging the latter thereby to unload it and 1. By means of a public instrument.
place it in deposit, shall be liable for the cost of 2. By means of a bond signed by the contracting parties
warehousing and other expenses arising therefrom. and the broker who took part therein. t
ARTICLE 712. The captain can not himself change the 3. By means of a private instrument.
destination of merchandise. In admitting this change at
the instance of the freighter, he must first take up the Under whichever of these forms the contract is executed,
bills of lading he may have issued, under the penalty of it shall be entered in the certificate of the registry of the
being liable for the cargo to the legitimate holder of the vessel and shall be recorded in the commercial registry,
same. without which requisites the credits originating from the
same shall not have, with regard to other credits, the
ARTICLE 713. If before delivering the cargo a new bill of preference which, according to their nature, they should
lading should be demanded of the captain, it being have, although the obligation shall be valid between the
alleged that the previous ones are not presented on contracting parties.
account of their loss or for any other sufficient cause, he
shall be obliged to issue it, provided security for the value The contracts made during a voyage shall be governed by
of the cargo is given to his satisfaction; but without the provisions of Articles 583 and 611, and shall be
changing the consignment and stating therein the effective with regard to third persons from the date of
circumstances prescribed in the last paragraph of Article their execution, if they should be recorded in the
707, when the bills of lading referred to therein are in commercial registry of the port of registry of the vessel
question, under the penalty otherwise to be liable for said before eight days have elapsed from the date of her
cargo if not properly delivered through his fault. arrival. If said eight days should elapse without the record
having been made in the commercial registry, the
ARTICLE 714. If before the vessel puts to sea the captain contracts made during the voyage of a vessel shall not
should die or should discontinue in his position through have any effect with regard to third persons, except from
any accident, the freighters shall have a right to demand the day and date of their entry.
of the new captain the ratification of the first bills of
lading, and the latter must do so, provided all the copies In order that the bonds of the contracts celebrated in
previously issued be presented or returned to him, and it accordance with No. 2 may have legal force, they must
should appear from an examination of the cargo that conform to the registry of the broker who took part
they are correct. therein. In those celebrated in accordance with No. 3 the
acknowledgment of the signature must precede.
The expenses arising from the examination of the cargo
shall be defrayed by the agent, without prejudice to the Contracts which are not reduced to writing shall not be
right of action of the latter against the first captain, if he the basis for a judicial action.
ceased to be such through his own fault. Should said ARTICLE 721. In a bottomry or respondentia bond there
examination not be made, it shall be understood that the must be stated:
new captain accepts the cargo as it appears from the bills
of lading issued. 1. The kind, name, and registry of the vessel.
ARTICLE 715. Bills of lading will give rise to a most 2. The name, surname, and domicile of the captain.
summary action or to judicial compulsion, according to 3. The names, surnames, and domicile of the person
the case, for the delivery of the cargo and the payment of giving and of the person receiving the loan.
the freightage and proper expenses.
4. The amount of the loan and the premium stipulated.
ARTICLE 716. If several persons should present bills of
lading issued to bearer or to order, indorsed in their favor, 5. The time for repayment.
demanding the same merchandise, the captain shall 6. The goods pledged to secure repayment.
prefer in delivering the same, the person presenting the 7. The voyage for which the risk is run.
copy first issued, with the exception of the case when the
latter one was issued on account of the loss of the first ARTICLE 722. The bonds may be issued to order, in which
one, and if they are held by different persons. case they shall be transferable by indorsement, and the
assignee shall acquire all the rights and run all the risks
In such case, as well as when only second or subsequent corresponding to the indorser.
copies issued without this proof are presented, the
captain shall apply to the judge or court, so that he may ARTICLE 723. Loans may be made in goods and in
order the deposit of the merchandise, and that through merchandise, their value being fixed in order to
him it may be delivered to the proper person. determine the amount of the loan.
ARTICLE 717. The delivery of the bill of lading shall effect ARTICLE 724. The loans may be constituted jointly or
the cancellation of all the provisional receipts of prior date separately:
given by the captain or his subalterns for partial deliveries 1. On the hull of the vessel.
of the cargo which may have been made.
2. On the rigging.
ARTICLE 718. After the cargo has been delivered, the bills
of lading which the captain signed shall be returned to 3. On the equipment, provisions, and fuel.
him, or at least the copy by reason of which the delivery is 4. On the engine, if the vessel is a steamer.
made, with the receipt for the merchandise mentioned
therein. 5. On the cargo.
The delay on the part of the consignee shall make him If the loan is constituted on the hull of the vessel, there
liable for the damages which may be caused the captain shall be understood as also subject to the liability of the
thereby. loan, the rigging, equipment and other goods, provisions,
fuel, steam engines, and the freight earned during the
voyage subject to the loan.
SECTION II Loans on Bottomry and Respondentia
If the loan is made on the cargo, all that constitutes the
ARTICLE 719. A loan on bottomry or respondentia shall be same shall be subject to the repayment; and if on a
considered that which the repayment of the sum loaned particular object of the vessel or of the cargo, the object
and the premium stipulated, under any condition exclusively and specifically mentioned only shall be liable.
whatsoever, depends on the safe arrival in port of the
ARTICLE 725. No loans can be made on the salaries of the
goods on which it is made, or of their value in case of
crew, nor on the profits which it is expected to earn.
accident.
ARTICLE 726. If the lender should prove that he loaned a
ARTICLE 720. Loans on bottomry or respondentia may be
larger amount than the value of the article liable for the
executed:
bottomry loan, by reason of fraudulent measures


employed by the borrower the loan shall only be valid for the shore or wharf of the port of shipment until unloaded
the amount at which said object is appraised by experts. in the port of consignment.
The surplus principal shall be returned with legal interest ARTICLE 734. In case of shipwreck the amount liable for
for the whole period of the duration of the disbursement. the return of the loan shall be reduced to the proceeds of
ARTICLE 727. If the full amount of the loan contracted to the goods saved, after the costs of the salvage have been
load the vessel should not be made use of for the cargo, deducted.
the surplus shall be returned before clearing. If the loan were on the vessel or any of her parts, the
The same procedure shall be observed with regard to the freightage earned during the voyage for which said loan
goods taken as a loan if they could not all have been was contracted shall also be liable for its payment, as far
loaded. as it is available.
ARTICLE 728. The loan which the captain takes at the ARTICLE 735. If the same vessel or cargo should be the
point of residence of the owners of the vessel shall only object of a loan on bottomry or respondentia and marine
affect that part of the latter which belongs to the captain, insurance, the value of what may be saved shall be
if the other owners or their agents should not have given divided, in case of shipwreck, between the lender and the
their express authorization thereto or should not have underwriter, in proportion to the legitimate interest of
taken part in the transaction. each one, taking into consideration, for this purpose only,
the principal with relation to the loan, and without
If one or more of the owners should be requested to prejudice to the right of preference of other creditors in
furnish the amount necessary to repair or provision the accordance with Article 580.
vessel, and should not do so within twenty-four hours, the
interest which the parties in default may have in the ARTICLE 736. If there should be delay in the repayment of
vessel shall be liable for the loan in the proper proportion. the principal or premiums of the loan, the former only
shall bear legal interest.
Outside of the residence of the owners the captain may
contract loans in accordance with the provisions of
Articles 583 and 611. TITLE IV Risks, Damages and Accidents of
Maritime Commerce
ARTICLE 729. Should the goods on which money is taken
not be subjected to any risk, the contract shall be
considered an ordinary loan, the borrower being under SECTION I Averages
the obligation to return the principal and interest at the ARTICLE 806. For the purposes of this Code the following
legal rate, if the interest stipulated should not have been shall be considered averages:
lower.
1. All extraordinary or accidental expenses which may be
ARTICLE 730. Loans made during the voyage shall have incurred during the navigation for the preservation of the
preference over those made before the clearing of the vessel or cargo, or both.
vessel, and they shall be graduated by the inverse order to
that of their dates. 2. All damages or deterioration the vessel may suffer from
the time she puts to sea from the port of departure until
The loans for the last voyage shall have preference over she casts anchor in the port of destination, and those
prior ones. suffered by the merchandise from the time it is loaded in
Should several loans have been made at a port made the port of shipment until it is unloaded in the port of
under stress and for the same purpose, all of them shall consignment.
be paid pro rata. ARTICLE 807. The petty and ordinary expenses of
ARTICLE 731. The actions which may be brought by the navigation, such as pilotage of coasts and ports,
lender shall be extinguished by the absolute loss of the lighterage and towage, anchorage dues, inspection,
goods on which the loan was made, if said loss arose from health, quarantine, lazaretto, and other so-called port
an accident of the sea at the time and during the voyage expenses, costs of barges, and unloading, until the
designated in the contract, and should it be proven that merchandise is placed on the wharf, and any other
the cargo was on board; but this shall not take place if the expenses common to navigation shall be considered
loss were caused by the inherent defect of the thing or ordinary expenses to be defrayed by the shipowner,
through the fault or malice of the borrower, or through unless there is a special agreement to the contrary.
barratry on the part of the captain, or if it were caused by ARTICLE 808. Averages shall be:
damages suffered by the vessel as a consequence of
being engaged in contraband, or if it arose through 1. Simple or particular.
loading the merchandise on a vessel other than that 2. General or gross.
designated in the contract, unless this change should
have been made by reason of force majeure. ARTICLE 809. Simple or particular averages shall be, as a
general rule, all the expenses and damages caused to the
The proof of the loss is incumbent upon the person who vessel or to her cargo which have not redounded to the
received the loan, as well as the proof of the existence in benefit and common profit of all the persons interested
the vessel of the goods declared to the lender as the in the vessel and her cargo, and especially the following:
object thereof.
1. The damages suffered by the cargo from the time of its
ARTICLE 732. Lenders on bottomry or respondentia shall embarkation until it is unloaded, either on account of the
suffer in proportion to their respective interest, the nature of the goods or by reason of an accident at sea or
general average which may take place in the goods on force majeure, and the expenses incurred to avoid and
which the loan was made. repair the same.
In particular averages, in the absence of an express 2. The damages suffered by the vessel in her hull, rigging,
agreement between the contracting parties, the lender arms, and equipment, for the same causes and reasons,
on bottomry or respondentia shall also contribute in from the time she puts to sea from the port of departure
proportion to his respective interest, should it not belong until she anchored in the port of destination.
to the kind of risks excepted in the foregoing article.
3. The damages suffered by the merchandise loaded on
ARTICLE 733. Should it not have been stated in the deck, except in coastwise navigation, if the marine
contract for what period the lender runs the risk, the said ordinances allow it.
risk shall last with regard to the vessel, engines, rigging,
and equipment from the moment said vessel puts to sea 4. The wages and victuals of the crew when the vessel
until she drops anchor in the port of destination, and with should be detained or embargoed by a legitimate order
regard to the merchandise, from the time it is loaded on or force majeure, if the charter should have been for a
fixed sum for the voyage.


5. The necessary expenses on arrival at a port, in order to ARTICLE 813. In order to incur the expenses and cause the
make repairs or secure provisions. damages corresponding to gross average, a previous
6. The lowest value of the goods sold by the captain in resolution of the captain, adopted after deliberation with
arrivals under stress for the payment of provisions and in the sailing mate and other officers of the vessel, and with
order to save the crew, or to cover any other requirement a hearing of the persons interested in the cargo who may
of the vessel against which the proper amount shall be be present, shall be required.
charged. If the latter shall object, and the captain and officers, or a
7. The victuals and wages of the crew during the time the majority, or the captain, if opposed to the majority, should
vessel is in quarantine. consider certain measures necessary, they may be
executed under his liability, without prejudice to the
8. The damage suffered by the vessel or cargo by reason freighters exercising their rights against the captain
of an impact or collision with another, if it were accidental before the judge or court of competent jurisdiction, if
and unavoidable. If the accident should occur through they can prove that he acted with malice, lack of skill, or
the fault or negligence of the captain, the latter shall be negligence.
liable for all the damage caused.
If the persons interested in the cargo, being on the vessel,
9. Any damage suffered by the cargo through the faults, should not be heard, they shall not contribute to the
negligence, or barratry of the captain or of the crew, gross average, which contribution shall be paid by the
without prejudice to the right of the owner to recover the captain, unless the urgency of the case should be such
corresponding indemnity from the captain, the vessel, that the time necessary for previous deliberation was
and the freight. lacking.
ARTICLE 810. The owner of the goods which gave rise to ARTICLE 814. The resolution adopted to cause the
the expense or suffered the damage shall bear the simple damages which constitute a general average must
or particular averages. necessarily be entered in the log book, stating the
ARTICLE 811. General or gross averages shall be, as a motives and reasons therefor, the votes against it, and the
general rule, all the damages and expenses which are reasons for the disagreement should there be any, and
deliberately caused in order to save the vessel, her cargo, the irresistible and urgent causes which moved the
or both at the same time, from a real and known risk, and captain if he acted of his own accord.
particularly the following: In the first case the minutes shall be signed by all the
1. The goods or cash invested in the redemption of the persons present who could do so before taking action if
vessel or cargo captured by enemies, privateers, or possible, and if not at the first opportunity; in the second
pirates, and the provisions, wages, and expenses of the case by the captain and by the officers of the vessel.
vessel detained during the time the arrangement or In the minutes and after the resolution there shall be
redemption is taking place. stated in detail all the goods cast away, and mention shall
2. The goods jettisoned to lighten the vessel, whether be made of the injuries caused to those kept on board.
they belong to the vessel, to the cargo, or to the crew, and The captain shall be obliged to deliver one copy of these
the damage suffered through said act by the goods kept. minutes to the maritime judicial authority of the first port
he may make within twenty-four hours after his arrival,
3. The cables and masts which are cut or rendered and to ratify it immediately by an oath.
useless, the anchors and the chains which are abandoned
in order to save the cargo, the vessel, or both. ARTICLE 815. The captain shall supervise the jettison, and
shall order the goods cast overboard in the following
4. The expenses of removing or transferring a portion of order:
the cargo in order to lighten the vessel and place her in
condition to enter a port or roadstead, and the damage 1. Those which are on deck, beginning with those which
resulting therefrom to the goods removed or transferred. embarrass the handling of the vessel or damage her,
preferring, if possible, the heaviest ones and those of least
5. The damage suffered by the goods of the cargo utility and value.
through the opening made in the vessel in order to drain
her and prevent her sinking. 2. Those in the hold, always beginning with those of the
greatest weight and smallest value, to the amount and
6. The expenses caused through floating a vessel number absolutely indispensable.
intentionally stranded for the purpose of saving her.
ARTICLE 816. In order that the goods jettisoned may be
7. The damage caused to the vessel which it is necessary included in the gross average and the owners thereof be
to break open, scuttle, or smash in order to save the entitled to indemnity, it shall be necessary in so far as the
cargo. cargo is concerned that their existence on board be
8. The expenses of curing and maintaining the members proven by means of the bill of lading; and with regard to
of the crew who may have been wounded or crippled in those belonging to the vessel, by means of the inventory
defending or saving the vessel. made up before the departure, in accordance with the
first paragraph of Article 612.
9. The wages of any member of the crew detained as
hostage by enemies, privateers, or pirates, and the ARTICLE 817. If in lightening a vessel on account of a
necessary expenses which he may incur in his storm, in order to facilitate her entry into a port or
imprisonment, until he is returned to the vessel or to his roadstead, part of her cargo should be transferred to
domicile, should he prefer it. lighters or barges and be lost, the owner of said part shall
be entitled to indemnity, as if the loss has originated from
10. The wages and victuals of the crew of a vessel a gross average, the amount thereof being distributed
chartered by the month during the time it should be between the entire vessel and cargo which caused the
embargoed or detained by force majeure or by order of same.
the Government, or in order to repair the damage caused
for the common good. If, on the contrary, the merchandise transferred should be
saved and the vessel should be lost, no liability can be
11. The loss suffered in the value of the goods sold at demanded of the salvage.
arrivals under stress in order to repair the vessel because
of gross average. ARTICLE 818. If, as a necessary measure to extinguish a
fire in a port; roadstead; creek, or bay, it should be
12. The expenses of the liquidation of the average. decided to sink any vessel, this loss shall be considered
ARTICLE 812. In order to satisfy the amount of the gross or gross average, to which the vessels saved shall contribute.
general averages, all the persons having an interest in the
vessel and cargo therein at the time of the occurrence of
the average shall contribute.


the case and an entry in the book, in accordance with the

SECTION II Arrivals Under Stress provisions of Article 624.
ARTICLE 819. If the captain during the navigation should The captain shall, in a proper case, justify the legality of
believe that the vessel can not continue the voyage to the the procedure, under the penalty of answering to the
port of destination on account of the lack of provisions, shipper for the price the merchandise would have
well founded fear of seizure, privateers or pirates, or by brought if it should have arrived at the port of its
reason of any accident of the sea disabling her to destination in good condition.
navigate, he shall assemble the officers and shall call the ARTICLE 825. The captain shall answer for the damages
persons interested in the cargo who may be present, and caused by his delay, if the reason for the arrival under
who may attend the meeting without the right to vote; stress having ceased, he should not continue the voyage.
and if, after examining the circumstances of the case, the
reasons should be considered well founded, it shall be If the reason for said arrival should have been the fear of
decided to make the nearest and most convenient port enemies, privateers, or pirates, before sailing, a discussion
drafting and entering in the log book the proper minutes, and resolution of a meeting of the officers of the vessel
which shall be signed by all. and persons interested in the cargo who may be present
shall take place, in accordance with the provisions
The captain shall have the deciding vote and the persons contained in Article 819.
interested in the cargo may make the objections and
protests they may deem proper, which shall be entered in
the minutes in order that they may make use thereof in SECTION III Collisions
the manner they may consider advisable. ARTICLE 826. If a vessel should collide with another
ARTICLE 820. The arrival under stress shall not be through the fault, negligence, or lack of skill of the
considered legal in the following cases: captain, sailing mate, or any other member of the
complement, the owner of the vessel at fault shall
1. If the lack of provisions should arise from the failure to indemnify the losses and damages suffered, after an
take the necessary provisions for the voyage, according to expert appraisal.
usage and custom, or if they should have been rendered
useless or lost through bad stowage or negligence in ARTICLE 827. If both vessels may be blamed for the
their care. collision, each one shall be liable for his own damages,
and both shall be jointly responsible for the losses and
2. If the risk of enemies, privateers, or pirates should not damages suffered by their cargoes.
have been well known, manifest, and based on positive
and justifiable facts. ARTICLE 828. The provisions of the foregoing article are
applicable to the case in which it can not be decided
3. If the injury to the vessel should have been caused by which of the two vessels was the cause of the collision.
reason of her not being repaired, rigged, equipped, and
arranged in a convenient manner for the voyage, or by ARTICLE 829. In the cases above mentioned the civil
reason of some erroneous order of the captain. action of the owner against the person liable for the
damage is reserved, as well as the criminal liabilities
4. Whenever malice, negligence, want of foresight, or lack which may be proper.
of skill on the part of the captain is the reason for the act
causing the damage. ARTICLE 830. If a vessel should collide with another by
reason of an accident or through force majeure, each
ARTICLE 821. The expenses caused by the arrival under vessel and her cargo shall be liable for their own damage.
stress shall always be for the account of the shipowner or
agent, but the latter shall not be liable for the damage ARTICLE 831. If a vessel should be forced to collide with
which may be caused the shippers by reason of the arrival another one by a third vessel, the owner of the third
under stress, provided the latter is legitimate. vessel shall indemnify for the losses and damages caused,
the captain thereof being civilly liable to said owner.
Otherwise, the shipowner or agent and the captain shall
be jointly liable. ARTICLE 832. If, by reason of a storm or other cause of
force majeure, a vessel which is properly anchored and
ARTICLE 822. If in order to make repairs to the vessel or moored should collide with those in her immediate
because there should be danger of the cargo suffering vicinity, causing them damage, the injury occasioned
damage it should be necessary to unload, the captain shall be looked upon as particular average to the vessel
must request authorization of the judge or court of run into.
competent jurisdiction to lighten the vessel, and do so
with the knowledge of the person interested or ARTICLE 833. A vessel shall be presumed as lost thru a
representative of the cargo, should there be one. collision which, upon being run into, sinks immediately,
and also any vessel which is obliged to make a port to
In a foreign port, it shall be the duty of the Spanish * repair the damages caused by the collision should be lost
consul, where there is one, to give the authorization. during the voyage, or should be obliged to be stranded in
In the first case, the expenses shall be defrayed by the order to be saved.
ship agent or owner, and in the second, they shall be for ARTICLE 834. If the vessels colliding should have pilots on
the account of the owners of the merchandise, for whose board discharging their duties at the time of the collision,
benefit the act took place. their presence shall not exempt the captains from the
If the unloading should take place for both reasons, the liabilities they incur; but the latter shall have the right to
expenses shall be defrayed in proportion to the value of be indemnified by the pilots without prejudice to the
the vessel and that of the cargo. criminal liability which the latter may incur.
ARTICLE 823. The care and preservation of the cargo ARTICLE 835. The action for the recovery of losses and
which has been unloaded shall be in charge of the damages arising from collisions can not be admitted if a
captain, who shall be responsible for the same, except in protest or declaration is not presented within twenty-four
cases of force majeure. hours to the competent authority of the point where the
ARTICLE 824. If the entire cargo or part thereof should collision took place, or that of the first port of arrival of the
appear to be damaged, or there should be imminent vessel, if in Spain, * and to the consul of Spain * if it should
danger of its being damaged, the captain may request of have occurred in a foreign country.
the judge or court of competent jurisdiction or the ARTICLE 836. In so far as the damages caused to persons
consul, in a proper case, the sale of all or of part of the or to the cargo are concerned, the absence of a protest
former, and the person taking cognizance of the matter can not prejudice the persons interested who were not
shall authorize it after an examination and declaration of on board or were not in a condition to make known their
experts, advertisements, and other formalities required by wishes.


ARTICLE 837. The civil liability contracted by the necessary to cover the same. This shall also be done when

shipowners in the cases prescribed in this section, shall its preservation is dangerous, or when in the period of
be understood as limited to the value of the vessel with all one year it should not have been possible to ascertain
her appurtenances and all the freight earned during the who are its legitimate owners.
voyage. In both cases the proceedings regarding publicity and
ARTICLE 838. When the value of the vessel and her formalities prescribed in Article 579 shall be observed,
appurtenances should not be sufficient to cover all the and the net proceeds of the sale shall be deposited in a
liabilities, the indemnity due by reason of the death or safe place, in the judgment of the judge or court, in order
injury of persons shall have preference. to be turned over to the legitimate owners thereof.
ARTICLE 839. If the collision should occur between
Spanish * vessels in foreign waters, or if it should take TITLE V Proof and Liquidation of Averages
place in open waters, and the vessels should make a
foreign port, the Spanish * consul in said port shall hold a
summary investigation of the accident, forwarding the SECTION I Provisions Common to All Kinds of Averages
proceedings to the captain-general of the nearest ARTICLE 846. The persons interested in the proof and
department * for continuation and conclusion. liquidation of averages may mutually agree and bind
themselves at any time with regard to the liability,
SECTION IV Shipwrecks liquidation, and payment thereof. t
ARTICLE 840. The losses and deteriorations suffered by a In the absence of agreements, the following rules shall be
vessel and her cargo by reason of shipwreck or stranding observed:
shall be individually for the account of the owners, the 1. The proof of the average shall take place in the port
part of the wreck which may be saved belonging to them where the repairs are made, should any be necessary, or
in the same proportion. in the port of unloading.
ARTICLE 841. If the wreck or stranding should arise 2. The liquidation shall take place in the port of unloading
through the malice, negligence, or lack of skill of the should it be a Spanish * port.
captain, or because the vessel put to sea insufficiently
3. Should the average have occurred outside of the waters
repaired and prepared, the owner or the freighters may
under the jurisdiction of the Philippines or the cargo
demand indemnity of the captain for the damages
should have been sold in a foreign port by reason of an
caused to the vessel or cargo by the accident, in
arrival under stress, the liquidations shall be made in the
accordance with the provisions contained in Articles 610,
port of arrival.
612, 614, and 621.
4. If the average should have occurred near the port of
ARTICLE 842. The goods saved from the wreck shall be
destination, so that said port can be made, the
specially liable for the payment of the expenses of the
proceedings treated of in Rules 1 and 2 shall be held
respective salvage, and the amount thereof must be paid
there.
by the owners of the former before they are delivered to
them, and with preference to any other obligation, if the ARTICLE 847. In case of making the liquidation of the
merchandise should be sold. averages privately by virtue of agreement, as well as
when a judicial authority takes part therein at the request
ARTICLE 843. If several vessels navigate under convoy,
of any of the parties interested who do not agree thereto,
and any of them should be wrecked, the cargo saved shall
all of them shall be cited and heard, should they not have
be distributed among the rest in the proportion to the
renounced this right.
amount each one can receive.
Should they not be present or not have a legitimate
If any captain should refuse, without sufficient cause, to
representative, the liquidation shall be made by the
receive what may correspond to him, the captain of the
consul in a foreign port, and where there is none, by the
wrecked vessel shall enter a protest against him before
judge or court of competent jurisdiction, according to the
two sea officials of the losses and damages resulting
laws of the country, and for the account of the proper
therefrom, ratifying the complaint within twenty-four
person.
hours after arrival at the first port, and including it in the
proceedings he must institute in accordance with the When the representative is a person well known in the
provisions contained in Article 612. place where the liquidation takes place, his intervention
shall be admitted and produce legal effects, even though
Should it not be possible to transfer to the other vessels
he be authorized only by a letter of the shipowner,
the entire cargo of the one wrecked, the goods of the
freighter, or underwriter.
highest value and smallest volume shall be saved first,
the designation thereof being made by the captain, in ARTICLE 848. Claims for averages shall not be admitted if
concurrence with the officers of his vessel. they do not exceed 5 percent of the interest which the
claimant may have in the vessel or cargo if it is gross
ARTICLE 844. A captain who may have taken on board
average, and 1 percent of the goods damaged if particular
the goods saved from the wreck shall continue his course
average, deducting in both cases the expenses of
to the port of destination, and on arrival shall deposit the
appraisal, unless there is an agreement to the contrary.
same, with judicial intervention, at the disposal of their
legitimate owners. ARTICLE 849. The damages, averages, loans on bottomry
and respondentia, and their premiums, and any other
In case of changing his course, should he be able to
losses, shall not earn interest by reason of delay until the
unload them at the port to which they were consigned,
period of three-days has elapsed, to be counted from the
the captain may make said port if the shippers or
day on which the liquidation may have been concluded
supercargoes present consent thereto, as well as the
and communicated to the persons interested in the
officers and passengers of the vessel; but he can not do
vessel, in the cargo, or in both at the same time.
so, even with said consent, in time of war or when the
port is difficult to make and dangerous. ARTICLE 850. If by reason of one or more accidents of the
sea particular and gross averages of the vessel or the
All the expenses of this arrival shall be defrayed by the
cargo, or of both, should take place on the same voyage,
owners of the cargo, as well as the payment of the freight,
the expenses and damages corresponding to each one
which, taking into consideration the circumstances of the
shall be determined separately in the port where the
case, are fixed by agreement or by a judicial decision.
repairs are made or where the cargo is discharged, or
ARTICLE 845. If there should not be on the vessel any sold, or the merchandise is benefited.
person interested in the cargo to pay the expenses and
For this purpose the captains shall be obliged to demand
freight corresponding to the salvage, the judge or court
of the expert appraisers and of the contractors making
of competent jurisdiction may order the sale of the part
the repairs, as well as of those appraising and taking part



in the unloading, repair, sale, or the benefiting of the capital the value of the merchandise in the port of arrival,
merchandise, that they separate and detail exactly in or the net proceeds obtained at the sale thereof.
their appraisements or estimates and accounts all the 5. Merchandise lost, which should constitute the gross
expenses and damages belonging to each average, and average, shall be appraised at the value merchandise of
in those of each average those corresponding to the its kind may have in the port of unloading, provided its
vessel and to the cargo, stating also separately whether kind and quality appears in the bill of lading; and should
there are or not any damages proceeding from the this not be the case, the invoices of the purchase issued
nature of the goods, and not by reason of a sea accident; in the port of shipment shall be taken as a basis, adding
and in case there should be expenses common to the to its value the expenses and freights subsequently
different averages and to the vessel and her cargo, there arising.
must be calculated the amount corresponding to each
and stated distinctly. 6. The masts cut down, the sails, cables, and other
equipment of the vessel rendered useless for the purpose
of saving her, shall be appraised at the current value,
SECTION II Liquidation of Gross Averages deducting one-third by reason of the difference between
ARTICLE 851. At the instance of the captain, the new and old.
adjustment, liquidation, and distribution of gross This deduction shall not be made in regard to anchors
averages shall be held privately, with the consent of all and chains.
the parties in interest.
7. The vessel shall be appraised at her real value in her
For this purpose, within forty-eight hours following the condition at the time.
arrival of the vessel at the port, the captain shall call all
the persons interested, in order that they may decide as 8. The freights shall represent 50 per cent by way of
to whether the adjustment or liquidation of the gross contributing capital.
average is to be made by experts and liquidators ARTICLE 855. The merchandise loaded on the upper deck
appointed by themselves, in which case this shall be done of the vessel shall contribute to the gross average should
should the persons interested agree. it be saved; but there shall be no right to indemnity if it
Should an agreement not be possible, the captain shall should be lost by reason of being jettisoned for general
apply to the judge or court of competent jurisdiction, who safety, except when the marine ordinances allow its
shall be the one of the port where these proceedings are shipment in this manner in coastwise navigation.
to be held in accordance with the provisions of this Code, The same shall take place with that which is on board and
or to the consul of Spain, * should there be one, and is not included in the bills of lading or inventories,
otherwise to the local authority when they are to be held according to the cases.
in a foreign port.
In any case the shipowner and the captain shall be liable
ARTICLE 852. If the captain should not comply with the to freighters for the loss of the jettison, if the storage on
provisions contained in the foregoing article, the the upper deck took place without the consent of the
shipowner or agent or the freighters shall demand the latter.
liquidation, without prejudice to the action they may
bring to demand indemnity from him. ARTICLE 856. Provisions and munitions of war which the
vessel may have on board shall not contribute to the
ARTICLE 853. After the experts have been appointed by gross average, nor the clothing used by the captain,
the persons interested, or by the judge or court, before officers, and crew.
the acceptance, an examination of the vessel and of the
repairs required shall be made, as well as an estimate of There shall also be excepted the clothing used by the
their cost, separating these losses and damages from freighters, supercargoes, and passengers who may be on
those arising from the natural vice of the thing. board at the time of the jettison.
The experts shall also declare whether the repairs can be Neither shall the goods jettisoned contribute to the
made immediately, or whether it is necessary to unload payment of the gross averages which may occur to those
the vessel to examine and repair her. saved in a different and subsequent risk.
With regard to the merchandise, if the average should be ARTICLE 857. After the appraisement of the goods saved
visible at a mere glance, the examination thereof must be has been concluded by the experts, as well as that of the
made before it is delivered. Should it not be visible at the goods lost which constitute the gross average, and after
time of unloading, said examination may be held after the repairs have been made to the vessel, should any
the delivery provided it is done within forty-eight hours have to be made, and in such case after the approval of
from the unloading and without prejudice to the other the accounts of the same by the persons interested or by
proofs which the experts may deem necessary. the judge or court, the entire record shall be turned over
to the liquidator appointed, in order that he may proceed
ARTICLE 854. The appraisement of the goods which are with the distribution of the average.
to contribute to the gross average, and that of those
which constitute the average, shall conform to the ARTICLE 858. In order to effect the liquidation the
following rules: liquidator shall examine the sworn statement of the
captain, comparing it, if necessary, with the log book and
1. The merchandise saved which is to contribute to the all the contracts which may have been made between
payment of the gross average shall be valued at the the persons interested in the average, the appraisements,
current price thereof at the port of unloading, deducting expert examinations, and accounts of repairs made. If, as
the freights, customs duties, and charges for unloading, a result of this examination, he should find any defect in
as may appear from a material inspection of the same, this procedure which might injure the rights of the
not taking into consideration the bills of lading, unless persons interested or affect the liability of the captain, he
there is an agreement to the contrary. shall call attention thereto in order that it be corrected, if
2. If the liquidation is to take place in the port of sailing, possible, and otherwise he shall include it in the
the value of the merchandise loaded shall be fixed by the preliminaries of the liquidation.
purchase price, including the expenses until they are put Immediately thereafter he shall proceed with the
on board, excluding the insurance premium. distribution of the amount of the average, for which
3. If the merchandise should be damaged, it shall be purpose he shall fix:
appraised at its true value. 1. The contributing capital, which he shall determine by
4. If the voyage should be interrupted, the merchandise the value of the cargo, in accordance with the rules
having been sold in a foreign port and the average can established in Article 854.
not be estimated, there shall be taken as the contributing


2. That of the vessel in her actual condition, according to a
statement of experts. SECTION III Liquidation of Ordinary Averages
3. The 50 per cent of the amount of the freight, deducting ARTICLE 869. The experts which the judge or court or the
the remaining 50 per cent for wages and maintenance of persons interested may appoint, according to the cases,
the crew. shall proceed with the appraisement and examination of
After the amount of the gross average has been the averages in the manner prescribed in Article 853 and
determined in accordance with the provisions of this in Article 854, Rules 2 to 7, in so far as they are applicable.
Code, it shall be distributed pro rata among the goods
which are to cover the same.
ARTICLE 859. The underwriters of the vessel, of the RA No 1405 | Secrecy of Bank Deposits
freight, and of the cargo shall be obliged to pay for the Act
indemnity of the gross average in so far as is required of As amended by PD No 1792
each one of these objects respectively.

ARTICLE 860. If, notwithstanding the jettison of the
merchandise, breakage of masts, ropes, and equipment, September 9, 1955
the vessel should be lost running said risk, no AN ACT PROHIBITING DISCLOSURE OF OR INQUIRY
contribution whatsoever by reason of gross average shall INTO, DEPOSITS WITH ANY BANKING INSTITUTION
be proper. AND PROVIDING PENALTY THEREFOR
The owners of the goods saved shall not be liable for the SECTION 1. It is hereby declared to be the policy of the
indemnity of those jettisoned, lost, or damaged. Government to give encouragement to the people to
ARTICLE 861. If, after the vessel having been saved from deposit their money in banking institutions and to
the risk which gave rise to the jettison, she should be lost discourage private hoarding so that the same may be
through another accident taking place during the properly utilized by banks in authorized loans to assist in
voyage, the goods saved and existing from the first risk the economic development of the country.
shall continue liable to contribution by reason of the gross SECTION 2. All deposits of whatever nature with banks or
average according to their value in their condition at the banking institutions in the Philippines including
time, deducting the expenses incurred in saving them. investments in bonds issued by the Government of the
ARTICLE 862. If, notwithstanding the saving of the vessel Philippines, its political subdivisions and its
and of her cargo in consequence of the cutting down of instrumentalities, are hereby considered as of an
masts or of any other damage deliberately done to the absolutely confidential nature and may not be examined,
vessel for said purpose, the merchandise should inquired or looked into by any person, government
subsequently be lost or stolen, the captain can not official, bureau or office, except when the examination is
demand of the shippers or consignees that they made in the course of a special or general examination of
contribute to indemnity for the average unless the loss a bank and is specifically authorized by the Monetary
should occur by an act of the owner or consignee. Board after being satisfied that there is reasonable
ground to believe that a bank fraud or serious irregularity
ARTICLE 863. If the owner of the jettisoned goods should has been or is being committed and that it is necessary to
recover them after having received the indemnity for look into the deposit to establish such fraud or
gross average, he shall be obliged to return to the captain irregularity, or when the examination is made by an
and to other persons interested in the cargo the amount independent auditor hired by the bank to conduct its
he may have received, deducting the damage caused by regular audit provided that the examination is for audit
the jettison and the expenses incurred in their recovery. purposes only and the results thereof shall be for the
In the latter case, the amount returned shall be exclusive use of the bank, or upon written permission of
distributed between the vessel and the persons the depositor, or in cases of impeachment, or upon order
interested in the cargo in the same proportion in which of a competent court in cases of bribery or dereliction of
they contributed to the payment of the average. duty of public officials, or in cases where the money
deposited or invested is the subject matter of the
ARTICLE 864. If the owner of the goods jettisoned should
litigation. (as amended by PD No 1792)
recover them without having demanded any indemnity
he shall not be obliged to contribute to the payment of SECTION 3. It shall be unlawful for any official or
the gross average which may have been suffered by the employee of a bank to disclose to any person other than
rest of the cargo after the jettison. those mentioned in Section Two hereof, or for an
independent auditor hired by a bank to conduct its
ARTICLE 865. The distribution of the gross average shall
regular audit to disclose to any person other than a bank
not be final until it has been agreed to, or in the absence
director, official or employee authorized by the bank, any
thereof, until it has been approved by the judge or court
information concerning said deposits. (as amended by
after an examination of the liquidation and a hearing of
PD No 1792)
the persons interested who may be present, or of their
representatives. SECTION 4. All Acts or parts of Acts, Special Charters,
Executive Orders, Rules and Regulations which are
ARTICLE 866. After the liquidation has been approved it
inconsistent with the provisions of this Act are hereby
shall be the duty of the captain to collect the amount of
repealed.
the distribution, and he shall be liable to the owners of
the goods averaged for the losses they suffer through his SECTION 5. Any violation of this law will subject offender
delay or negligence. upon conviction, to an imprisonment of not more than
five years or a fine of not more than twenty thousand
ARTICLE 867. If the contributors should not pay the
pesos or both, in the discretion of the court.
amount of the assessment within the third day after
having been requested to do so, the goods saved shall be SECTION 6. This Act shall take effect upon its approval.
attached, at the request of the captain, and shall be sold Approved, September 9, 1955.
to cover the payment.
Published in the Official Gazette, Vol. 51, No. 10, p. 4976 in
ARTICLE 868. If the persons interested in receiving the October 1955
goods saved should not give security sufficient to answer
for the amount corresponding to the gross average, the (Secrecy of Bank Deposits Act, Republic Act No. 1405,
captain may defer the delivery thereof until payment has [September 9, 1955])
been made.
RA No 7653 | The New Central Bank Act



June 14, 1993 ARTICLE II The Monetary Board
REPUBLIC ACT NO. 7653 SECTION 6. Composition of the Monetary Board. — The
powers and functions of the Bangko Sentral shall be
THE NEW CENTRAL BANK ACT exercised by the Bangko Sentral Monetary Board,
hereafter referred to as the Monetary Board, composed of
seven (7) members appointed by the President of the
CHAPTER I Establishment and Organization of Philippines for a term of six (6) years.
the Bangko Sentral ng Pilipinas The seven (7) members are:
(a) the Governor of the Bangko Sentral, who shall be the
ARTICLE I Creation, Responsibilities and Chairman of the Monetary Board. The Governor of the
Corporate Powers of the Bangko Sentral Bangko Sentral shall be head of a department and his
appointment shall be subject to confirmation by the
SECTION 1. Declaration of Policy. — The State shall
Commission on Appointments. Whenever the Governor is
maintain a central monetary authority that shall function
unable to attend a meeting of the Board, he shall
and operate as an independent and accountable body
designate a Deputy Governor to act as his alternate:
corporate in the discharge of its mandated
Provided, That in such event, the Monetary Board shall
responsibilities concerning money, banking and credit. In
designate one of its members as acting Chairman;
line with this policy, and considering its unique functions
and responsibilities, the central monetary authority (b) a member of the Cabinet to be designated by the
established under this Act, while being a President of the Philippines. Whenever the designated
government-owned corporation, shall enjoy fiscal and Cabinet Member is unable to attend a meeting of the
administrative autonomy. Board, he shall designate an Undersecretary in his
Department to attend as his alternate; and
SECTION 2. Creation of the Bangko Sentral. — There is
hereby established an independent central monetary (c) five (5) members who shall come from the private
authority, which shall be a body corporate known as the sector, all of whom shall serve full-time: Provided,
Bangko Sentral ng Pilipinas, hereafter referred to as the however, That of the members first appointed under the
Bangko Sentral. provisions of this subsection, three (3) shall have a term of
six (6) years, and the other two (2), three (3) years.
The capital of the Bangko Sentral shall be Fifty billion
pesos (P50,000,000,000), to be fully subscribed by the No member of the Monetary Board may be reappointed
Government of the Republic, hereafter referred to as the more than once.
Government, Ten billion pesos (P10,000,000,000) of which SECTION 7. Vacancies. — Any vacancy in the Monetary
shall be fully paid for by the Government upon the Board created by the death, resignation, or removal of any
effectivity of this Act and the balance to be paid for within member shall be filled by the appointment of a new
a period of two (2) years from the effectivity of this Act in member to complete the unexpired period of the term of
such manner and form as the Government, through the the member concerned.
Secretary of Finance and Secretary of Budget and
Management, may thereafter determine. SECTION 8. Qualifications. — The members of the
Monetary Board must be natural-born citizens of the
SECTION 3. Responsibility and Primary Objective. — The Philippines, at least thirty-five (35) years of age, with the
Bangko Sentral shall provide policy directions in the areas exception of the Governor who should at least be forty
of money, banking, and credit. It shall have supervision (40) years of age, of good moral character, of
over the operations of banks and exercise such regulatory unquestionable integrity, of known probity and
powers as provided in this Act and other pertinent laws patriotism, and with recognized competence in social
over the operations of finance companies and non-bank and economic disciplines.
financial institutions performing quasi-banking functions,
hereafter referred to as quasi-banks, and institutions SECTION 9. Disqualifications. — In addition to the
performing similar functions. disqualifications imposed by Republic Act No. 6713, a
member of the Monetary Board is disqualified from
The primary objective of the Bangko Sentral is to being a director, officer, employee, consultant, lawyer,
maintain price ability conducive to a balanced and agent or stockholder of any bank, quasi-bank or any other
sustainable growth of the economy. It shall also promote institution which is subject to supervision or examination
and maintain monetary stability and the convertibility of by the Bangko Sentral, in which case such member shall
the peso. resign from, and divest himself of any and all interests in
SECTION 4. Place of Business. — The Bangko Sentral such institution before assumption of office as member
shall have its principal place of business in Metro Manila, of the Monetary Board.
but may maintain branches, agencies and The members of the Monetary Board coming from the
correspondents in such other places as the proper private sector shall not hold any other public office or
conduct of its business may require. public employment during their tenure.
SECTION 5. Corporate Powers. — The Bangko Sentral is No person shall be a member of the Monetary Board if he
hereby authorized to adopt, alter, and use a corporate has been connected directly with any multilateral
seal which shall be judicially noticed; to enter into banking or financial institution or has a substantial
contracts; to lease or own real and personal property, and interest in any private bank in the Philippines, within one
to sell or otherwise dispose of the same; to sue and be (1) year prior to his appointment; likewise, no member of
sued; and otherwise to do and perform any and all things the Monetary Board shall be employed in any such
that may be necessary or proper to carry out the institution within two (2) years after the expiration of his
purposes of this Act. term except when he serves as an official representative
The Bangko Sentral may acquire and hold such assets of the Philippine Government to such institution.
and incur such liabilities in connection with its operations SECTION 10. Removal. — The President may remove any
authorized by the provisions of this Act, or as are essential member of the Monetary Board for any of the following
to the proper conduct of such operations. reasons:
The Bangko Sentral may compromise, condone or (a) If the member is subsequently disqualified under the
release, in whole or in part, any claim of or settled liability provisions of Section 8 of this Act; or
to the Bangko Sentral, regardless of the amount involved,
under such terms and conditions as may be prescribed (b) If he is physically or mentally incapacitated that he
by the Monetary Board to protect the interests of the cannot properly discharge his duties and responsibilities
Bangko Sentral.


and such incapacity has lasted for more than six (6) On the recommendation of the Governor, appoint, fix the
months; or remunerations and other emoluments, and remove
(c) If the member is guilty of acts or operations which are personnel of the Bangko Sentral, subject to pertinent civil
of fraudulent or illegal character or which are manifestly service laws: Provided, That the Monetary Board shall
opposed to the aims and interests of the Bangko Sentral; have exclusive and final authority to promote, transfer,
or assign, or reassign personnel of the Bangko Sentral and
these personnel actions are deemed made in the interest
(d) If the member no longer possesses the qualifications of the service and not disciplinary: Provided, further, That
specified in Section 8 of this Act. the Monetary Board may delegate such authority to the
SECTION 11. Meetings. — The Monetary Board shall meet Governor under such guidelines as it may determine.
at least once a week. The Board may be called to a (d) adopt an annual budget for and authorize such
meeting by the Governor of the Bangko Sentral or by two expenditures by the Bangko Sentral as are in the interest
(2) other members of the Board. of the effective administration and operations of the
The presence of four (4) members shall constitute a Bangko Sentral in accordance with applicable laws and
quorum: Provided, That in all cases the Governor or his regulations; and
duly designated alternate shall be among the four (4). (e) indemnify its members and other officials of the
Unless otherwise provided in this Act, all decisions of the Bangko Sentral, including personnel of the departments
Monetary Board shall require the concurrence of at least performing supervision and examination functions
four (4) members. against all costs and expenses reasonably incurred by
such persons in connection with any civil or criminal
The Bangko Sentral shall maintain and preserve a action, suit or proceedings to which he may be, or is,
complete record of the proceedings and deliberations of made a party by reason of the performance of his
the Monetary Board, including the tapes and transcripts functions or duties, unless he is finally adjudged in such
of the stenographic notes, either in their original form or action or proceeding to be liable for negligence or
in microfilm. misconduct.
SECTION 12. Attendance of the Deputy Governors. — In the event of a settlement or compromise,
The Deputy Governors may attend the meetings of the indemnification shall be provided only in connection with
Monetary Board with the right to be heard. such matters covered by the settlement as to which the
SECTION 13. Salary. — The salary of the Governor and the Bangko Sentral is advised by external counsel that the
members of the Monetary Board from the private sector person to be indemnified did not commit any negligence
shall be fixed by the President of the Philippines at a sum or misconduct.
commensurate to the importance and responsibility The costs and expenses incurred in defending the
attached to the position. aforementioned action, suit or proceeding may be paid
SECTION 14. Withdrawal of Persons Having a Personal by the Bangko Sentral in advance of the final disposition
Interest. — In addition to the requirements of Republic of such action, suit or proceeding upon receipt of an
Act No. 6713, any member of the Monetary Board with undertaking by or on behalf of the member, officer, or
personal or pecuniary interest in any matter in the employee to repay the amount advanced should it
agenda of the Monetary Board shall disclose his interest ultimately be determined by the Monetary Board that he
to the Board and shall retire from the meeting when the is not entitled to be indemnified as provided in this
matter is taken up. The decision taken on the matter shall subsection.
be made public. The minutes shall reflect the disclosure SECTION 16. Responsibility. — Members of the Monetary
made and the retirement of the member concerned Board, officials, examiners, and employees of the Bangko
from the meeting. Sentral who willfully violate this Act or who are guilty of
SECTION 15. Exercise of Authority. — In the exercise of its negligence, abuses or acts of malfeasance or misfeasance
authority, the Monetary Board shall: or fail to exercise extraordinary diligence in the
performance of his duties shall be held liable for any loss
(a) issue rules and regulations it considers necessary for or injury suffered by the Bangko Sentral or other banking
the effective discharge of the responsibilities and exercise institutions as a result of such violation, negligence,
of the powers vested upon the Monetary Board and the abuse, malfeasance, misfeasance or failure to exercise
Bangko Sentral. The rules and regulations issued shall be extraordinary diligence.
reported to the President and the Congress within fifteen
(15) days from the date of their issuance; Similar responsibility shall apply to members, officers, and
employees of the Bangko Sentral for: (1) the disclosure of
(b) direct the management, operations, and any information of a confidential nature, or any
administration of the Bangko Sentral, reorganize its information on the discussions or resolutions of the
personnel, and issue such rules and regulations as it may Monetary Board, or about the confidential operations of
deem necessary or convenient for this purpose. The legal the Bangko Sentral, unless the disclosure is in connection
units of the Bangko Sentral shall be under the exclusive with the performance of official functions with the
supervision and control of the Monetary Board; Bangko Sentral, or is with prior authorization of the
(c) establish a human resource management system Monetary Board or the Governor; or (2) the use of such
which shall govern the selection, hiring, appointment, information for personal gain or to the detriment of the
transfer, promotion, or dismissal of all personnel. Such Government, the Bangko Sentral or third parties:
system shall aim to establish professionalism and Provided, however, That any data or information required
excellence at all levels of the Bangko Sentral in to be submitted to the President and/or the Congress, or
accordance with sound principles of management. to be published under the provisions of this Act shall not
A compensation structure, based on job evaluation be considered confidential.
studies and wage surveys and subject to the Board's
approval, shall be instituted as an integral component of ARTICLE III The Governor and Deputy Governors
the Bangko Sentral's human resource development of the Bangko Sentral
program: Provided, That the Monetary Board shall make
its own system conform as closely as possible with the SECTION 17. Powers and Duties of the Governor. — The
principles provided for under Republic Act No. 6758: Governor shall be the chief executive officer of the
Provided, however, That compensation and wage Bangko Sentral. His powers and duties shall be to:
structure of employees whose positions fall under salary (a) prepare the agenda for the meetings of the Monetary
grade 19 and below shall be in accordance with the rates Board and to submit for the consideration of the Board
prescribed under Republic Act No. 6758. the policies and measures which he believes to be


necessary to carry out the purposes and provisions of this At the soonest possible time, the Governor shall call a
Act; meeting of the Monetary Board to submit his action for
(b) execute and administer the policies and measures ratification.
approved by the Monetary Board; SECTION 20. Outside Interests of the Governor and the
(c) direct and supervise the operations and internal Full-time Members of the Board. — The Governor of the
administration of the Bangko Sentral. The Governor may Bangko Sentral and the full-time members of the Board
delegate certain of his administrative responsibilities to shall limit their professional activities to those pertaining
other officers or may assign specific tasks or directly to their positions with the Bangko Sentral.
responsibilities to any full-time member of the Monetary Accordingly, they may not accept any other employment,
Board without additional remuneration or allowance whether public or private, remunerated or ad honorem,
whenever he may deem fit or subject to such rules and with the exception of positions in eleemosynary, civic,
regulations as the Monetary Board may prescribe; cultural or religious organizations or whenever, by
designation of the President, the Governor or the
(d) appoint and fix the remunerations and other full-time member is tasked to represent the interest of
emoluments of personnel below the rank of a the Government or other government agencies in
department head in accordance with the position and matters connected with or affecting the economy or the
compensation plans approved by the Monetary Board, as financial system of the country.
well as to impose disciplinary measures upon personnel
of the Bangko Sentral, subject to the provisions of SECTION 21. Deputy Governors. — The Governor of the
Section 15(c) of this Act: Provided, That removal of Bangko Sentral, with the approval of the Monetary Board,
personnel shall be with the approval of the Monetary shall appoint not more than three (3) Deputy Governors
Board; who shall perform duties as may be assigned to them by
the Governor and the Board.
(e) render opinions, decisions, or rulings, which shall be
final and executory until reversed or modified by the In the absence of the Governor, a Deputy Governor
Monetary Board, on matters regarding application or designated by the Governor shall act as chief executive of
enforcement of laws pertaining to institutions supervised the Bangko Sentral and shall exercise the powers and
by the Bangko Sentral and laws pertaining to perform the duties of the Governor. Whenever the
quasi-banks, as well as regulations, policies or instructions Governor is unable to attend meetings of government
issued by the Monetary Board, and the implementation boards or councils in which he is an ex officio member
thereof; and pursuant to provisions of special laws, a Deputy Governor
as may be designated by the Governor shall be vested
(f) exercise such other powers as may be vested in him by with authority to participate and exercise the right to vote
the Monetary Board. in such meetings. acd
SECTION 18. Representation of the Monetary Board and
the Bangko Sentral. — The Governor of the Bangko ARTICLE IV Operations of the Bangko Sentral
Sentral shall be the principal representative of the
Monetary Board and of the Bangko Sentral and, in such SECTION 22. Research and Statistics. — The Bangko
capacity and in accordance with the instructions of the Sentral shall prepare data and conduct economic
Monetary Board, he shall be empowered to: research for the guidance of the Monetary Board in the
formulation and implementation of its policies. Such data
(a) represent the Monetary Board and the Bangko Sentral shall include, among others, forecasts of the balance of
in all dealings with other offices, agencies and payments of the Philippines, statistics on the monthly
instrumentalities of the Government and all other movement of the monetary aggregates and of prices and
persons or entities, public or private, whether domestic, other statistical series and economic studies useful for
foreign or international; the formulation and analysis of monetary, banking, credit
(b) sign contracts entered into by the Bangko Sentral, and exchange policies.
notes and securities issued by the Bangko Sentral, all SECTION 23. Authority to Obtain Data and Information.
reports, balance sheets, profit and loss statements, — The Bangko Sentral shall have the authority to request
correspondence and other documents of the Bangko from government offices and instrumentalities, or
Sentral. government-owned or -controlled corporations, any data
The signature of the Governor may be in facsimile which it may require for the proper discharge of its
whenever appropriate; functions and responsibilities. TheBangko Sentral
through the Governor or in his absence, a duly authorized
(c) represent the Bangko Sentral, either personally or
representative shall have the power to issue a subpoena
through counsel, including private counsel, as may be
for the production of the books and records for the
authorized by the Monetary Board, in any legal
aforesaid purpose. Those who refuse the subpoena
proceedings, action or specialized legal studies; and
without justifiable cause, or who refuse to supply the
(d) delegate his power to represent the Bangko Sentral, bank with data requested or required, shall be subject to
as provided in subsections (a), (b) and (c) of this section, to punishment for contempt in accordance with the
other officers upon his own responsibility: Provided, provisions of the Rules of Court.
however, That in order to preserve the integrity and the
Data on individual firms, other than banks, gathered by
prestige of his office, the Governor of the Bangko Sentral
the Department of Economic Research and other
may choose not to participate in preliminary discussions
departments or units of the Bangko Sentral shall not be
with any multilateral banking or financial institution on
made available to any person or entity outside of the
any negotiations for the Government within or outside
Bangko Sentral whether public or private except under
the Philippines. During the negotiations, he may instead
order of the court or under such conditions as may be
be represented by a permanent negotiator.
prescribed by the Monetary Board: Provided, however,
SECTION 19. Authority of the Governor in Emergencies. That the collective data on firms may be released to
— In case of emergencies where time is insufficient to call interested persons or entities: Provided, finally, That in the
a meeting of the Monetary Board, the Governor of the case of data on banks, the provisions of Section 27 of this
Bangko Sentral, with the concurrence of two (2) other Act shall apply.
members of the Monetary Board, may decide any matter
SECTION 24. Training of Technical Personnel. — The
or take any action within the authority of the Board.
Bangko Sentral shall promote and sponsor the training of
The Governor shall submit a report to the President and technical personnel in the field of money and banking.
Congress within seventy-two (72) hours after the action Toward this end, the Bangko Sentral is hereby authorized
has been taken. to defray the costs of study, at home or abroad, of
qualified employees of the Bangko Sentral, of promising
university graduates or of any other qualified persons



who shall be determined by proper competitive employees of theBangko Sentral and except as otherwise

examinations. The Monetary Board shall prescribe rules provided in this Act;
and regulations to govern the training program of the (b) directly or indirectly requesting or receiving any gift,
Bangko Sentral. present or pecuniary or material benefit for himself or
SECTION 25. Supervision and Examination. — The another, from any institution subject to supervision or
Bangko Sentral shall have supervision over, and conduct examination by the Bangko Sentral;
periodic or special examinations of, banking institutions (c) revealing in any manner, except under orders of the
and quasi-banks, including their subsidiaries and affiliates court, the Congress or any government office or agency
engaged in allied activities. authorized by law, or under such conditions as may be
For purposes of this section, a subsidiary means a prescribed by the Monetary Board, information relating to
corporation more than fifty percent (50%) of the voting the condition or business of any such institution. This
stock of which is owned by a bank or quasi-bank and an prohibition shall not be held to apply to the giving of
affiliate means a corporation the voting stock of which, to information to the Monetary Board or the Governor of the
the extent of fifty percent (50%) or less, is owned by a Bangko Sentral, or to any person authorized by either of
bank or quasi-bank or which is related or linked to such them, in writing, to receive such information; and
institution or intermediary through common (d) borrowing from any institution subject to supervision
stockholders or such other factors as may be determined or examination by the Bangko Sentral shall be prohibited
by the Monetary Board. unless said borrowings are adequately secured, fully
The department heads and the examiners of the disclosed to the Monetary Board, and shall be subject to
supervising and/or examining departments are hereby such further rules and regulations as the Monetary Board
authorized to administer oaths to any director, officer, or may prescribe: Provided, however, That personnel of the
employee of any institution under their respective supervising and examining departments are prohibited
supervisions or subject to their examination and to from borrowing from a bank under their supervision or
compel the presentation of all books, documents, papers examination.
or records necessary in their judgment to ascertain the SECTION 28. Examination and Fees. — The supervising
facts relative to the true condition of any institution as and examining department head, personally or by
well as the books and records of persons and entities deputy, shall examine the books of every banking
relative to or in connection with the operations, activities institution once in every twelve (12) months, and at such
or transactions of the institution under examination, other times as the Monetary Board by an affirmative vote
subject to the provision of existing laws protecting or of five (5) members, may deem expedient and to make a
safeguarding the secrecy or confidentiality of bank report on the same to the Monetary Board: Provided, That
deposits as well as investments of private persons, natural there shall be an interval of at least twelve (12) months
or juridical, in debt instruments issued by the between annual examinations.
Government.
The bank concerned shall afford to the head of the
No restraining order or injunction shall be issued by the appropriate supervising and examining departments and
court enjoining the Bangko Sentral from examining any to his authorized deputies full opportunity to examine its
institution subject to supervision or examination by the books, cash and available assets and general condition at
Bangko Sentral, unless there is convincing proof that the any time during banking hours when requested to do so
action of the Bangko Sentral is plainly arbitrary and made by the Bangko Sentral: Provided, however, That none of
in bad faith and the petitioner or plaintiff files with the the reports and other papers relative to such
clerk or judge of the court in which the action is pending examinations shall be open to inspection by the public
a bond executed in favor of the Bangko Sentral, in an except insofar as such publicity is incidental to the
amount to be fixed by the court. The provisions of Rule 58 proceedings hereinafter authorized or is necessary for the
of the New Rules of Court insofar as they are applicable prosecution of violations in connection with the business
and not inconsistent with the provisions of this section of such institutions.
shall govern the issuance and dissolution of the
restraining order or injunction contemplated in this Banking and quasi-banking institutions which are subject
section. to examination by the Bangko Sentral shall pay to the
Bangko Sentral, within the first thirty (30) days of each
SECTION 26. Bank Deposits and Investments. — Any year, an annual fee in an amount equal to a percentage
director, officer or stockholder who, together with his as may be prescribed by the Monetary Board of its
related interest, contracts a loan or any form of financial average total assets during the preceding years as shown
accommodation from: (1) his bank; or (2) from a bank (a) on its end-of-month balance sheets, after deducting cash
which is a subsidiary of a bank holding company of which on hand and amounts due from banks, including the
both his bank and the lending bank are subsidiaries or (b) Bangko Sentral and banks abroad.
in which a controlling proportion of the shares is owned
by the same interest that owns a controlling proportion of SECTION 29. Appointment of Conservator. — Whenever,
the shares of his bank, in excess of five percent (5%) of the on the basis of a report submitted by the appropriate
capital and surplus of the bank, or in the maximum supervising or examining department, the Monetary
amount permitted by law, whichever is lower, shall be Board finds that a bank or a quasi-bank is in a state of
required by the lending bank to waive the secrecy of his continuing inability or unwillingness to maintain a
deposits of whatever nature in all banks in the condition of liquidity deemed adequate to protect the
Philippines. Any information obtained from an interest of depositors and creditors, the Monetary Board
examination of his deposits shall be held strictly may appoint a conservator with such powers as the
confidential and may be used by the examiners only in Monetary Board shall deem necessary to take charge of
connection with their supervisory and examination the assets, liabilities, and the management thereof,
responsibility or by the Bangko Sentral in an appropriate reorganize the management, collect all monies and debts
legal action it has initiated involving the deposit account. due said institution, and exercise all powers necessary to
restore its viability. The conservator shall report and be
SECTION 27. Prohibitions. — In addition to the responsible to the Monetary Board and shall have the
prohibitions found in Republic Act Nos. 3019 and 6713, power to overrule or revoke the actions of the previous
personnel of the Bangko Sentral are hereby prohibited management and board of directors of the bank or
from: quasi-bank.
(a) being an officer, director, lawyer or agent, employee, The conservator should be competent and
consultant or stockholder, directly or indirectly, of any knowledgeable in bank operations and management.
institution subject to supervision or examination by the The conservatorship shall not exceed one (1) year.
Bangko Sentral, except non-stock savings and loan
associations and provident funds organized exclusively for The conservator shall receive remuneration to be fixed by
the Monetary Board in an amount not to exceed



two-thirds (2/3) of the salary of the president of the petition for assistance in the liquidation of the institution
institution in one (1) year, payable in twelve (12) equal pursuant to a liquidation plan adopted by the Philippine
monthly payments: Provided, That, if at any time within Deposit Insurance Corporation for general application to
the one-year period, the conservatorship is terminated on all closed banks. In case of quasi-banks, the liquidation
the ground that the institution can operate on its own, plan shall be adopted by the Monetary Board. Upon
the conservator shall receive the balance of the acquiring jurisdiction, the court shall, upon motion by the
remuneration which he would have received up to the receiver after due notice, adjudicate disputed claims
end of the year; but if the conservatorship is terminated against the institution, assist the enforcement of
on other grounds, the conservator shall not be entitled to individual liabilities of the stockholders, directors and
such remaining balance. The Monetary Board may officers, and decide on other issues as may be material to
appoint a conservator connected with the Bangko implement the liquidation plan adopted. The receiver
Sentral, in which case he shall not be entitled to receive shall pay the cost of the proceedings from the assets of
any remuneration or emoluments from the Bangko the institution.
Sentral during the conservatorship. The expenses (2) convert the assets of the institution to money, dispose
attendant to the conservatorship shall be borne by the of the same to creditors and other parties, for the purpose
bank or quasi-bank concerned. of paying the debts of such institution in accordance with
The Monetary Board shall terminate the conservatorship the rules on concurrence and preference of credit under
when it is satisfied that the institution can continue to the Civil Code of the Philippines and he may, in the name
operate on its own and the conservatorship is no longer of the institution, and with the assistance of counsel as he
necessary. The conservatorship shall likewise be may retain, institute such actions as may be necessary to
terminated should the Monetary Board, on the basis of collect and recover accounts and assets of, or defend any
the report of the conservator or of its own findings, action against, the institution. The assets of an institution
determine that the continuance in business of the under receivership or liquidation shall be deemed in
institution would involve probable loss to its depositors or custodia legis in the hands of the receiver and shall, from
creditors, in which case the provisions of Section 30 shall the moment the institution was placed under such
apply. receivership or liquidation, be exempt from any order of
SECTION 30. Proceedings in Receivership and garnishment, levy, attachment, or execution.
Liquidation. — Whenever, upon report of the head of the The actions of the Monetary Board taken under this
supervising or examining department, the Monetary section or under Section 29 of this Act shall be final and
Board finds that a bank or quasi-bank: executory, and may not be restrained or set aside by the
(a) is unable to pay its liabilities as they become due to court except on petition for certiorari on the ground that
the ordinary course of business: Provided, That this shall the action taken was in excess of jurisdiction or with such
not include inability to pay caused by extraordinary grave abuse of discretion as to amount to lack or excess
demands induced by financial panic in the banking of jurisdiction. The petition for certiorari may only be filed
community; by the stockholders of record representing the majority of
the capital stock within ten (10) days from receipt by the
(b) has insufficient realizable assets, as determined by the board of directors of the institution of the order directing
Bangko Sentral, to meet its liabilities; or receivership, liquidation or conservatorship.
(c) cannot continue in business without involving The designation of a conservator under Section 29 of this
probable losses to its depositors or creditors; or Act or the appointment of a receiver under this section
(d) has willfully violated a cease and desist order under shall be vested exclusively with the Monetary Board.
Section 37 that has become final, involving acts or Furthermore, the designation of a conservator is not a
transactions which amount to fraud or a dissipation of precondition to the designation of a receiver.
the assets of the institution; in which cases, the Monetary SECTION 31. Distribution of Assets. — In case of
Board may summarily and without need for prior hearing liquidation of a bank or quasi-bank, after payment of the
forbid the institution from doing business in the cost of proceedings, including reasonable expenses and
Philippines and designate the Philippine Deposit fees of the receiver to be allowed by the court, the
Insurance Corporation as receiver of the banking receiver shall pay the debts of such institution, under
institution. order of the court, in accordance with the rules on
For a quasi-bank, any person of recognized competence concurrence and preference of credit as provided in the
in banking or finance may be designed as receiver. Civil Code.
The receiver shall immediately gather and take charge of SECTION 32. Disposition of Revenues and Earnings. —
all the assets and liabilities of the institution, administer All revenues and earnings realized by the receiver in
the same for the benefit of its creditors, and exercise the winding up the affairs and administering the assets of
general powers of a receiver under the Revised Rules of any bank or quasi-bank within the purview of this Act
Court but shall not, with the exception of administrative shall be used to pay the costs, fees and expenses
expenditures, pay or commit any act that will involve the mentioned in the preceding section, salaries of such
transfer or disposition of any asset of the institution: personnel whose employment is rendered necessary in
Provided, That the receiver may deposit or place the the discharge of the liquidation together with other
funds of the institution in non-speculative investments. additional expenses caused thereby. The balance of
The receiver shall determine as soon as possible, but not revenues and earnings, after the payment of all said
later than ninety (90) days from take-over, whether the expenses, shall form part of the assets available for
institution may be rehabilitated or otherwise placed in payment to creditors.
such a condition so that it may be permitted to resume SECTION 33. Disposition of Banking Franchise. — The
business with safety to its depositors and creditors and Bangko Sentral may, if public interest so requires, award
the general public: Provided, That any determination for to an institution, upon such terms and conditions as the
the resumption of business of the institution shall be Monetary Board may approve, the banking franchise of a
subject to prior approval of the Monetary Board. bank under liquidation to operate in the area where said
If the receiver determines that the institution cannot be bank or its branches were previously operating: Provided,
rehabilitated or permitted to resume business in That whatever proceeds may be realized from such award
accordance with the next preceding paragraph, the shall be subject to the appropriate exclusive disposition of
Monetary Board shall notify in writing the board of the Monetary Board.
directors of its findings and direct the receiver to proceed SECTION 34. Refusal to Make Reports or Permit
with the liquidation of the institution. The receiver shall: Examination. — Any officer, owner, agent, manager,
(1) file ex parte with the proper regional trial court, and director or officer-in-charge of any institution subject to
without requirement of prior notice or any other action, a the supervision or examination by the Bangko Sentral
within the purview of this Act who, being required in



writing by the Monetary Board or by the head of the The Monetary Board may, whenever warranted by
supervising and examining department willfully refuses circumstances, preventively suspend any director or
to file the required report or permit any lawful officer of a bank or quasi-bank pending an investigation:
examination into the affairs of such institution shall be Provided, That should the case be not finally decided by
punished by a fine of not less than Fifty thousand pesos the Bangko Sentral within a period of one hundred
(P50,000) nor more than One hundred thousand pesos twenty (120) days after the date of suspension, said
(P100,000) or by imprisonment of not less than one (1) director or officer shall be reinstated in his position:
year nor more than five (5) years, or both, in the discretion Provided, further, That when the delay in the disposition
of the court. of the case is due to the fault, negligence or petition of
SECTION 35. False Statement. — The willful making of a the director or officer, the period of delay shall not be
false or misleading statement on a material fact to the counted in computing the period of suspension herein
Monetary Board or to the examiners of theBangko provided.
Sentral shall be punished by a fine of not less than One The above administrative sanctions need not be applied
hundred thousand pesos (P100,000) nor more than Two in the order of their severity.
hundred thousand pesos (P200,000), or by imprisonment Whether or not there is an administrative proceeding, if
of not more than five (5) years, or both, at the discretion of the institution and/or the directors and/or officers
the court. cd concerned continue with or otherwise persist in the
SECTION 36. Proceedings Upon Violation of This Act commission of the indicated practice or violation, the
and Other Banking Laws, Rules, Regulations, Orders or Monetary Board may issue an order requiring the
Instructions. — Whenever a bank or quasi-bank, or institution and/or the directors and/or officers concerned
whenever any person or entity willfully violates this Act or to cease and desist from the indicated practice or
other pertinent banking laws being enforced or violation, and may further order that immediate action be
implemented by the Bangko Sentral or any order, taken to correct the conditions resulting from such
instruction, rule or regulation issued by the Monetary practice or violation. The cease and desist order shall be
Board, the person or persons responsible for such immediately effective upon service on the respondents.
violation shall unless otherwise provided in this Act be The respondents shall be afforded an opportunity to
punished by a fine of not less than Fifty thousand pesos defend their action in a hearing before the Monetary
(P50,000) nor more than Two hundred thousand pesos Board or any committee chaired by any Monetary Board
(P200,000) or by imprisonment of not less than two (2) member created for the purpose, upon request made by
years nor more than ten (10) years, or both, at the the respondents within five (5) days from their receipt of
discretion of the court. the order. If no such hearing is requested within said
Whenever a bank or quasi-bank persists in carrying on its period, the order shall be final. If a hearing is conducted,
business in an unlawful or unsafe manner, the Board may, all issues shall be determined on the basis of records,
without prejudice to the penalties provided in the after which the Monetary Board may either reconsider or
preceding paragraph of this section and the make final its order.
administrative sanctions provided in Section 37 of this The Governor is hereby authorized, at his discretion, to
Act, take action under Section 30 of this Act. impose upon banking institutions, for any failure to
SECTION 37. Administrative Sanctions on Banks and comply with the requirements of law, Monetary Board
Quasi-banks. — Without prejudice to the criminal regulations and policies, and/or instructions issued by the
sanctions against the culpable persons provided in Monetary Board or by the Governor, fines not in excess of
Sections 34, 35, and 36 of this Act, the Monetary Board Ten thousand pesos (P10,000) a day for each violation, the
may, at its discretion, impose upon any bank or imposition of which shall be final and executory until
quasi-bank, their directors and/or officers, for any willful reversed, modified or lifted by the Monetary Board on
violation of its charter or by-laws, willful delay in the appeal.
submission of reports or publications thereof as required SECTION 38. Operating Departments of the Bangko
by law, rules and regulations; any refusal to permit Sentral. — The Monetary Board shall, in accordance with
examination into the affairs of the institution; any willful its authority under this Act, determine and provide for
making of a false or misleading statement to the Board or such operating departments and other offices, including
the appropriate supervising and examining department a public information office, of the Bangko Sentral as it
or its examiners; any willful failure or refusal to comply deems convenient for the proper and efficient conduct of
with, or violation of, any banking law or any order, the operations and the accomplishment of the objectives
instruction or regulation issued by the Monetary Board, or of the Bangko Sentral. The functions and duties of such
any order, instruction or ruling by the Governor; or any operating departments and other offices shall be
commission or irregularities, and/or conducting business determined by the Monetary Board. acd
in an unsafe or unsound manner as may be determined
by the Monetary Board, the following administrative
sanctions, whenever applicable: ARTICLE V Reports and Publications
(a) fines in amounts as may be determined by the SECTION 39. Reports and Publications. — The Bangko
Monetary Board to be appropriate, but in no case to Sentral shall publish a general balance sheet showing the
exceed Thirty thousand pesos (P30,000) a day for each volume and composition of its assets and liabilities as of
violation, taking into consideration the attendant the last working day of the month within sixty (60) days
circumstances, such as the nature and gravity of the after the end of each month except for the month of
violation or irregularity and the size of the bank or December, which shall be submitted within ninety (90)
quasi-bank; days after the end thereof.
(b) suspension of rediscounting privileges or access to The Monetary Board shall publish and submit the
Bangko Sentral credit facilities; following reports to the President and to the Congress:
(c) suspension of lending or foreign exchange operations (a) not later than ninety (90) days after the end of each
or authority to accept new deposits or make new quarter, an analysis of economic and financial
investments; developments, including the condition of net
(d) suspension of interbank clearing privileges; and/or international reserves and monetary aggregates;
(e) revocation of quasi-banking license. (b) within ninety (90) days after the end of the year, the
preceding year's budget and profit and loss statement of
Resignation or termination from office shall not exempt the Bangko Sentral showing in reasonable detail the
such director or officer from administrative or criminal result of its operations;
sanctions.


(c) one hundred twenty (120) days after the end of each back to the National Treasury, except as otherwise
semester, a review of the state of the financial system; provided in the transitory provisions of this Act.
and SECTION 45. Revaluation Profits and Losses. — Profits
(d) as soon as practicable, abnormal movements in or losses arising from any revaluation of the Bangko
monetary aggregates and the general price level, and, Sentral's net assets or liabilities in gold or foreign
not later than seventy-two (72) hours after they are taken, currencies with respect to the Philippine peso shall not
remedial measures in response to such abnormal be included in the computation of the annual profits and
movements. losses of the Bangko Sentral. Any profits or losses arising
SECTION 40. Annual Report. — Before the end of March in this manner shall be offset by any amounts which, as a
of each year, the Bangko Sentral shall publish and submit consequence of such revaluations, are owed by the
to the President and the Congress an annual report on Philippines to any international or regional
the condition of the Bangko Sentral including a review of intergovernmental financial institution of which the
the policies and measures adopted by the Monetary Philippines is a member or are owed by these institutions
Board during the past year and an analysis of the to the Philippines. Any remaining profit or loss shall be
economic and financial circumstances which gave rise to carried in a special frozen account which shall be named
said policies and measures. "Revaluation of International Reserve" and the net
balance of which shall appear either among the liabilities
The annual report shall also include a statement of the or among the assets of the Bangko Sentral, depending
financial condition of the Bangko Sentral and a statistical on whether the revaluations have produced net profits or
appendix which shall present, as a minimum, the net losses.
following data:
The Revaluation of International Reserve account shall be
(a) the monthly movement of monetary aggregates and neither credited nor debited for any purposes other than
their components; those specifically authorized in this section.
(b) the monthly movement of purchases and sales of SECTION 46. Suspense Accounts. — Sections 43 and
foreign exchange and of the international reserves of the 43-A of Republic Act No. 265, as amended, creating the
Bangko Sentral; Monetary Adjustment Account (MAA) and the Exchange
(c) the balance of payments of the Philippines; Stabilization Adjustment Account (ESAA), respectively, are
hereby repealed. Amounts outstanding as of the effective
(d) monthly indices of consumer prices and of import and date of this Act based on these accounts shall continue to
export prices; be for the account of the Central Bank and shall be
(e) the monthly movement, in summary form, of exports governed by the transitory provisions of this Act.
and imports, by volume and value; The Revaluation of International Reserve (RIR) account as
(f) the monthly movement of the accounts of the Bangko of the effective date of this Act of the Central Bank shall
Sentral and of other banks; continue to be for the account of the same entity and
shall be governed by the provisions of Section 44 of
(g) the principal data on government receipts and Republic Act No. 265, as amended, until otherwise
expenditures and on the status of the public debt, both provided for in accordance with the transitory provisions
domestic and foreign; and of this Act.
(h) the texts of the major legal and administrative ARTICLE VII
measures adopted by the Government and the Monetary
Board during the year which relate to the functions or The Auditor
operations of the Bangko Sentral or of the financial SECTION 47. Appointment and Personnel. — The
system. Chairman of the Commission on Audit shall act as the ex
The Bangko Sentral shall publish another version of the officio auditor of the Bangko Sentral and, as such, he is
annual report in terms understandable to the layman. empowered and authorized to appoint a representative
who shall be the auditor of the Bangko Sentral and, in
Failure to comply with the reportorial requirements accordance with law, fix his salary, and to appoint and fix
pursuant to this article without justifiable reason as may the salaries and number of personnel to assist said
be determined by the Monetary Board shall cause the representative in his work. The salaries and other
withholding of the salary of the personnel concerned emoluments shall be paid by the Commission. The
until such requirements are complied with. auditor of the Bangko Sentral and personnel under him
SECTION 41. Signatures on Statements. — The balance may be removed only by the Chairman of the
sheets and other financial statements of the Bangko Commission.
Sentral shall be signed by the officers responsible for The representative of the Chairman of the Commission
their preparation, by the Governor, and by the auditor of must be a certified public accountant with at least ten
the Bangko Sentral. (10) years experience as such. No relative of any member
of the Monetary Board or the Chairman of the
ARTICLE VI Profits, Losses, and Special Accounts Commission within the sixth degree of consanguinity or
affinity shall be appointed such representative.
SECTION 42. Fiscal Year. — The fiscal year of the Bangko
Sentral shall begin on January first and end on
December thirty-first of each year. CHAPTER II The Bangko Sentral and the Means
SECTION 43. Computation of Profits and Losses. — of Payment
Within the first thirty (30) days following the end of each
year, the Bangko Sentral shall determine its net profits or
losses. In the calculation of net profits, the Bangko ARTICLE I The Unit of Monetary Value
Sentral shall make adequate allowance or establish
SECTION 48. The Peso. — The unit of monetary value in
adequate reserves for bad and doubtful accounts.
the Philippines is the "peso," which is represented by the
SECTION 44. Distribution of Net Profits. — Within the sign "P."
first sixty (60) days following the end of each fiscal year,
The peso is divided into one hundred (100) equal parts
the Monetary Board shall determine and carry out the
called "centavos," which are represented by the sign "c."
distribution of the net profits, in accordance with the
following rule:
Fifty percent (50%) of the net profits shall be carried to
surplus and the remaining fifty percent (50%) shall revert


of coins shall be subject. The Monetary Board shall have
ARTICLE II Issue of Means of Payment the authority to contract institutions, mints or firms for
such operations.
A. Currency All expenses incurred in the printing of notes and the
minting of coins shall be for the account of the Bangko
SECTION 49. Definition of Currency. — The word Sentral.
"currency" is hereby defined, for purposes of this Act, as
meaning all Philippine notes and coins issued or SECTION 55. Interconvertibility of Currency. — The
circulating in accordance with the provisions of this Act. Bangko Sentral shall exchange, on demand and without
charge, Philippine currency of any denomination for
SECTION 50. Exclusive Issue Power. — The Bangko Philippine notes and coins of any other denomination
Sentral shall have the sole power and authority to issue requested. If for any reason the Bangko Sentral is
currency, within the territory of the Philippines. No other temporarily unable to provide notes or coins of the
person or entity, public or private, may put into circulation denominations requested, it shall meet its obligations by
notes, coins or any other object or document which in the delivering notes and coins of the denominations which
opinion of the Monetary Board, might circulate as most nearly approximate those requested.
currency, nor reproduce or imitate the facsimiles of
Bangko Sentral notes without prior authority from the SECTION 56. Replacement of Currency Unfit for
Bangko Sentral. Circulation. — The Bangko Sentral shall withdraw from
circulation and shall demonetize all notes and coins
The Monetary Board may issue such regulations as it may which for any reason whatsoever are unfit for circulation
deem advisable in order to prevent the circulation of and shall replace them by adequate notes and coins:
foreign currency or of currency substitutes as well as to Provided, however, That the Bangko Sentral shall not
prevent the reproduction of facsimiles of Bangko Sentral replace notes and coins the identification of which is
notes. impossible, coins which show signs of filing, clipping or
The Bangko Sentral shall have the authority to perforation, and notes which have lost more than
investigate, make arrests, conduct searches and seizures two-fifths (2/5) of their surface or all of the signatures
in accordance with law, for the purpose of maintaining inscribed thereon. Notes and coins in such mutilated
the integrity of the currency. conditions shall be withdrawn from circulation and
demonetized without compensation to the bearer.
Violation of this provision or of any regulation issued by
the Bangko Sentral pursuant thereto shall constitute an SECTION 57. Retirement of Old Notes and Coins. — The
offense punishable by imprisonment of not less than five Bangko Sentral may call in for replacement notes of any
(5) years but not more than ten (10) years. In case the series or denomination which are more than five (5) years
Revised Penal Code provides for a greater penalty, then old and coins which are more than ten (10) years old.
that penalty shall be imposed. Notes and coins called in for replacement in accordance
SECTION 51. Liability for Notes and Coins. — Notes and with this provision shall remain legal tender for a period
coins issued by the Bangko Sentral shall be liabilities of of one (1) year from the date of call. After this period, they
the Bangko Sentral and may be issued only against, and shall cease to be legal tender but during the following
in amounts not exceeding, the assets of the Bangko year, or for such longer period as the Monetary Board
Sentral. Said notes and coins shall be a first and may determine, they may be exchanged at par and
paramount lien on all assets of the Bangko Sentral. without charge in the Bangko Sentral and by agents duly
authorized by the Bangko Sentral for this purpose. After
The Bangko Sentral's holdings of its own notes and coins the expiration of this latter period, the notes and coins
shall not be considered as part of its currency issue and, which have not been exchanged shall cease to be a
accordingly, shall not form part of the assets or liabilities liability of the Bangko Sentral and shall be demonetized.
of the Bangko Sentral. The Bangko Sentral shall also demonetize all notes and
SECTION 52. Legal Tender Power. — All notes and coins coins, which have been called in and replaced.
issued by the Bangko Sentral shall be fully guaranteed by
the Government of the Republic of the Philippines and B. Demand Deposits
shall be legal tender in the Philippines for all debts, both
public and private: Provided, however, That, unless SECTION 58. Definition. — For purposes of this Act, the
otherwise fixed by the Monetary Board, coins shall be term "demand deposits" means all those liabilities of the
legal tender in amounts not exceeding Fifty pesos Bangko Sentral and other banks which are denominated
(P50.00) for denominations of Twenty-five centavos and in Philippine currency and are subject to payment in legal
above, and in amounts not exceeding Twenty pesos tender upon demand by the presentation of checks.
(P20.00) for denominations of Ten centavos or less. SECTION 59. Issue of Demand Deposits. — Only banks
SECTION 53. Characteristics of the Currency. — The duly authorized to do so may accept funds or create
Monetary Board, with the approval of the President of the liabilities payable in pesos upon demand by the
Philippines, shall prescribe the denominations, presentation of checks, and such operations shall be
dimensions, designs, inscriptions and other subject to the control of the Monetary Board in
characteristics of notes issued by the Bangko Sentral: accordance with the powers granted it with respect
Provided, however, That said notes shall state that they thereto under this Act.
are liabilities of the Bangko Sentral and are fully SECTION 60. Legal Character. — Checks representing
guaranteed by the Government of the Republic of the demand deposits do not have legal tender power and
Philippines. Said notes shall bear the signatures, in their acceptance in the payment of debts, both public
facsimile, of the President of the Philippines and of the and private, is at the option of the creditor: Provided,
Governor of the Bangko Sentral. however, That a check which has been cleared and
Similarly, the Monetary Board, with the approval of the credited to the account of the creditor shall be equivalent
President of the Philippines, shall prescribe the weight, to a delivery to the creditor of cash in an amount equal to
fineness, designs, denominations and other the amount credited to his account.
characteristics of the coins issued by the Bangko Sentral.
In the minting of coins, the Monetary Board shall give full
consideration to the availability of suitable metals and to
their relative prices and cost of minting.
SECTION 54. Printing of Notes and Minting of Coins. —
The Monetary Board shall prescribe the amounts of notes
and coins to be printed and minted, respectively, and the
conditions to which the printing of notes and the minting


volume and maturity of the Bangko Sentral's own

liabilities in foreign currencies, to the volume and
CHAPTER III Guiding Principles of Monetary maturity of the foreign exchange assets and liabilities of
Administration by the Bangko Sentral other banks operating in the Philippines and, insofar as
they are known or can be estimated, the volume and
maturity of the foreign exchange assets and liabilities of
ARTICLE I Domestic Monetary Stabilization all other persons and entities in the Philippines.
SECTION 61. Guiding Principle. — The Monetary Board SECTION 66. Composition of the International Reserves.
shall endeavor to control any expansion or contraction in — The international reserves of the Bangko Sentral may
monetary aggregates which is prejudicial to the include but shall not be limited to the following assets:
attainment or maintenance of price stability.
(a) gold; and
SECTION 62. Power to Define Terms. — For purposes of
this article and of this Act, the Monetary Board shall (b) assets in foreign currencies in the form of: documents
formulate definitions of monetary aggregates, credit and and instruments customarily employed for the
prices and shall make public such definitions and any international transfer of funds; demand and time
changes thereof. deposits in central banks, treasuries and commercial
banks abroad; foreign government securities; and foreign
SECTION 63. Action When Abnormal Movements Occur notes and coins.
in the Monetary Aggregates, Credit, or Price Level. —
Whenever abnormal movements in the monetary The Monetary Board shall endeavor to hold the foreign
aggregates, in credit, or in prices endanger the stability of exchange resources of the Bangko Sentral in freely
the Philippine economy or important sectors thereof, the convertible currencies; moreover, the Board shall give
Monetary Board shall: particular consideration to the prospects of continued
strength and convertibility of the currencies in which the
(a) take such remedial measures as are appropriate and reserve is maintained, as well as to the anticipated
within the powers granted to the Monetary Board and demands for such currencies. The Monetary Board shall
the Bangko Sentral under the provisions of this Act; and issue regulations determining the other qualifications
(b) submit to the President of the Philippines and the which foreign exchange assets must meet in order to be
Congress, and make public, a detailed report which shall included in the international reserves of the Bangko
include, as a minimum, a description and analysis of: Sentral.
(1) the causes of the rise or fall of the monetary The Bangko Sentral shall be free to convert any of the
aggregates, of credit or of prices; cd assets in its international reserves into other assets as
described in subsections (a) and (b) of this section.
(2) the extent to which the changes in the monetary
aggregates, in credit, or in prices have been reflected in SECTION 67. Action When the International Stability of
changes in the level of domestic output, employment, the Peso Is Threatened. — Whenever the international
wages and economic activity in general, and the nature reserve of the Bangko Sentral falls to a level which the
and significance of any such changes; and Monetary Board considers inadequate to meet the
prospective net demands on the Bangko Sentral for
(3) the measures which the Monetary Board has taken foreign currencies, or whenever the international reserve
and the other monetary, fiscal or administrative appears to be in imminent danger of falling to such a
measures which it recommends to be adopted. level, or whenever the international reserve is falling as a
Whenever the monetary aggregates, or the level of credit, result of payments or remittances abroad which in the
increases or decreases by more than fifteen percent (15%), opinion of the Monetary Board, are contrary to the
or the cost of living index increases by more than ten national welfare, the Monetary Board shall:
percent (10%), in relation to the level existing at the end of (a) take such remedial measures as are appropriate and
the corresponding month of the preceding year, or even within the powers granted to the Monetary Board and
though any of these quantitative guidelines have not the Bangko Sentral under the provisions of this Act; and
been reached when in its judgment the circumstances so
warrant, the Monetary Board shall submit the reports (b) submit to the President of the Philippines and to
mentioned in this section, and shall state therein Congress a detailed report which shall include, as a
whether, in the opinion of the Board, said changes in the minimum, a description and analysis of:
monetary aggregates, credit or cost of living represent a (1) the nature and causes of the existing or imminent
threat to the stability of the Philippine economy or of decline;
important sectors thereof.
(2) the remedial measures already taken or to be taken by
The Monetary Board shall continue to submit periodic the Monetary Board;
reports to the President of the Philippines and to
Congress until it considers that the monetary, credit or (3) the monetary, fiscal or administrative measures
price disturbances have disappeared or have been further proposed; and
adequately controlled. (4) the character and extent of the cooperation required
from other government agencies for the successful
execution of the policies of the Monetary Board.
ARTICLE II International Monetary Stabilization
If the resultant actions fail to check the deterioration of
SECTION 64. International Monetary Stabilization. —
the reserve position of the Bangko Sentral, or if the
The Bangko Sentral shall exercise its powers under this
deterioration cannot be checked except by chronic
Act to preserve the international value of the peso and to
restrictions on exchange and trade transactions or by
maintain its convertibility into other freely convertible
sacrifice of the domestic objectives of a balanced and
currencies primarily for, although not necessarily limited
sustainable growth of the economy, the Monetary Board
to, current payments for foreign trade and invisibles.
shall propose to the President, with appropriate notice to
SECTION 65. International Reserves. — In order to Congress, such additional action as it deems necessary to
maintain the international stability and convertibility of restore equilibrium in the international balance of
the Philippine peso, the Bangko Sentral shall maintain payments of the Philippines.
international reserves adequate to meet any foreseeable
The Monetary Board shall submit periodic reports to the
net demands on the Bangko Sentral for foreign
President and to Congress until the threat to the
currencies.
international monetary stability of the Philippines has
In judging the adequacy of the international reserves, the disappeared.
Monetary Board shall be guided by the prospective
receipts and payments of foreign exchange by the
Philippines. The Board shall give special attention to the



overcome such a crisis or emergency, the Monetary

Board, with the concurrence of at least five (5) of its
CHAPTER IV Instruments of Bangko Sentral members and with the approval of the President of the
Action Philippines, may temporarily suspend or restrict sales of
exchange by the Bangko Sentral, and may subject all
transactions in gold and foreign exchange to license by
ARTICLE I General Criterion the Bangko Sentral, and may require that any foreign
SECTION 68. Means of Action. — In order to achieve the exchange thereafter obtained by any person residing or
primary objective of price stability, the Monetary Board entity operating in the Philippines be delivered to
shall rely on its moral influence and the powers granted Bangko Sentral or to any bank or agent designated by
to it under this Act for the management of monetary theBangko Sentral for the purpose, at the effective
aggregates. exchange rate or rates: Provided, however, That foreign
currency deposits made under Republic Act No. 6426
shall be exempt from these requirements.
ARTICLE II Operations in Gold and Foreign
SECTION 73. Acquisition of Inconvertible Currencies. —
Exchange
The Bangko Sentral shall avoid the acquisition and
SECTION 69. Purchases and Sales of Gold. — The holding of currencies which are not freely convertible,
Bangko Sentral may buy and sell gold in any form, and may acquire such currencies in an amount
subject to such regulations as the Monetary Board may exceeding the minimum balance necessary to cover
issue. current demands for said currencies only when, and to
The purchases and sales of gold authorized by this the extent that, such acquisition is considered by the
section shall be made in the national currency at the Monetary Board to be in the national interest. The
prevailing international market price as determined by Monetary Board shall determine the procedures which
the Monetary Board. shall apply to the acquisition and disposition by the
Bangko Sentral of foreign exchange which is not freely
SECTION 70. Purchases and Sales of Foreign Exchange. utilizable in the international market.
— The Bangko Sentral may buy and sell foreign notes
and coins, and documents and instruments of types SECTION 74. Exchange Rates. — The Monetary Board
customarily employed for the international transfer of shall determine the exchange rate policy of the country.
funds. The Bangko Sentral may engage in future The Monetary Board shall determine the rates at which
exchange operations. the Bangko Sentral shall buy and sell spot exchange, and
The Bangko Sentral may engage in foreign exchange shall establish deviation limits from the effective
transactions with the following entities or persons only: exchange rate or rates as it may deem proper. The
Bangko Sentral shall not collect any additional
(a) banking institutions operating in the Philippines; commissions or charges of any sort, other than actual
(b) the Government, its political subdivisions and telegraphic of cable costs incurred by it.
instrumentalities; The Monetary Board shall similarly determine the rates
(c) foreign or international financial institutions; for other types of foreign exchange transactions by the
Bangko Sentral, including purchases and sales of foreign
(d) foreign governments and their instrumentalities; and notes and coins, but the margins between the effective
(e) other entities or persons which the Monetary Board is exchange rates and the rates thus established may not
hereby empowered to authorize as foreign exchange exceed the corresponding margins for spot exchange
dealers, subject to such rules and regulations as the transactions by more than the additional costs or
Monetary Board shall prescribe. expenses involved in each type of transactions.
In order to maintain the convertibility of the peso, the SECTION 75. Operations with Foreign Entities. — The
Bangko Sentral may, at the request of any banking Monetary Board may authorize the Bangko Sentral to
institution operating in the Philippines, buy any quantity grant loans to and receive loans from foreign banks and
of foreign exchange offered, and sell any quantity of other foreign or international entities, both public and
foreign exchange demanded, by such institution, private, and may engage in such other operations with
provided that the foreign currencies so offered or these entities as are in the national interest and are
demanded are freely convertible into gold or United appropriate to its character as a central bank. The Bangko
States dollars. This requirement shall not apply to Sentral may also act as agent or correspondent for such
demands for foreign notes and coins. entities.
The Bangko Sentral shall effect its exchange transactions Upon authority of the Monetary Board, the Bangko
between foreign currencies and the Philippine peso at Sentral may pledge any gold or other assets which it
the rates determined in accordance with the provisions of possesses as security against loans which it receives from
Section 74 of this Act. foreign or international entities.
SECTION 71. Foreign Asset Position of the Bangko
Sentral. — The Bangko Sentral shall endeavor to ARTICLE III Regulation of Foreign Exchange
maintain at all times a net positive foreign asset position Operations of the Banks
so that its gross foreign exchange assets will always
exceed its gross foreign liabilities. In the event that the SECTION 76. Foreign Exchange Holdings of the Banks.
equivalent amount in pesos of the foreign exchange — In order that the Bangko Sentral may at all times have
liabilities of the Bangko Sentral exceed twice the foreign exchange resources sufficient to enable it to
equivalent amount in pesos of the foreign exchange maintain the international stability and convertibility of
assets of the bank, the Bangko Sentral shall, within sixty the peso, or in order to promote the domestic investment
(60) days from the date the limit is exceeded, submit a of bank resources, the Monetary Board may require the
report to the Congress stating the origin of these banks to sell to the Bangko Sentral or to other banks all
liabilities, and the manner in which they will be paid. or part of their surplus holdings of foreign exchange.
Such transfers may be required for all foreign currencies
SECTION 72. Emergency Restrictions on Exchange or for only certain of such currencies, according to the
Operations. — In order to achieve the primary objective decision of the Monetary Board. The transfers shall be
of the Bangko Sentral as set forth in Section 3 of this Act, made at the rates established under the provisions of
or protect the international reserves of the Bangko Section 74 of this Act.
Sentral in the imminence of, or during an exchange crisis,
or in time of national emergency and to give the The Monetary Board, may whenever warranted,
Monetary Board and the Government time in which to determine the net assets and net liabilities of banks and
take constructive measures to forestall, combat, or shall, in making such a determination, take into account


the bank's networth, outstanding liabilities, actual and (1) the importation, exportation, purchase or sale of
contingent, or such other financial or performance ratios readily saleable goods and products, or their
as may be appropriate under the circumstances. Any transportation within the Philippines; or
such determination of net assets and net liabilities shall (2) the storing of non-perishable goods and products
be applied to all banks uniformly and without which are duly insured and deposited, under conditions
discrimination. assuring their preservation, in authorized bonded
SECTION 77. Requirement of Balanced Currency warehouses or in other places approved by the Monetary
Position. — The Monetary Board may require the banks Board.
to maintain a balanced position between their assets and (b) Production credits. — The Bangko Sentral may
liabilities in Philippine pesos or in any other currency or rediscount, discount, buy and sell bills, acceptances,
currencies in which they operate. The banks shall be promissory notes and other credit instruments having
granted a reasonable period of time in which to adjust maturities of not more than three hundred sixty (360)
their currency positions to any such requirement. days from the date of their rediscount, discount of
The powers granted under this section shall be exercised acquisition by the Bangko Sentral and resulting from
only when special circumstances make such action transactions related to the production or processing of
necessary, in the opinion of the Monetary Board, and shall agricultural, animal, mineral, or industrial products.
be applied to all banks alike and without discrimination. Documents or instruments acquired in accordance with
SECTION 78. Regulation of Non-spot Exchange this subsection shall be secured by a pledge of the
Transactions. — In order to restrain the banks from respective crops or products: Provided, however, That the
taking speculative positions with respect to future crops or products need not be pledged to secure the
fluctuations in foreign exchange rates, the Monetary documents if the original loan granted by the Bangko
Board may issue such regulations governing bank Sentral is secured by a lien or mortgage on real estate
purchases and sales of non-spot exchange as it may property seventy percent (70%) of the appraised value of
consider necessary for said purpose. which equals or exceeds the amount of the loan granted.
SECTION 79. Other Exchange Profits and Losses. — The (c) Other credits. — Special credit instruments not
banks shall bear the risks of non-compliance with the otherwise rediscountable under the immediately
terms of the foreign exchange documents and preceding subsections (a) and (b) may be eligible for
instruments which they buy or sell, and shall also bear rediscounting in accordance with rules and regulations
any other typically commercial or banking risks, including which the Bangko Sentral shall prescribe. Whenever
exchange risks not assumed by the Bangko Sentral necessary, the Bangko Sentral shall provide funds from
under the provisions of the preceding section. non-inflationary sources: Provided, however, That the
Monetary Board shall prescribe additional safeguards for
SECTION 80. Information on Exchange Operations. — disbursing these funds.
The banks shall report to the Bangko Sentral the volume
and composition of their purchases and sales of gold and (d) Advances. — The Bangko Sentral may grant advances
foreign exchange each day, and must furnish such against the following kinds of collaterals for fixed periods
additional information as the Bangko Sentral may which, with the exception of advances against collateral
request with reference to the movements in their named in clause (4) of the present subsection, shall not
accounts in foreign currencies. exceed one hundred eighty (180) days:
The Monetary Board may also require other persons and (1) gold coins or bullion;
entities to report to it currently all transactions or (2) securities representing obligations of the Bangko
operations in gold, in any shape or form, and in foreign Sentral or of other domestic credit institutions of
exchange whether entered into or undertaken by them recognized solvency;
directly or through agents, or to submit such data as may (3) the credit instruments to which reference is made in
be required on operations or activities giving rise to or in subsection (a) of this section;
connection with or relating to a gold or foreign exchange
transaction. The Monetary Board shall prescribe the forms (4) the credit instruments to which reference is made in
on which such declarations must be made. The accuracy subsection (b) of this section, for periods which shall not
of the declarations may be verified by the Bangko Sentral exceed three hundred sixty (360) days;
by whatever inspection it may deem necessary. (5) utilized portions of advances in current account
covered by regular overdraft agreements related to
ARTICLE IV Loans to Banking and Other operations included under subsections (a) and (b) of this
section, and certified as to amount and liquidity by the
Financial Institutions
institution soliciting the advance;
(6) negotiable treasury bills, certificates of indebtedness,
A. Credit Policy
notes and other negotiable obligations of the
SECTION 81. Guiding Principles. — The rediscounts, Government maturing within three (3) years from the
discounts, loans and advances which the Bangko Sentral date of the advance; and
is authorized to extend to banking institutions under the (7) negotiable bonds issued by the Government of the
provisions of the present article of this Act shall be used Philippines by Philippine provincial, city or municipal
to influence the volume of credit consistent with the governments, or by any Philippine Government
objective of price stability. instrumentality, and having maturities of not more than
ten (10) years from the date of the advance.
B. Normal Credit Operations The rediscounts, discounts, loans and advances made in
SECTION 82. Authorized Types of Operations. — Subject accordance with the provisions of this section may not be
to the principle stated in the preceding section of this renewed or extended unless extraordinary circumstances
Act, the Bangko Sentral may normally and regularly carry fully justify such renewal or extension.
on the following credit operations with banking Advances made against the collateral named in clauses
institutions operating in the Philippines: (6) and (7) of subsection (d) of this section may not
(a) Commercial credits. — The Bangko Sentral may exceed eighty percent (80%) of the current market value
rediscount, discount, buy and sell bills, acceptances, of the collateral.
promissory notes and other credit instruments with
maturities of not more than one hundred eighty (180) C. Special Credit Operation
days from the date of their rediscount, discount or
acquisition by the Bangko Sentral and resulting from SECTION 83. Loans for Liquidity Purposes. — The
transactions related to: Bangko Sentral may extend loans and advances to


banking institutions for a period of not more than seven pertaining to said shares: Provided, however, That should
(7) days without any collateral for the purpose of the Bangko Sentral acquire any of the shares it has
providing liquidity to the banking system in times of accepted as collateral as a result of foreclosure
need. proceedings, the Bangko Sentral shall dispose of said
shares by public bidding within one (1) year from the date
D. Emergency Credit Operation of consolidation of title by the Bangko Sentral.
Whenever a financial institution incurs an overdraft in its
SECTION 84. Emergency Loans and Advances. — In
account with the Bangko Sentral, the same shall be
periods of national and/or local emergency or of
eliminated within the period prescribed in Section 102 of
imminent financial panic which directly threaten
this Act.
monetary and banking stability, the Monetary Board may,
by a vote of at least five (5) of its members, authorize the
Bangko Sentral to grant extraordinary loans or advances E. Credit Terms
to banking institutions secured by assets as defined SECTION 85. Interest and Rediscount Rates. — The
hereunder: Provided, That while such loans or advances Bangko Sentral shall collect interest and other
are outstanding, the debtor institution shall not, except appropriate charges on all loans and advances it extends,
upon prior authorization by the Monetary Board, expand the closure, receivership or liquidation of the
the total volume of its loans or investments. debtor-institution notwithstanding. This provision shall
The Monetary Board may, at its discretion, likewise apply prospectively.
authorize the Bangko Sentral to grant emergency loans The Monetary Board shall fix the interest and rediscount
or advances to banking institutions, even during normal rates to be charged by the Bangko Sentral on its credit
periods, for the purpose of assisting a bank in a operations in accordance with the character and term of
precarious financial condition or under serious financial the operation, but after due consideration has been given
pressures brought by unforeseen events, or events which, to the credit needs of the market, the composition of the
though foreseeable, could not be prevented by the bank Bangko Sentral's portfolio, and the general requirements
concerned: Provided, however, That the Monetary Board of the national monetary policy. Interest and rediscount
has ascertained that the bank is not insolvent and has the rates shall be applied to all banks of the same category
assets defined hereunder to secure the advances: uniformly and without discrimination.
Provided, further, That a concurrent vote of at least five (5)
members of the Monetary Board is obtained. SECTION 86. Endorsement. — The documents
rediscounted, discounted, bought or accepted as
The amount of any emergency loan or advance shall not collateral by the Bangko Sentral in the course of the
exceed the sum of fifty percent (50%) of total deposits credit operations authorized in this article shall bear the
and deposit substitutes of the banking institution and endorsement of the institution from which they are
shall be disbursed in two (2) or more tranches. The received.
amount of the first tranche shall be limited to twenty-five
percent (25%) of the total deposit and deposit substitutes SECTION 87. Repayment of Credits. — Documents
of the institution and shall be secured by government rediscounted, discounted or accepted as collateral by the
securities to the extent of their applicable loan values and Bangko Sentral must be withdrawn by the borrowing
other unencumbered first class collaterals which the institution on the dates of their maturities, or upon
Monetary Board may approve: Provided, That if as liquidation of the obligations which they represent or to
determined by the Monetary Board, the circumstances which they relate whenever said obligations have been
surrounding the emergency warrant a loan or advance liquidated prior to their dates of maturity.
greater than the amount provided hereinabove, the Banks shall have the right at any time to withdraw any
amount of the first tranche may exceed twenty-five documents which they have presented to the Bangko
percent (25%) of the bank's total deposit and deposit Sentral as collateral, upon payment in full of the
substitutes if the same is adequately secured by corresponding debt to the Bangko Sentral, including
applicable loan values of government securities and interest charges.
unencumbered first class collaterals approved by the
Monetary Board, and the principal stockholders of the SECTION 88. Other Requirements. — The Monetary
institution furnish an acceptable undertaking to Board may prescribe, within the general powers granted
indemnify and hold harmless from suit a conservator to it under this Act, additional conditions which
whose appointment the Monetary Board may find borrowing institutions must satisfy in order to have
necessary at any time. access to the credit of the Bangko Sentral. These
conditions may refer to the rates of interest charged by
Prior to the release of the first tranche, the banking the banks, to the purposes for which their loans in
institution shall submit to the Bangko Sentral a general are destined, and to any other clearly definable
resolution of its board of directors authorizing the aspect of the credit policy of the bank.
Bangko Sentral to evaluate other assets of the banking
institution certified by its external auditor to be good and SECTION 89. Provisional Advances to the National
available for collateral purposes should the release of the Government. — The Bangko Sentral may make direct
subsequent tranche be thereafter applied for. provisional advances with or without interest to the
National Government to finance expenditures authorized
The Monetary Board may, by a vote of at least five (5) of its in its annual appropriation: Provided, That said advances
members, authorize the release of a subsequent tranche shall be repaid before the end of three (3) months
on condition that the principal stockholders of the extendible by another three (3) months as the Monetary
institution: Board may allow following the date the National
(a) furnish an acceptable undertaking to indemnify and Government received such provisional advances and shall
hold harmless from suit a conservator whose not, in their aggregate, exceed twenty percent (20%) of
appointment the Monetary Board may find necessary at the average annual income of the borrower for the last
any time; and three (3) preceding fiscal years.
(b) provide acceptable security which, in the judgment of
the Monetary Board, would be adequate to supplement, ARTICLE V Open Market Operations for the
where necessary, the assets tendered by the banking Account of the Bangko Sentral
institution to collateralize the subsequent tranche.
SECTION 90. Principles of Open Market Operations. —
In connection with the exercise of these powers, the The open market purchases and sales of securities by the
prohibitions in Section 128 of this Act shall not apply Bangko Sentral shall be made exclusively in accordance
insofar as it refers to acceptance as collateral of shares with its primary objective of achieving price stability.
and their acquisition as a result of foreclosure
proceedings, including the exercise of voting rights



SECTION 91. Purchases and Sales of Government and shall ordinarily take the form of a deposit in the
Securities. — In order to achieve the objectives of the Bangko Sentral. Reserve requirements shall be applied to
national monetary policy, the Bangko Sentral may, in all banks of the same category uniformly and without
accordance with the principle stated in Section 90 of this discrimination.
Act and with such rules and regulations as may be Reserves against deposit substitutes, if imposed, shall be
prescribed by the Monetary Board, buy and sell in the determined in the same manner as provided for reserve
open market for its own account: requirements against regular bank deposits, with respect
(a) evidences of indebtedness issued directly by the to the imposition, increase, and computation of reserves.
Government of the Philippines or by its political The Monetary Board may exempt from reserve
subdivisions; and requirements deposits and deposit substitutes with
(b) evidences of indebtedness issued by government remaining maturities of two (2) years or more, as well as
instrumentalities and fully guaranteed by the interbank borrowings.
Government. Since the requirement to maintain bank reserves is
The evidences of indebtedness acquired under the imposed primarily to control the volume of money, the
provisions of this section must be freely negotiable and Bangko Sentral shall not pay interest on the reserves
regularly serviced and must be available to the general maintained with it unless the Monetary Board decides
public through banking institutions and local otherwise as warranted by circumstances.
government treasuries in denominations of a thousand SECTION 95. Definition of Deposit Substitutes. — The
pesos or more. term "deposit substitutes" is defined as an alternative
SECTION 92. Issue and Negotiation of Bangko Sentral form of obtaining funds from the public, other than
Obligations. — In order to provide the Bangko Sentral deposits, through the issuance, endorsement, or
with effective instruments for open market operations, acceptance of debt instruments for the borrower's own
the Bangko Sentral may, subject to such rules and account, for the purpose of relending or purchasing of
regulations as the Monetary Board may prescribe and in receivables and other obligations. These instruments may
accordance with the principles stated in Section 90 of this include, but need not be limited to, bankers acceptances,
Act, issue, place, buy and sell freely negotiable evidences promissory notes, participations, certificates of
of indebtedness of the Bangko Sentral: Provided, That assignment and similar instruments with recourse, and
issuance of such certificates of indebtedness shall be repurchase agreements. The Monetary Board shall
made only in cases of extraordinary movement in price determine what specific instruments shall be considered
levels. Said evidences of indebtedness may be issued as deposit substitutes for the purposes of Section 94 of
directly against the international reserve of the Bangko this Act: Provided, however, That deposit substitutes of
Sentral or against the securities which it has acquired commercial, industrial and other non-financial
under the provisions of Section 91 of this Act, or may be companies issued for the limited purpose of financing
issued without relation to specific types of assets of the their own needs or the needs of their agents or dealers
Bangko Sentral. shall not be covered by the provisions of Section 94 of this
The Monetary Board shall determine the interest rates, Act.
maturities and other characteristics of said obligations of SECTION 96. Required Reserves Against Peso Deposits.
the Bangko Sentral, and may, if it deems it advisable, — The Monetary Board may fix and, when it deems
denominate the obligations in gold or foreign currencies. necessary, alter the minimum reserve ratios to peso
Subject to the principles stated in Section 90 of this Act, deposits, as well as to deposit substitutes, which each
the evidences of indebtedness of the Bangko Sentral to bank and/or quasi-bank may maintain, and such ratio
which this section refers may be acquired by the Bangko shall be applied uniformly to all banks of the same
Sentral before their maturity, either through purchases in category as well as to quasi-banks.
the open market or through redemptions at par and by SECTION 97. Required Reserves Against Foreign
lot if the Bangko Sentral has reserved the right to make Currency Deposits. — The Monetary Board is similarly
such redemptions. The evidences of indebtedness authorized to prescribe and modify the minimum reserve
acquired or redeemed by the Bangko Sentral shall not be ratios applicable to deposits denominated in foreign
included among its assets, and shall be immediately currencies.
retired and cancelled. SECTION 98. Reserves Against Unused Balances of
Overdraft Lines. — In order to facilitate Bangko Sentral
ARTICLE VI Composition of Bangko Sentral's control over the volume of bank credit, the Monetary
Portfolio Board may establish minimum reserve requirements for
unused balances of overdraft lines.
SECTION 93. Review of the Bangko Sentral's Portfolio. —
At least once every month the Monetary Board shall The powers of the Monetary Board to prescribe and
review the portfolio of the Bangko Sentral in relation to modify reserve requirements against unused balances of
its future credit policy. overdraft lines shall be the same as its powers with
respect to reserve requirements against demand
In reviewing the Bangko Sentral's portfolio, the Monetary deposits.
Board shall especially consider whether a sufficiently
large part of the portfolio consists of assets with early SECTION 99. Increase in Reserve Requirements. —
maturities, in order that a contraction in Bangko Sentral Whenever in the opinion of the Monetary Board it
credit may be effected promptly whenever the national becomes necessary to increase reserve requirements
monetary policy so requires. against existing liabilities, the increase shall be made in a
gradual manner and shall not exceed four percentage
points in any thirty-day period. Banks and other affected
ARTICLE VII Bank Reserves financial institutions shall be notified reasonably in
SECTION 94. Reserve Requirements. — In order to advance of the date on which such increase is to become
control the volume of money created by the credit effective.
operations of the banking system, all banks operating in SECTION 100. Computation on Reserves. — The reserve
the Philippines shall be required to maintain reserves position of each bank or quasi-bank shall be calculated
against their deposit liabilities: Provided, That the daily on the basis of the amount, at the close of business
Monetary Board may, at its discretion, also require all for the day, of the institution's reserves and the amount of
banks and/or quasi-banks to maintain reserves against its liability accounts against which reserves are required
funds held in trust and liabilities for deposit substitutes as to be maintained: Provided, That with reference to
defined in this Act. The required reserves of each bank holidays or non-banking days, the reserve position as
shall be proportional to the volume of its deposit liabilities calculated at the close of the business day immediately


preceding such holidays and non-banking days shall party other than the Government, or its political
apply on such days. subdivisions or instrumentalities.
For the purpose of computing the reserve position of
each bank or quasi-bank, its principal office in the ARTICLE VIII Selective Regulation of Bank
Philippines and all its branches and agencies located Operations
therein shall be considered as a single unit.
SECTION 104. Guiding Principle. — The Monetary Board
SECTION 101. Reserve Deficiencies. — Whenever the shall use the powers granted to it under this Act to ensure
reserve position of any bank or quasi-bank, computed in that the supply, availability and cost of money are in
the manner specified in the preceding section of this Act, accord with the needs of the Philippine economy and
is below the required minimum, the bank or quasi-bank that bank credit is not granted for speculative purposes
shall pay the Bangko Sentral one-tenth of one percent prejudicial to the national interests. Regulations on bank
(1/10 of 1%) per day on the amount of the deficiency or the operations shall be applied to all banks of the same
prevailing ninety-one-day treasury bill rate plus three category uniformly and without discrimination.
percentage points, whichever is higher: Provided,
however, That banks and quasi-banks shall ordinarily be SECTION 105. Margin Requirements Against Letters of
permitted to offset any reserve deficiency occurring on Credit. — The Monetary Board may at any time prescribe
one or more days of the week with any excess reserves minimum cash margins for the opening of letters of
which they may hold on other days of the same week and credit, and may relate the size of the required margin to
shall be required to pay the penalty only on the average the nature of the transaction to be financed.
daily deficiency during the week. In cases of abuse, the SECTION 106. Required Security Against Bank Loans. —
Monetary Board may deny anybank or quasi-bank the In order to promote liquidity and solvency of the banking
privilege of offsetting reserve deficiencies in the aforesaid system, the Monetary Board may issue such regulations
manner. as it may deem necessary with respect to the maximum
If a bank or quasi-bank chronically has a reserve permissible maturities of the loans and investments
deficiency, the Monetary Board may limit or prohibit the which the banks may make, and the kind and amount of
making of new loans or investments by the institution security to be required against the various types of credit
and may require that part or all of the net profits of the operations of the banks.
institution be assigned to surplus. SECTION 107. Portfolio Ceilings. — Whenever the
The Monetary Board may modify or set aside the reserve Monetary Board considers it advisable to prevent or
deficiency penalties provided in this section, for part or check an expansion of bank credit, the Board may place
the entire period of a strike or lockout affecting a bank or an upper limit on the amount of loans and investments
a quasi-bank as defined in the Labor Code, or of a which the banks may hold, or may place a limit on the
national emergency affecting operations of banks or rate of increase of such assets within specified periods of
quasi-banks. The Monetary Board may also modify or set time. The Monetary Board may apply such limits to the
aside reserved deficiency penalties for rehabilitation loans and investments of each bank or to specific
program of a bank. categories thereof.
SECTION 102. Interbank Settlement. — The Bangko In no case shall the Monetary Board establish limits
Sentral shall establish facilities for interbank clearing which are below the value of the loans or investments of
under such rules and regulations as the Monetary Board the banks on the date on which they are notified of such
may prescribe: Provided, That the Bangko Sentral may restrictions. The restrictions shall be applied to all banks
charge administrative and other fees for the maintenance uniformly and without discrimination.
of such facilities. SECTION 108. Minimum Capital Ratios. — The Monetary
The deposit reserves maintained by the banks in the Board may prescribe minimum ratios which the capital
Bangko Sentral in accordance with the provisions of and surplus of the banks must bear to the volume of their
Section 94 of this Act shall serve as basis for the clearing assets, or to specific categories thereof, and may alter said
of checks and the settlement of interbank balances, ratios whenever it deems necessary.
subject to such rules and regulations as the Monetary
Board may issue with respect to such ARTICLE IX Coordination of Credit Policies by
operations:Provided, That any bank which incurs on
overdrawing in its deposit account with the Bangko Government Institutions
Sentral shall fully cover said overdraft, including interest SECTION 109. Coordination of Credit Policies. —
thereon at a rate equivalent to one-tenth of one percent Government-owned corporations which perform banking
(1/10 of 1%) per day or the prevailing ninety-one-day or credit functions shall coordinate their general credit
treasury bill rate plus three percentage points, whichever policies with those of the Monetary Board.
is higher, not later than the next clearing day: Provided, Toward this end, the Monetary Board may, whenever it
further, That settlement of clearing balances shall not be deems it expedient, make suggestions or
effected for any account which continues to be recommendations to such corporations for the more
overdrawn for five (5) consecutive banking days until such effective coordination of their policies with those of the
time as the overdrawing is fully covered or otherwise Bangko Sentral.
converted into an emergency loan or advance pursuant
to the provisions of Section 84 of this Act: Provided,
finally, That the appropriate clearing office shall be CHAPTER V Functions as Banker and Financial
officially notified of banks with overdrawn balances.
Banks with existing overdrafts with the Bangko Sentral as Advisor of the Government
of the effectivity of this Act shall, within such period as
may be prescribed by the Monetary Board, either convert
the overdraft into an emergency loan or advance with a ARTICLE I Functions as Banker of the
plan of payment, or settle such overdrafts, and that, upon Government
failure to so comply herewith, the Bangko Sentral shall SECTION 110. Designation of Bangko Sentral as Banker
take such action against the bank as may be warranted of the Government. — The Bangko Sentral shall act as a
under this Act. banker of the Government, its political subdivisions and
SECTION 103. Exemption from Attachment and Other instrumentalities.
Purposes. — Deposits maintained by banks with the SECTION 111. Representation with the International
Bangko Sentral as part of their reserve requirements shall Monetary Fund. — The Bangko Sentral shall represent
be exempt from attachment, garnishments, or any other the Government in all dealings, negotiations and
order or process of any court, government agency or any transactions with the International Monetary Fund and
other administrative body issued to satisfy the claim of a



shall carry such accounts as may result from Philippine sole purpose of regulating their operations in the placing
membership in, or operations with, said Fund. of government securities.
SECTION 112. Representation with Other Financial The Government, or its political subdivisions or
Institutions. — The Bangko Sentral may be authorized by instrumentalities, shall reimburse the Bangko Sentral for
the Government to represent it in dealings, negotiations the expenses incurred in the placing of the aforesaid
or transactions with the International Bank for securities.
Reconstruction and Development and with other foreign SECTION 119. Servicing and Redemption of the Public
or international financial institutions or agencies. The Debt. — The servicing and redemption of the public debt
President may, however, designate any of his other shall also be effected through the Bangko Sentral.
financial advisors to jointly represent the Government in
such dealings, negotiations or transactions.
B. Bangko Sentral Support of the Government Securities
SECTION 113. Official Deposits. — The Bangko Sentral
shall be the official depository of the Government, its Market
political subdivisions and instrumentalities as well as of SECTION 120. The Securities Stabilization Fund. — There
government-owned or -controlled corporations and, as a shall be established a "Securities Stabilization Fund"
general policy, their cash balances should be deposited which shall be administered by the Bangko Sentral for
with the Bangko Sentral, with only minimum working the account of the Government.
balances to be held by government-owned banks and The operations of the Securities Stabilization Fund shall
such other banks incorporated in the Philippines as the consist of purchases and sales, in the open market, of
Monetary Board may designate, subject to such rules and bonds and other evidences of indebtedness, issued or
regulations as the Board may prescribe: Provided, That fully guaranteed by the Government. The purpose of
such banks may hold deposits of the political subdivisions these operations shall be to increase the liquidity and
and instrumentalities of the Government beyond their stabilize the value of said securities in order thereby to
minimum working balances whenever such subdivisions promote private investment in government obligations.
and instrumentalities have outstanding loans with said
banks. The Monetary Board shall use the resources of the Fund
to prevent, or moderate, sharp fluctuations in the
The Bangko Sentral may pay interest on deposits of the quotations of said government obligations, but shall not
Government or of its political subdivisions and endeavor to alter movements of the market resulting
instrumentalities, as well as on deposits of banks with the from basic changes in the pattern or level of interest
Bangko Sentral. rates.
SECTION 114. Fiscal Operations. — The Bangko Sentral The Monetary Board shall issue such regulations as may
shall open a general cash account for the Treasurer of the be necessary to implement the provisions of this section.
Philippines, in which the liquid funds of the Government
shall be deposited. SECTION 121. Resources of the Securities Stabilization
Fund. — Subject to Section 132 of this Act, the resources
Transfers of funds from this account to other accounts of the Securities Stabilization Fund shall come from the
shall be made only upon order of the Treasurer of the balance of the fund as held by the Central Bank under
Philippines. Republic Act No. 265 as of the effective date of this Act.
SECTION 115. Other Banks as Agents of the Bangko SECTION 122. Profits and Losses of the Fund. — The
Sentral. — In the performance of its functions as fiscal Securities Stabilization Fund shall retain net profits which
agent, the Bangko Sentral may engage the services of it may make on its operations, regardless of whether said
other government-owned and -controlled banks and of profits arise from capital gains or from interest earnings.
other domestic banks for operations in localities at home The Fund shall correspondingly bear any net losses which
or abroad in which the Bangko Sentral does not have it may incur.
offices or agencies adequately equipped to perform said
operations: Provided, however, That for fiscal operations
in foreign countries, the Bangko Sentral may engage the ARTICLE III Functions as Financial Advisor of the
services of foreign banking and financial institutions. Government
SECTION 116. Remuneration for Services. — The Bangko SECTION 123. Financial Advice on Official Credit
Sentral may charge equitable rates, commissions or fees Operations. — Before undertaking any credit operation
for services which it renders to the Government, its abroad, the Government, through the Secretary of
political subdivisions and instrumentalities. Finance, shall request the opinion, in writing, of the
Monetary Board on the monetary implications of the
ARTICLE II The Marketing and Stabilization of contemplated action. Such opinions must similarly be
requested by all political subdivisions and
Securities for the Account of the Government instrumentalities of the Government before any credit
operation abroad is undertaken by them.
A. The Issue and Placing of Government Securities The opinion of the Monetary Board shall be based on the
SECTION 117. Issue of Government Obligations. — The gold and foreign exchange resources and obligations of
issue of securities representing obligations of the the nation and on the effects of the proposed operation
Government, its political subdivisions or instrumentalities, on the balance of payments and on monetary
may be made through the Bangko Sentral, which may aggregates.
act as agent of, and for the account of, the Government or Whenever the Government, or any of its political
its respective subdivisions or instrumentality, as the case subdivisions or instrumentalities, contemplates
may be: Provided, however, That the Bangko Sentral shall borrowing within the Philippines, the prior opinion of the
not guarantee the placement of said securities, and shall Monetary Board shall likewise be requested in order that
not subscribe to their issue except to replace its maturing the Board may render an opinion on the probable effects
holdings of securities with the same type as the maturing of the proposed operation on monetary aggregates, the
securities. price level, and the balance of payments.
SECTION 118. Methods of Placing Government SECTION 124. Representation on the National Economic
Securities. — The Bangko Sentral may place the and Development Authority. — In order to assure
securities to which the preceding section refers through effective coordination between the economic, financial
direct sale to financial institutions and the public. and fiscal policies of the Government and the monetary,
The Bangko Sentral shall not be a member of any stock credit and exchange policies of the Bangko Sentral, the
exchange or syndicate, but may intervene therein for the Deputy Governor designated by the Governor of the


Bangko Sentral shall be an ex officio member of the case longer than five (5) years from the approval of this
National Economic and Development Authority Board. Act, phase out all fiscal agency functions provided for in
Sections 117, 118, 119, and 120 as well as in other pertinent
provisions of this Act and transfer the same to the
CHAPTER VI Privileges and Prohibitions Department of Finance.
SECTION 130. Phase-out of Regulatory Powers Over the
ARTICLE I Privileges Operations of Finance Corporations and Other
Institutions Performing Similar Functions. —
SECTION 125. Tax Exemptions. — The Bangko Sentral TheBangko Sentral shall, within a period of five (5) years
shall be exempt for a period of five (5) years from the from the effectivity of this Act, phase out its regulatory
approval of this Act from all national, provincial, municipal powers over finance companies without quasi-banking
and city taxes, fees, charges and assessments. functions and other institutions performing similar
The exemptions authorized in the preceding paragraph functions as provided in existing laws, the same to be
of this section shall apply to all property of the Bangko assumed by the Securities and Exchange Commission.
Sentral, to the resources, receipts, expenditures, profits SECTION 131. Implementing Details. — The Bangko
and income of the Bangko Sentral, as well as to all Sentral shall be made operational by the performance of
contracts, deeds, documents and transactions related to the following acts:
the conduct of the business of the Bangko
Sentral:Provided, however, That said exemptions shall (a) the President shall constitute the Monetary Board by
apply only to such taxes, fees, charges and assessments appointing the members thereof within sixty (60) days
for which the Bangko Sentral itself would otherwise be from the effectivity of this Act; and
liable, and shall not apply to taxes, fees, charges, or (b) the transfer of such assets and liabilities from the
assessments payable by persons or other entities doing Central Bank to the Bangko Sentral as provided in
business with the Bangko Sentral: Provided, further, That Section 132 shall be completed within ninety (90) days
foreign loans and other obligations of the Bangko Sentral from the constitution of the Monetary Board.
shall be exempt, both as to principal and interest, from
any and all taxes if the payment of such taxes has been All incumbent personnel in the Central Bank as of the
assumed by the Bangko Sentral. date of the approval of this Act shall continue to exercise
their duties and functions as personnel of theBangko
SECTION 126. Exemption from Customs Duties. — The Sentral subject to the provisions of Section 133: Provided,
provision of any general or special law to the contrary That such personnel in the Central Bank as may be
notwithstanding, the importation and exportation by the necessary for the purpose of implementing Section 132
Bangko Sentral of notes and coins, and of gold and other may be assigned by the Bangko Sentral Monetary Board
metals to be used for purposes authorized under this Act, to the Central Bank.
and the importation of all equipment needed for bank
note production, minting of coins, metal refining and SECTION 132. Transfer of Assets and Liabilities. — Upon
other security printing operations shall be fully exempt the effectivity of this Act, three (3) members of the
from all customs duties and consular fees and from all Monetary Board, which may include the Governor, in
other taxes, assessments and charges related to such representation of the Bangko Sentral, the Secretary of
importation or exportation. Finance and the Secretary of Budget and Management in
representation of the National Government, and the
SECTION 127. Applicability of the Civil Service Law. — Chairmen of the Committees on Banks of the Senate and
Appointments in the Bangko Sentral, except as to those the House of Representatives shall determine the assets
which are policy-determining, primarily confidential or and liabilities of the Central Bank which may be
highly technical in nature, shall be made only according transferred to or assumed by the Bangko Sentral. The
to the Civil Service Law and regulations: Provided, That no Committee shall complete its work within ninety (90)
qualification requirements for positions in the Bangko days from the constitution of the Monetary Board
Sentral shall be imposed other than those set by the submitting a comprehensive report with all its findings
Monetary Board: Provided, further, That, the Monetary and justification.
Board or Governor, in accordance with Sections 15(c) and
17(d) of this Act, respectively, may without need of The following guidelines shall be strictly observed in the
obtaining prior approval from any other government determination of which assets and liabilities shall be
agency, appoint personnel in the Bangko Sentral whose transferred to the Bangko Sentral:
services are deemed necessary in order not to unduly (a) the Monetary Board and the Secretary of Finance shall
disrupt the operations of the Bangko Sentral. have primary responsibility for working out creative
Officers and employees of the Bangko Sentral, including monetary and financial solutions to retire the Central
all members of the Monetary Board, shall not engage Bank liabilities and losses at the least cost to the
directly or indirectly in partisan activities or take part in Government;
any election except to vote. (b) the Bangko Sentral shall remit seventy-five percent
(75%) of its net profits to a special deposit account
(sinking fund) until such time as the net liabilities of the
ARTICLE II Prohibitions Central Bank shall have been liquidated through
SECTION 128. Prohibitions. — The Bangko Sentral shall generally accepted finance mechanisms such as, but not
not acquire shares of any kind or accept them as limited to, write-offs, set-offs, condonation, collections,
collateral, and shall not participate in the ownership or reappraisal, revaluation and bond issuance by the
management of any enterprise, either directly or National Government, or to the National Government as
indirectly. dividends;
The Bangko Sentral shall not engage in development (c) the assets and liabilities to be transferred shall be
banking or financing: Provided, however, That limited to an amount that will enable the Bangko Sentral
outstanding loans obtained or extended for development to perform its responsibilities adequately and operate on
financing shall not be affected by the prohibition of this a viable basis: Provided, That the assets shall exceed the
section. liabilities as certified by the Commission on Audit (COA),
by an initial amount of Ten billion pesos
(P10,000,000,000);
CHAPTER VII Transitory Provisions (d) liabilities to be assumed by the Bangko Sentral shall
SECTION 129. Phase-out of Fiscal Agency Functions. — include liability for notes and coins in circulation as of the
Unless circumstances warrant otherwise and approved effective date of this Act; and
by the Congress Oversight Committee, theBangko (e) any asset or liability of the Central Bank not
Sentral shall, within a period of three (3) years but in no transferred to the Bangko Sentral shall be retained and



administered, disposed of and liquidated by the Central

Bank itself which shall continue to exist as the CB Board RA No 8791 | The General Banking Law
of Liquidators only for the purposes provided in this
paragraph but not later than twenty-five (25) years or
of 2000
until such time that liabilities have been liquidated:
Provided, That the Bangko Sentral may financially assist
the Central Bank Board of Liquidators in the liquidation of May 23, 2000
CB liabilities: Provided, finally, That upon disposition of REPUBLIC ACT NO. 8791
said retained assets and liquidation of said retained AN ACT PROVIDING FOR THE REGULATION OF THE
liabilities, the Central Bank shall be deemed abolished. ORGANIZATION AND OPERATIONS OF BANKS,
All actions taken by the Bangko Sentral Monetary Board QUASI-BANKS, TRUST ENTITIES AND FOR OTHER
under this section shall be reported to Congress and the PURPOSES
President within thirty (30) days.
SECTION 133. Mandate to Organize. — The Bangko
Sentral shall be organized by the Monetary Board CHAPTER I Title and Classification of Banks
without being subject to the provisions of Republic Act SECTION 1. Title. — The short title of this Act shall be "The
No. 7430, by adopting if it so desires, an entirely new General Banking Law of 2000." (1a)
staffing pattern on organizational structure to suit the
SECTION 2. Declaration of Policy. — The State recognizes
operations of the Bangko Sentral under this Act. No
the vital role of banks in providing an environment
preferential or priority right shall be given to or enjoyed
conducive to the sustained development of the national
by any personnel for appointment to any position in the
economy and the fiduciary nature of banking that
new staffing pattern, nor shall any personnel be
requires high standards of integrity and performance. In
considered as having prior or vested rights with respect
furtherance thereof, the State shall promote and
to retention in the Bangko Sentral or in any position
maintain a stable and efficient banking and financial
which may be created in the new staffing pattern, even if
system that is globally competitive, dynamic and
he should be the incumbent of a similar position prior to
responsive to the demands of a developing economy. (n)
organization. The formulation of the program of
organization shall be completed within six (6) months SECTION 3. Definition and Classification of Banks. —
after the effectivity of this Act, and shall be fully 3.1. "Banks" shall refer to entities engaged in the lending
implemented within a period of six (6) months thereafter. of funds obtained in the form of deposits. (2a)
Personnel who may not be retained are deemed
separated from the service. 3.2. Banks shall be classified into:
SECTION 134. Separation Benefits. — Pursuant to (a) Universal banks;
Section 15 of this Act, the Monetary Board is authorized to (b) Commercial banks;
provide separation incentives, and all those who shall
retire or be separated from the service on account of (c) Thrift banks, composed of: (i) Savings and mortgage
reorganization under the preceding section shall be banks, (ii) Stock savings and loan associations, and (iii)
entitled to such incentives, which shall be in addition to Private development banks, as defined in Republic Act
all gratuities and benefits to which they may be entitled No. 7906 (hereafter the "Thrift Banks Act");
under existing laws. (d) Rural banks, as defined in Republic Act No. 7353
SECTION 135. Repealing Clause. — Except as may be (hereafter the "Rural Banks Act");
provided for in Sections 46 and 132 of this Act, Republic (e) Cooperative banks, as defined in Republic Act No.
Act No. 265, as amended, the provisions of any other law, 6938 (hereafter the "Cooperative Code");
special charters, rule or regulation issued pursuant to said
(f) Islamic banks as defined in Republic Act No. 6848,
Republic Act No. 265, as amended, or parts thereof, which
otherwise known as the "Charter of Al Amanah Islamic
may be inconsistent with the provisions of this Act are
Investment Bank of the Philippines"; and
hereby repealed. Presidential Decree No. 1792 is likewise
repealed. (g) Other classifications of banks as determined by the
Monetary Board of the Bangko Sentral ng Pilipinas. (6-Aa)
SECTION 136. Transfer of Powers. — All powers, duties
and functions vested by law in the Central Bank of the
Philippines not inconsistent with the provisions of this Act
shall be deemed transferred to the Bangko Sentral ng
CHAPTER II Authority of the Bangko Sentral
Pilipinas. All references to the Central Bank of the SECTION 4. Supervisory Powers. — The operations and
Philippines in any law or special charters shall be deemed activities of banks shall be subject to supervision of the
to refer to the Bangko Sentral. cd Bangko Sentral. "Supervision" shall include the following:
SECTION 137. Separability Clause. — If any provision or 4.1. The issuance of rules of conduct or the establishment
section of this Act or the application thereof to any of standards of operation for uniform application to all
person or circumstance is held invalid, the other institutions or functions covered, taking into
provisions or sections of this Act, and the application of consideration the distinctive character of the operations
such provision or section to other persons or of institutions and the substantive similarities of specific
circumstances, shall not be affected thereby. functions to which such rules, modes or standards are to
SECTION 138. Effectivity Clause. — This Act shall take be applied;
effect fifteen (15) days following its publication in the 4.2. The conduct of examination to determine compliance
Official Gazette or in two (2) national newspapers of with laws and regulations if the circumstances so warrant
general circulation. as determined by the Monetary Board;
Approved: June 14, 1993 4.3. Overseeing to ascertain that laws and regulations are
Published in Malaya and the Philippine Times Journal on complied with;
June 18, 1993. Published in the Official Gazette, Vol. 89 No. 4.4. Regular investigation which shall not be oftener than
32 page 4425 on August 9, 1993. once a year from the last date of examination to
(New Central Bank Act, Republic Act No. 7653, [June 14, determine whether an institution is conducting its
1993]) business on a safe or sound basis: Provided, That the
deficiencies/irregularities found by or discovered by an
audit shall be immediately addressed;
4.5. Inquiring into the solvency and liquidity of the
institution (2-D); or


4.6. Enforcing prompt corrective action. (n)

The Bangko Sentral shall also have supervision over the CHAPTER III Organization, Management and
operations of and exercise regulatory powers over
quasi-banks, trust entities and other financial institutions
Administration of Banks, Quasi-Banks and Trust
which under special laws are subject to Bangko Sentral Entities
supervision. (2-Ca) SECTION 8. Organization. — The Monetary Board may
For the purposes of this Act, "quasi-banks" shall refer to authorize the organization of a bank or quasi-bank
entities engaged in the borrowing of funds through the subject to the following conditions:
issuance, endorsement or assignment with recourse or 8.1. That the entity is a stock corporation (7);
acceptance of deposit substitutes as defined in Section
95 of Republic Act No. 7653 (hereafter the "New Central 8.2. That its funds are obtained from the public, which
Bank Act") for purposes of relending or purchasing of shall mean twenty (20) or more persons (2-Da); and
receivables and other obligations. (2-Da) 8.3. That the minimum capital requirements prescribed
SECTION 5. Policy Direction; Ratios, Ceilings and by the Monetary Board for each category of banks are
Limitations. — The Bangko Sentral shall provide policy satisfied. (n)
direction in the areas of money, banking and credit. (n) No new commercial bank shall be established within
For this purpose, the Monetary Board may prescribe three (3) years from the effectivity of this Act. In the
ratios, ceilings, limitations, or other forms of regulation on exercise of the authority granted herein, the Monetary
the different types of accounts and practices of banks Board shall take into consideration their capability in
and quasi-banks which shall, to the extent feasible, terms of their financial resources and technical expertise
conform to internationally accepted standards, including and integrity. The bank licensing process shall incorporate
those of the Bank for International Settlements (BIS). The an assessment of the bank's ownership structure,
Monetary Board may exempt particular categories of directors and senior management, its operating plan and
transactions from such ratios, ceilings and limitations, but internal controls as well as its projected financial
not limited to exceptional cases or to enable a bank or condition and capital base.
quasi-bank under rehabilitation or during a merger or SECTION 9. Issuance of Stocks. — The Monetary Board
consolidation to continue in business with safety to its may prescribe rules and regulations on the types of stock
creditors, depositors and the general public. (2-Ca) a bank may issue, including the terms thereof and rights
SECTION 6. Authority to Engage in Banking and appurtenant thereto to determine compliance with laws
Quasi-Banking Functions. — No person or entity shall and regulations governing capital and equity structure of
engage in banking operations or quasi-banking functions banks: Provided, That banks shall issue par value stocks
without authority from the Bangko Sentral: Provided, only.
however, That an entity authorized by the Bangko Sentral SECTION 10. Treasury Stocks. — No bank shall purchase
to perform universal or commercial banking functions or acquire shares of its own capital stock or accept its own
shall likewise have the authority to engage in shares as a security for a loan, except when authorized by
quasi-banking functions. the Monetary Board: Provided, That in every case the
The determination of whether a person or entity is stock so purchased or acquired shall, within six (6)
performing banking or quasi-banking functions without months from the time of its purchase or acquisition, be
Bangko Sentral authority shall be decided by the sold or disposed of at a public or private sale. (24a)
Monetary Board. To resolve such issue, the Monetary SECTION 11. Foreign Stockholdings. — Foreign
Board may, through the appropriate supervising and individuals and non-bank corporations may own or
examining department of the Bangko Sentral, examine, control up to forty percent (40%) of the voting stock of a
inspect or investigate the books and records of such domestic bank. This rule shall apply to Filipinos and
person or entity. Upon issuance of this authority, such domestic non-bank corporations. (12a; 12-Aa)
person or entity may commence to engage in banking
operations or quasi-banking functions and shall continue The percentage of foreign-owned voting stocks in a bank
to do so unless such authority is sooner surrendered, shall be determined by the citizenship of the individual
revoked, suspended or annulled by the Bangko Sentral in stockholders in that bank. The citizenship of the
accordance with this Act or other special laws. corporation which is a stockholder in a bank shall follow
the citizenship of the controlling stockholders of the
The department head and the examiners of the corporation, irrespective of the place of incorporation. (n)
appropriate supervising and examining department are
hereby authorized to administer oaths to any such SECTION 12. Stockholdings of Family Groups or Related
person, employee, officer, or director of any such entity Interests. — Stockholdings of individuals related to each
and to compel the presentation or production of such other within the fourth degree of consanguinity or
books, documents, papers or records that are reasonably affinity, legitimate or common-law, shall be considered
necessary to ascertain the facts relative to the true family groups or related interests and must be fully
functions and operations of such person or entity. Failure disclosed in all transactions by such an individual with the
or refusal to comply with the required presentation or bank. (12-Da)
production of such books, documents, papers or records SECTION 13. Corporate Stockholdings. — Two or more
within a reasonable time shall subject the persons corporations owned or controlled by the same family
responsible therefor to the penal sanctions provided group or same group of persons shall be considered
under the New Central Bank Act. related interests and must be fully disclosed in all
Persons or entities found to be performing banking or transactions by such corporations or related groups of
quasi-banking functions without authority from the persons with the bank. (12-Ba)
Bangko Sentral shall be subject to appropriate sanctions SECTION 14. Certificate of Authority to Register. — The
under the New Central Bank Act and other applicable Securities and Exchange Commission shall not register
laws. (4a) the articles of incorporation of any bank, or any
SECTION 7. Examination by the Bangko Sentral. — The amendment thereto, unless accompanied by a certificate
Bangko Sentral shall, when examining a bank, have the of authority issued by the Monetary Board, under its seal.
authority to examine an enterprise which is wholly or Such certificate shall not be issued unless the Monetary
majority-owned or controlled by the bank. (21-Ba) Board is satisfied from the evidence submitted to it:
14.1. That all requirements of existing laws and regulations
to engage in the business for which the applicant is
proposed to be incorporated have been complied with;


14.2. That the public interest and economic conditions, A bank may, subject to prior approval of the Monetary
both general and local, justify the authorization; and Board, use any or all of its branches as outlets for the
14.3. That the amount of capital, the financing, presentation and/or sale of the financial products of its
organization, direction and administration, as well as the allied undertaking or of its investment house units.
integrity and responsibility of the organizers and A bank authorized to establish branches or other offices
administrators reasonably assure the safety of deposits shall be responsible for all business conducted in such
and the public interest. (9) branches and offices to the same extent and in the same
The Securities and Exchange Commission shall not manner as though such business had all been conducted
register the by-laws of any bank, or any amendment in the head office. A bank and its branches and offices
thereto, unless accompanied by a certificate of authority shall be treated as one unit. (6-B; 27)
from the Bangko Sentral. (10) SECTION 21. Banking Days and Hours. — Unless
SECTION 15. Board of Directors. — The provisions of the otherwise authorized by the Bangko Sentral in the
Corporation Code to the contrary notwithstanding, there interest of the banking public, all banks including their
shall be at least five (5), and a maximum of fifteen (15) branches and offices shall transact business on all
members of the board of directors of a bank, two (2) of working days for at least six (6) hours a day. In addition,
whom shall be independent directors. An "independent banks or any of their branches or offices may open for
director" shall mean a person other than an officer or business on Saturdays, Sundays or holidays for at least
employee of the bank, its subsidiaries or affiliates or three (3) hours a day: Provided, That banks which opt to
related interests. (n) open on days other than working days shall report to the
Bangko Sentral the additional days during which they or
Non-Filipino citizens may become members of the board their branches or offices shall transact business.
of directors of a bank to the extent of the foreign
participation in the equity of said bank. (Sec. 7, RA 7721) For purposes of this Section, working days shall mean
Mondays to Fridays, except if such days are holidays.
The meetings of the board of directors may be conducted (6-Ca)
through modern technologies such as, but not limited to,
teleconferencing and video-conferencing. (n) SECTION 22. Strikes and Lockouts. — The banking
industry is hereby declared as indispensable to the
SECTION 16. Fit and Proper Rule. — To maintain the national interest and, notwithstanding the provisions of
quality of bank management and afford better protection any law to the contrary, any strike or lockout involving
to depositors and the public in general, the Monetary banks, if unsettled after seven (7) calendar days shall be
Board shall prescribe, pass upon and review the reported by the Bangko Sentral to the Secretary of Labor
qualifications and disqualifications of individuals elected who may assume jurisdiction over the dispute or decide it
or appointed bank directors or officers and disqualify or certify the same to the National Labor Relations
those found unfit. Commission for compulsory arbitration. However, the
After due notice to the board of directors of the bank, the President of the Philippines may at any time intervene
Monetary Board may disqualify, suspend or remove any and assume jurisdiction over such labor dispute in order
bank director or officer who commits or omits an act to settle or terminate the same. (6-E)
which render him unfit for the position.
In determining whether an individual is fit and proper to CHAPTER IV Deposits, Loans and Other
hold the position of a director or officer of a bank, regard
shall be given to his integrity, experience, education, Operations
training, and competence. (9-Aa)
SECTION 17. Directors of Merged or Consolidated Banks. ARTICLE I Operations of Universal Banks
— In the case of a bank merger or consolidation, the SECTION 23. Powers of a Universal Bank. — A universal
number of directors shall not exceed twenty-one (21). (13a) bank shall have the authority to exercise, in addition to
SECTION 18. Compensation and Other Benefits of the powers authorized for a commercial bank in Section
Directors and Officers. — To protect the funds of 29, the powers of an investment house as provided in
depositors and creditors, the Monetary Board may existing laws and the power to invest in non-allied
regulate the payment by the bank to its directors and enterprises as provided in this Act. (21-B)
officers of compensation, allowance, fees, bonuses, stock SECTION 24. Equity Investments of a Universal Bank. —
options, profit sharing and fringe benefits only in A universal bank may, subject to the conditions stated in
exceptional cases and when the circumstances warrant, the succeeding paragraph, invest in the equities of allied
such as but not limited to the following: and non-allied enterprises as may be determined by the
18.1. When a bank is under comptrollership or Monetary Board. Allied enterprises may either be
conservatorship; or financial or non-financial.
18.2. When a bank is found by the Monetary Board to be Except as the Monetary Board may otherwise prescribe:
conducting business in an unsafe or unsound manner; or 24.1. The total investment in equities of allied and
18.3. When a bank is found by the Monetary Board to be non-allied enterprises shall not exceed fifty percent (50%)
in an unsatisfactory financial condition. (n) of the net worth of the bank; and
SECTION 19. Prohibition on Public Officials. — Except as 24.2. The equity investment in any one enterprise,
otherwise provided in the Rural Banks Act, no appointive whether allied or non-allied, shall not exceed twenty-five
or elective public official, whether full-time or part-time percent (25%) of the net worth of the bank.
shall at the same time serve as officer of any private bank, As used in this Act, "net worth" shall mean the total of the
save in cases where such service is incident to financial unimpaired paid-in capital including paid-in surplus,
assistance provided by the government or a retained earnings and undivided profit, net of valuation
government-owned or controlled corporation to the bank reserves and other adjustments as may be required by
or unless otherwise provided under existing laws. (13) the Bangko Sentral.
SECTION 20. Bank Branches. — Universal or commercial The acquisition of such equity or equities is subject to the
banks may open branches or other offices within or prior approval of the Monetary Board which shall
outside the Philippines upon prior approval of the promulgate appropriate guidelines to govern such
Bangko Sentral. investments. (21-Ba)
Branching by all other banks shall be governed by SECTION 25. Equity Investments of a Universal Bank in
pertinent laws. Financial Allied Enterprises. — A universal bank can own


up to one hundred percent (100%) of the equity in a thrift

bank, a rural bank or a financial allied enterprise. ARTICLE III Provisions Applicable to All Banks,
A publicly-listed universal or commercial bank may own Quasi-Banks, and Trust Entities
up to one hundred percent (100%) of the voting stock of SECTION 33. Acceptance of Demand Deposits. — A bank
only one other universal or commercial bank. (21-B; 21-Ca) other than a universal or commercial bank cannot accept
SECTION 26. Equity Investments of a Universal Bank in or create demand deposits except upon prior approval of,
Non-Financial Allied Enterprises. — A universal bank and subject to such conditions and rules as may be
may own up to one hundred percent (100%) of the equity prescribed by the Monetary Board. (72-Aa)
in a non-financial allied enterprise. (21-Ba) SECTION 34. Risk-Based Capital. — The Monetary Board
SECTION 27. Equity Investments of a Universal Bank in shall prescribe the minimum ratio which the net worth of
Non-Allied Enterprises. — The equity investment of a a bank must bear to its total risk assets which may
universal bank, or of its wholly or majority-owned include contingent accounts.
subsidiaries, in a single non-allied enterprise shall not For purposes of this Section, the Monetary Board may
exceed thirty-five percent (35%) of the total equity in that require that such ratio be determined on the basis of the
enterprise nor shall it exceed thirty-five percent (35%) of net worth and risk assets of a bank and its subsidiaries,
the voting stock in that enterprise. (21-B) financial or otherwise, as well as prescribe the
SECTION 28. Equity Investments in Quasi-Banks. — To composition and the manner of determining the net
promote competitive conditions in financial markets, the worth and total risk assets of banks and their subsidiaries:
Monetary Board may further limit to forty percent (40%) Provided, That in the exercise of this authority, the
equity investments of universal banks in quasi-banks. This Monetary Board shall, to the extent feasible, conform to
rule shall also apply in the case of commercial banks. internationally accepted standards, including those of the
(12-E) Bank for International Settlements (BIS), relating to
risk-based capital requirements: Provided, further, That it
may alter or suspend compliance with such ratio
ARTICLE II Operations of Commercial Banks whenever necessary for a maximum period of one (1) year:
SECTION 29. Powers of a Commercial Bank. — A Provided, finally, That such ratio shall be applied
commercial bank shall have, in addition to the general uniformly to banks of the same category.
powers incident to corporations, all such powers as may In case a bank does not comply with the prescribed
be necessary to carry on the business of commercial minimum ratio, the Monetary Board may limit or prohibit
banking, such as accepting drafts and issuing letters of the distribution of net profits by such bank and may
credit; discounting and negotiating promissory notes, require that part or all of the net profits be used to
drafts, bills of exchange, and other evidences of debt; increase the capital accounts of the bank until the
accepting or creating demand deposits; receiving other minimum requirement has been met. The Monetary
types of deposits and deposit substitutes; buying and Board may, furthermore, restrict or prohibit the
selling foreign exchange and gold or silver bullion; acquisition of major assets and the making of new
acquiring marketable bonds and other debt securities; investments by the bank, with the exception of purchases
and extending credit, subject to such rules as the of readily marketable evidences of indebtedness of the
Monetary Board may promulgate. These rules may Republic of the Philippines and of the Bangko Sentral
include the determination of bonds and other debt and any other evidences of indebtedness or obligations
securities eligible for investment, the maturities and the servicing and repayment of which are fully
aggregate amount of such investment. (21a) guaranteed by the Republic of the Philippines, until the
SECTION 30. Equity Investments of a Commercial Bank. minimum required capital ratio has been restored.
— A commercial bank may, subject to the conditions In case of a bank merger or consolidation, or when a bank
stated in the succeeding paragraphs, invest only in the is under rehabilitation under a program approved by the
equities of allied enterprises as may be determined by the Bangko Sentral, the Monetary Board may temporarily
Monetary Board. Allied enterprises may either be relieve the surviving bank, consolidated bank, or
financial or non-financial. constituent bank or corporations under rehabilitation
Except as the Monetary Board may otherwise prescribe: from full compliance with the required capital ratio under
such conditions as it may prescribe.
30.1. The total investment in equities of allied enterprises
shall not exceed thirty-five percent (35%) of the net worth Before the effectivity of the rules which the Monetary
of the bank; and Board is authorized to prescribe under this provision,
Section 22 of the General Banking Act, as amended,
30.2. The equity investment in any one enterprise shall Section 9 of the Thrift Banks Act, and all pertinent rules
not exceed twenty-five percent (25%) of the net worth of issued pursuant thereto, shall continue to be in force.
the bank. (22a)
The acquisition of such equity or equities is subject to the SECTION 35. Limit on Loans, Credit Accommodations
prior approval of the Monetary Board which shall and Guarantees. —
promulgate appropriate guidelines to govern such
investments. (21A-a; 21-Ca) 35.1. Except as the Monetary Board may otherwise
prescribe for reasons of national interest, the total
SECTION 31. Equity Investments of a Commercial Bank amount of loans, credit accommodations and guarantees
in Financial Allied Enterprises. — A commercial bank as may be defined by the Monetary Board that may be
may own up to one hundred percent (100%) of the equity extended by a bank to any person, partnership,
of a thrift bank or a rural bank. association, corporation or other entity shall at no time
Where the equity investment of a commercial bank is in exceed twenty percent (20%) of the net worth of such
other financial allied enterprises, including another bank. The basis for determining compliance with
commercial bank, such investment shall remain a single-borrower limit is the total credit commitment of
minority holding in that enterprise. (21-Aa; 21-Ca) the bank to the borrower.
SECTION 32. Equity Investments of a Commercial Bank 35.2. Unless the Monetary Board prescribes otherwise, the
in Non-Financial Allied Enterprises. — A commercial total amount of loans, credit accommodations and
bank may own up to one hundred percent (100%) of the guarantees prescribed in the preceding paragraph may
equity in a non-financial allied enterprise. (21-Aa) be increased by an additional ten percent (10%) of the net
worth of such bank provided the additional liabilities of
any borrower are adequately secured by trust receipts,
shipping documents, warehouse receipts or other similar
documents transferring or securing title covering readily


marketable, non-perishable goods which must be fully provisions of this Section may be declared vacant and the
covered by insurance. director or officer shall be subject to the penal provisions
35.3. The above prescribed ceilings shall include: (a) the of the New Central Bank Act.
direct liability of the maker or acceptor of paper The Monetary Board may regulate the amount of loans,
discounted with or sold to such bank and the liability of a credit accommodations and guarantees that may be
general indorser, drawer or guarantor who obtains a loan extended, directly or indirectly, by a bank to its directors,
or other credit accommodation from or discounts paper officers, stockholders and their related interests, as well as
with or sells papers to such bank; (b) in the case of an investments of such bank in enterprises owned or
individual who owns or controls a majority interest in a controlled by said directors, officers, stockholders and
corporation, partnership, association or any other entity, their related interests. However, the outstanding loans,
the liabilities of said entities to such bank; (c) in the case credit accommodations and guarantees which a bank
of a corporation, all liabilities to such bank of all may extend to each of its stockholders, directors, or
subsidiaries in which such corporation owns or controls a officers and their related interests, shall be limited to an
majority interest; and (d) in the case of a partnership, amount equivalent to their respective unencumbered
association or other entity, the liabilities of the members deposits and book value of their paid-in capital
thereof to such bank. contribution in the bank: Provided, however, That loans,
35.4. Even if a parent corporation, partnership, association, credit accommodations and guarantees secured by
entity or an individual who owns or controls a majority assets considered as non-risk by the Monetary Board shall
interest in such entities has no liability to the bank, the be excluded from such limit: Provided, further, That loans,
Monetary Board may prescribe the combination of the credit accommodations and advances to officers in the
liabilities of subsidiary corporations or members of the form of fringe benefits granted in accordance with rules
partnership, association, entity or such individual under as may be prescribed by the Monetary Board shall not be
certain circumstances, including but not limited to any of subject to the individual limit.
the following situations: (a) the parent corporation, The Monetary Board shall define the term "related
partnership, association, entity or individual guarantees interests."
the repayment of the liabilities; (b) the liabilities were The limit on loans, credit accommodations and
incurred for the accommodation of the parent guarantees prescribed herein shall not apply to loans,
corporation or another subsidiary or of the partnership or credit accommodations and guarantees extended by a
association or entity or such individual; or (c) the cooperative bank to its cooperative shareholders. (83a)
subsidiaries though separate entities operate merely as
departments or divisions of a single entity. SECTION 37. Loans and Other Credit Accommodations
Against Real Estate. — Except as the Monetary Board
35.5. For purposes of this Section, loans, other credit may otherwise prescribe, loans and other credit
accommodations and guarantees shall exclude: (a) loans accommodations against real estate shall not exceed
and other credit accommodations secured by obligations seventy-five percent (75%) of the appraised value of the
of the Bangko Sentral or of the Philippine Government; respective real estate security, plus sixty percent (60%) of
(b) loans and other credit accommodations fully the appraised value of the insured improvements, and
guaranteed by the government as to the payment of such loans may be made to the owner of the real estate
principal and interest; (c) loans and other credit or to his assignees. (78a)
accommodations covered by assignment of deposits
maintained in the lending bank and held in the SECTION 38. Loans and Other Credit Accommodations
Philippines; (d) loans, credit accommodations and on Security of Chattels and Intangible Properties. —
acceptances under letters of credit to the extent covered Except as the Monetary Board may otherwise prescribe,
by margin deposits; and (e) other loans or credit loans and other credit accommodations on security of
accommodations which the Monetary Board may from chattels and intangible properties, such as, but not
time to time, specify as non-risk items. limited to, patents, trademarks, trade names, and
copyrights shall not exceed seventy-five percent (75%) of
35.6. Loans and other credit accommodations, deposits the appraised value of the security, and such loans and
maintained with, and usual guarantees by a bank to any other credit accommodations may be made to the
other bank or non-bank entity, whether locally or abroad, title-holder of the chattels and intangible properties or
shall be subject to the limits as herein prescribed. his assignees. (78a)
35.7. Certain types of contingent accounts of borrowers SECTION 39. Grant and Purpose of Loans and Other
may be included among those subject to these Credit Accommodations. — A bank shall grant loans and
prescribed limits as may be determined by the Monetary other credit accommodations only in amounts and for
Board. (23a) the periods of time essential for the effective completion
SECTION 36. Restriction on Bank Exposure to Directors, of the operations to be financed. Such grant of loans and
Officers, Stockholders and Their Related Interests. — No other credit accommodations shall be consistent with
director or officer of any bank shall, directly or indirectly, safe and sound banking practices. (75a)
for himself or as the representative or agent of others, The purpose of all loans and other credit
borrow from such bank nor shall he become a guarantor, accommodations shall be stated in the application and in
indorser or surety for loans from such bank to others, or in the contract between the bank and the borrower. If the
any manner be an obligor or incur any contractual liability bank finds that the proceeds of the loan or other credit
to the bank except with the written approval of the accommodation have been employed, without its
majority of all the directors of the bank, excluding the approval, for purposes other than those agreed upon with
director concerned: Provided, That such written approval the bank, it shall have the right to terminate the loan or
shall not be required for loans, other credit other credit accommodation and demand immediate
accommodations and advances granted to officers under repayment of the obligation. (77)
a fringe benefit plan approved by the Bangko Sentral.
The required approval shall be entered upon the records SECTION 40. Requirement for Grant of Loans or Other
of the bank and a copy of such entry shall be transmitted Credit Accommodations. — Before granting a loan or
forthwith to the appropriate supervising and examining other credit accommodation, a bank must ascertain that
department of the Bangko Sentral. the debtor is capable of fulfilling his commitments to the
bank.
Dealings of a bank with any of its directors, officers or
stockholders and their related interests shall be upon Toward this end, a bank may demand from its credit
terms not less favorable to the bank than those offered to applicants a statement of their assets and liabilities and
others. of their income and expenditures and such information
as may be prescribed by law or by rules and regulations of
After due notice to the board of directors of the bank, the Monetary Board to enable the bank to properly evaluate
office of any bank director or officer who violates the the credit application which includes the corresponding



financial statements submitted for taxation purposes to educational institutions, cooperatives, hospitals and other

the Bureau of Internal Revenue. Should such statements medical services, socialized or low-cost housing, local
prove to be false or incorrect in any material detail, the government units and other activities with social content.
bank may terminate any loan or other credit (n)
accommodation granted on the basis of said statements SECTION 47. Foreclosure of Real Estate Mortgage. — In
and shall have the right to demand immediate the event of foreclosure, whether judicially or
repayment or liquidation of the obligation. extrajudicially, of any mortgage on real estate which is
In formulating rules and regulations under this Section, security for any loan or other credit accommodation
the Monetary Board shall recognize the peculiar granted, the mortgagor or debtor whose real property
characteristics of microfinancing, such as cash has been sold for the full or partial payment of his
flow-based lending to the basic sectors that are not obligation shall have the right within one year after the
covered by traditional collateral. (76a) sale of the real estate, to redeem the property by paying
SECTION 41. Unsecured Loans or Other Credit the amount due under the mortgage deed, with interest
Accommodations. — The Monetary Board is hereby thereon at the rate specified in the mortgage, and all the
authorized to issue such regulations as it may deem costs and expenses incurred by the bank or institution
necessary with respect to unsecured loans or other credit from the sale and custody of said property less the
accommodations that may be granted by banks. (n) income derived therefrom. However, the purchaser at the
auction sale concerned whether in a judicial or
SECTION 42. Other Security Requirements for Bank extrajudicial foreclosure shall have the right to enter upon
Credits. — The Monetary Board may, by regulation, and take possession of such property immediately after
prescribe further security requirements to which the the date of the confirmation of the auction sale and
various types of bank credits shall be subject, and, in administer the same in accordance with law. Any petition
accordance with the authority granted to it in Section 106 in court to enjoin or restrain the conduct of foreclosure
of the New Central Bank Act, the Board may by proceedings instituted pursuant to this provision shall be
regulation, reduce the maximum ratios established in given due course only upon the filing by the petitioner of
Sections 36 and 37 of this Act, or, in special cases, increase a bond in an amount fixed by the court conditioned that
the maximum ratios established therein. (78) he will pay all the damages which the bank may suffer by
SECTION 43. Authority to Prescribe Terms and the enjoining or the restraint of the foreclosure
Conditions of Loans and Other Credit proceeding.
Accommodations. — The Monetary Board may, similarly, Notwithstanding Act 3135, juridical persons whose
in accordance with the authority granted to it in Section property is being sold pursuant to an extrajudicial
106 of the New Central Bank Act, and taking into account foreclosure, shall have the right to redeem the property in
the requirements of the economy for the effective accordance with this provision until, but not after, the
utilization of long-term funds, prescribe the maturities, as registration of the certificate of foreclosure sale with the
well as related terms and conditions for various types of applicable Register of Deeds which in no case shall be
bank loans and other credit accommodations. Any more than three (3) months after foreclosure, whichever is
change by the Board in the maximum maturities shall earlier. Owners of property that has been sold in a
apply only to loans and other credit accommodations foreclosure sale prior to the effectivity of this Act shall
made after the date of such action. retain their redemption rights until their expiration. (78a)
The Monetary Board shall regulate the interest imposed SECTION 48. Renewal or Extension of Loans and Other
on microfinance borrowers by lending investors and Credit Accommodations. — The Monetary Board may, by
similar lenders, such as, but not limited to, the regulation, prescribe the conditions and limitations under
unconscionable rates of interest collected on salary loans which a bank may grant extensions or renewals of its
and similar credit accommodations. (78a) loans and other credit accommodations. (81)
SECTION 44. Amortization on Loans and Other Credit SECTION 49. Provisions for Losses and Write-Offs. — All
Accommodations. — The amortization schedule of bank debts due to any bank on which interest is past due and
loans and other credit accommodations shall be adapted unpaid for such period as may be determined by the
to the nature of the operations to be financed. Monetary Board, unless the same are well-secured and in
In case of loans and other credit accommodations with the process of collection shall be considered bad debts
maturities of more than five (5) years, provisions must be within the meaning of this Section.
made for periodic amortization payments, but such The Monetary Board may fix, by regulation or by order in
payments must be made at least annually: Provided, a specific case, the amount of reserves for bad debts or
however, That when the borrowed funds are to be used doubtful accounts or other contingencies.
for purposes which do not initially produce revenues
adequate for regular amortization payments therefrom, Writing off of loans, other credit accommodations,
the bank may permit the initial amortization payment to advances and other assets shall be subject to regulations
be deferred until such time as said revenues are sufficient issued by the Monetary Board. (84a)
for such purpose, but in no case shall the initial SECTION 50. Major Investments. — For the purpose of
amortization date be later than five (5) years from the enhancing bank supervision, the Monetary Board shall
date on which the loan or other credit accommodation is establish criteria for reviewing major acquisitions or
granted. (79a) investments by a bank including corporate affiliations or
In case of loans and other credit accommodations to structures that may expose the bank to undue risks or in
microfinance sectors, the schedule of loan amortization any way hinder effective supervision.
shall take into consideration the projected cash flow of SECTION 51. Ceiling on Investments in Certain Assets. —
the borrower and adopt this into the terms and Any bank may acquire real estate as shall be necessary for
conditions formulated by banks. (n) its own use in the conduct of its business: Provided,
SECTION 45. Prepayment of Loans and Other Credit however, That the total investment in such real estate and
Accommodations. — A borrower may at any time prior to improvements thereof, including bank equipment, shall
the agreed maturity date prepay, in whole or in part, the not exceed fifty percent (50%) of combined capital
unpaid balance of any bank loan and other credit accounts: Provided, further, That the equity investment of
accommodation, subject to such reasonable terms and a bank in another corporation engaged primarily in real
conditions as may be agreed upon between the bank and estate shall be considered as part of the bank's total
its borrower. (80a) investment in real estate, unless otherwise provided by
the Monetary Board. (25a)
SECTION 46. Development Assistance Incentives. — The
Bangko Sentral shall provide incentives to banks which, SECTION 52. Acquisition of Real Estate by Way of
without government guarantee, extend loans to finance Satisfaction of Claims. — Notwithstanding the
limitations of the preceding Section, a bank may acquire,



hold or convey real property under the following (d) Overvalue or aid in overvaluing any security for the
circumstances: purpose of influencing in any way the actions of the bank
52.1. Such as shall be mortgaged to it in good faith by way or any bank; or
of security for debts; (e) Outsource inherent banking functions.
52.2. Such as shall be conveyed to it in satisfaction of 55.2. No borrower of a bank shall — (a) Fraudulently
debts previously contracted in the course of its dealings; overvalue property offered as security for a loan or other
or credit accommodation from the bank;
52.3. Such as it shall purchase at sales under judgments, (b) Furnish false or make misrepresentation or
decrees, mortgages, or trust deeds held by it and such as suppression of material facts for the purpose of obtaining,
it shall purchase to secure debts due it. renewing, or increasing a loan or other credit
Any real property acquired or held under the accommodation or extending the period thereof;
circumstances enumerated in the above paragraph shall (c) Attempt to defraud the said bank in the event of a
be disposed of by the bank within a period of five (5) years court action to recover a loan or other credit
or as may be prescribed by the Monetary Board: Provided, accommodation; or
however, That the bank may, after said period, continue to (d) Offer any director, officer, employee or agent of a bank
hold the property for its own use, subject to the any gift, fee, commission, or any other form of
limitations of the preceding Section. (25a) compensation in order to influence such persons into
SECTION 53. Other Banking Services. — In addition to approving a loan or other credit accommodation
the operations specifically authorized in this Act, a bank application.
may perform the following services: 55.3. No examiner, officer or employee of the Bangko
53.1. Receive in custody funds, documents and valuable Sentral or of any department, bureau, office, branch or
objects; agency of the Government that is assigned to supervise,
53.2. Act as financial agent and buy and sell, by order of examine, assist or render technical assistance to any bank
and for the account of their customers, shares, evidences shall commit any of the acts enumerated in this Section
of indebtedness and all types of securities; or aid in the commission of the same. (87-Aa)
53.3. Make collections and payments for the account of The making of false reports or misrepresentation or
others and perform such other services for their suppression of material facts by personnel of the Bangko
customers as are not incompatible with banking Sentral ng Pilipinas shall constitute fraud and shall be
business; subject to the administrative and criminal sanctions
provided under the New Central Bank Act.
53.4. Upon prior approval of the Monetary Board, act as
managing agent, adviser, consultant or administrator of 55.4. Consistent with the provisions of Republic Act No.
investment management/advisory/consultancy accounts; 1405, otherwise known as the Banks Secrecy Law, no
and bank shall employ casual or nonregular personnel or too
lengthy probationary personnel in the conduct of its
53.5. Rent out safety deposit boxes. business involving bank deposits.
The bank shall perform the services permitted under SECTION 56. Conducting Business in an Unsafe or
Subsections 53.1, 53.2, 53.3 and 53.4 as depositary or as an Unsound Manner. — In determining whether a particular
agent. Accordingly, it shall keep the funds, securities and act or omission, which is not otherwise prohibited by any
other effects which it receives duly separate from the law, rule or regulation affecting banks, quasi-banks or
bank's own assets and liabilities. trust entities, may be deemed as conducting business in
The Monetary Board may regulate the operations an unsafe or unsound manner for purposes of this
authorized by this Section in order to ensure that such Section, the Monetary Board shall consider any of the
operations do not endanger the interests of the following circumstances:
depositors and other creditors of the bank. 56.1. The act or omission has resulted or may result in
In case a bank or quasi-bank notifies the Bangko Sentral material loss or damage, or abnormal risk or danger to
or publicly announces a bank holiday, or in any manner the safety, stability, liquidity or solvency of the institution;
suspends the payment of its deposit liabilities 56.2. The act or omission has resulted or may result in
continuously for more than thirty (30) days, the Monetary material loss or damage or abnormal risk to the
Board may summarily and without need for prior hearing institution's depositors, creditors, investors, stockholders
close such banking institution and place it under or to the Bangko Sentral or to the public in general;
receivership of the Philippine Deposit Insurance
Corporation. (72a) 56.3. The act or omission has caused any undue injury, or
has given any unwarranted benefits, advantage or
SECTION 54. Prohibition to Act as Insurer. — A bank preference to the bank or any party in the discharge by
shall not directly engage in insurance business as the the director or officer of his duties and responsibilities
insurer. (73) through manifest partiality, evident bad faith or gross
SECTION 55. Prohibited Transactions. — inexcusable negligence; or
55.1. No director, officer, employee, or agent of any bank 56.4. The act or omission involves entering into any
shall — (a) Make false entries in any bank report or contract or transaction manifestly and grossly
statement or participate in any fraudulent transaction, disadvantageous to the bank, quasi-bank or trust entity,
thereby affecting the financial interest of, or causing whether or not the director or officer profited or will
damage to, the bank or any person; profit thereby.
(b) Without order of a court of competent jurisdiction, Whenever a bank, quasi-bank or trust entity persists in
disclose to any unauthorized person any information conducting its business in an unsafe or unsound manner,
relative to the funds or properties in the custody of the the Monetary Board may, without prejudice to the
bank belonging to private individuals, corporations, or any administrative sanctions provided in Section 37 of the
other entity: Provided, That with respect to bank deposits, New Central Bank Act, take action under Section 30 of
the provisions of existing laws shall prevail; the same Act and/or immediately exclude the erring bank
from clearing, the provisions of law to the contrary
(c) Accept gifts, fees or commissions or any other form of notwithstanding. (n)
remuneration in connection with the approval of a loan or
other credit accommodation from said bank; SECTION 57. Prohibition on Dividend Declaration. — No
bank or quasi-bank shall declare dividends greater than
its accumulated net profits then on hand, deducting
therefrom its losses and bad debts. Neither shall the bank


nor quasi-bank declare dividends, if at the time of prescribe the complete set of its audited financial
declaration: statements as well as such other relevant information
57.1 Its clearing account with the Bangko Sentral is including those on enterprises majority-owned or
overdrawn; or controlled by the bank, that will inform the public of the
true financial condition of a bank as of any given time.
57.2 It is deficient in the required liquidity floor for
government deposits for five (5) or more consecutive In periods of national and/or local emergency or of
days; or imminent panic which directly threaten monetary and
banking stability, the Monetary Board, by a vote of at least
57.3 It does not comply with the liquidity standards/ratios five (5) of its members, in special cases and upon
prescribed by the Bangko Sentral for purposes of application of the bank, quasi-bank or trust entity, may
determining funds available for dividend declaration; or allow such bank, quasi-bank or trust entity to defer for a
57.4 It has committed a major violation as may be stated period of time the publication of the statement of
determined by the Bangko Sentral. (84a) financial condition required herein. (n)
SECTION 58. Independent Auditor. — The Monetary SECTION 62. Publication of Capital Stock. — A bank,
Board may require a bank, quasi-bank or trust entity to quasi-bank or trust entity incorporated under the laws of
engage the services of an independent auditor to be the Philippines shall not publish the amount of its
chosen by the bank, quasi-bank or trust entity concerned authorized or subscribed capital stock without indicating
from a list of certified public accountants acceptable to at the same time and with equal prominence, the
the Monetary Board. The term of the engagement shall amount of its capital actually paid up.
be as prescribed by the Monetary Board which may No branch of any foreign bank doing business in the
either be on a continuing basis where the auditor shall Philippines shall in any way announce the amount of the
act as resident examiner, or on the basis of special capital and surplus of its head office, or of the bank in its
engagements; but in any case, the independent auditor entirety without indicating at the same time and with
shall be responsible to the bank's, quasi-bank's or trust equal prominence the amount of the capital, if any,
entity's board of directors. A copy of the report shall be definitely assigned to such branch. In case no capital has
furnished to the Monetary Board. The Monetary Board been definitely assigned to such branch, such fact shall
may also direct the board of directors of a bank, be stated in, and shall form part of the publication. (82)
quasi-bank, trusty entity and/or the individual members
thereof, to conduct, either personally or by a committee SECTION 63. Settlement of Disputes. — The provisions of
created by the board, an annual balance sheet audit of any law to the contrary notwithstanding, the Bangko
the bank, quasi-bank or trust entity to review the internal Sentral shall be consulted by other government agencies
audit and control system of the bank, quasi-bank or trust or instrumentalities in actions or proceedings initiated by
entity and to submit a report of such audit. (6-Da) or brought before them involving controversies in banks,
quasi-banks or trust entities arising out of and involving
SECTION 59. Authority to Regulate Electronic relations between and among their directors, officers or
Transactions. — The Bangko Sentral shall have full stockholders, as well as disputes between any or all of
authority to regulate the use of electronic devices, such as them and the bank, quasi-bank or trust entity of which
computers, and processes for recording, storing and they are directors, officers or stockholders. (n)
transmitting information or data in connection with the
operations of a bank, quasi-bank or trust entity, including SECTION 64. Unauthorized Advertisement or Business
the delivery of services and products to customers by Representation. — No person, association, or corporation
such entity. (n) unless duly authorized to engage in the business of a
bank, quasi-bank, trust entity, or savings and loan
SECTION 60. Financial Statements. — Every bank, association as defined in this Act, or other banking laws,
quasi-bank or trust entity shall submit to the appropriate shall advertise or hold itself out as being engaged in the
supervising and examining department of the Bangko business of such bank, quasi-bank, trust entity, or
Sentral financial statements in such form and frequency association, or use in connection with its business title,
as may be prescribed by the Bangko Sentral. Such the word or words "bank", "banking", "banker",
statements, which shall be as of a specific date "quasi-bank", "quasi-banking", "quasi-banker", "savings
designated by the Bangko Sentral, shall show the actual and loan association", "trust corporation", "trust company"
financial condition of the institution submitting the or words of similar import or transact in any manner the
statement, and of its branches, offices, subsidiaries and business of any such bank, corporation or association. (6)
affiliates, including the results of its operations, and shall
contain such information as may be required in Bangko SECTION 65. Service Fees. — The Bangko Sentral may
Sentral regulations. (n) charge equitable rates, commissions or fees, as may be
prescribed by the Monetary Board for supervision,
SECTION 61. Publication of Financial Statements. — examination and other services which it renders under
Every bank, quasi-bank or trust entity, shall publish a this Act. (n)
statement of its financial condition, including those of its
subsidiaries and affiliates, in such terms understandable SECTION 66. Penalty for Violation of this Act. — Unless
to the layman and in such frequency as may be otherwise herein provided, the violation of any of the
prescribed by the Bangko Sentral, in English or Filipino, at provisions of this Act shall be subject to Sections 34, 35, 36
least once every quarter in a newspaper of general and 37 of the New Central Bank Act. If the offender is a
circulation in the city or province where the principal director or officer of a bank, quasi-bank or trust entity, the
office, in the case of a domestic institution, or the Monetary Board may also suspend or remove such
principal branch or office in the case of a foreign bank, is director or officer. If the violation is committed by a
located, but if no newspaper is published in the same corporation, such corporation may be dissolved by quo
province, then in a newspaper published in Metro Manila warranto proceedings instituted by the Solicitor General.
or in the nearest city or province. (87)
The Bangko Sentral may by regulation prescribe the

newspaper where the statements prescribed herein shall CHAPTER V Placement Under Conservatorship
be published.
SECTION 67. Conservatorship. — The grounds and
The Monetary Board may allow the posting of the procedures for placing a bank under conservatorship, as
financial statements of a bank, quasi-bank or trust entity well as, the powers and duties of the conservator
in public places it may determine, in lieu of the appointed for the bank shall be governed by the
publication required in the preceding paragraph, when provisions of Section 29 and the last two paragraphs of
warranted by the circumstances. Section 30 of the New Central Bank Act:Provided, That
Additionally, banks shall make available to the public in this Section shall also apply to conservatorship
such form and manner as the Bangko Sentral may proceedings of quasi-banks. (n)


bank organized under the laws of the Republic of the
Philippines.
CHAPTER VI Cessation of Banking Business
Within the same period, the Monetary Board may
SECTION 68. Voluntary Liquidation. — In case of the authorize any foreign bank, which prior to the effectivity
voluntary liquidation of any bank organized under the of this Act availed itself of the privilege to acquire up to
laws of the Philippines, or of any branch or office in the sixty percent (60%) of the voting stock of a bank under
Philippines of a foreign bank, written notice of such the Foreign Banks Liberalization Act and the Thrift Banks
liquidation shall be sent to the Monetary Board before Act, to further acquire voting shares of such bank to the
such liquidation is undertaken, and the Monetary Board extent necessary for it to own one hundred percent
shall have the right to intervene and take such steps as (100%) of the voting stock thereof.
may be necessary to protect the interests of creditors. (86)
In the exercise of this authority, the Monetary Board shall
SECTION 69. Receivership and Involuntary Liquidation. adopt measures as may be necessary to ensure that at all
— The grounds and procedures for placing a bank under times the control of seventy percent (70%) of the
receivership or liquidation, as well as the powers and resources or assets of the entire banking system is held
duties of the receiver or liquidator appointed for the bank by banks which are at least majority-owned by Filipinos.
shall be governed by the provisions of Sections 30, 31, 32,
and 33 of the New Central Bank Act:Provided, That the Any right, privilege or incentive granted to a foreign bank
petitioner or plaintiff files with the clerk or judge of the under this Section shall be equally enjoyed by and
court in which the action is pending a bond, executed in extended under the same conditions to banks organized
favor of the Bangko Sentral, in an amount to be fixed by under the laws of the Republic of the Philippines. (Secs. 2
the court. This Section shall also apply to the extent and 3, RA 7721)
possible to the receivership and liquidation proceedings SECTION 74. Local Branches of Foreign Banks. — In the
of quasi-banks. (n) case of a foreign bank which has more than one (1)
SECTION 70. Penalty for Transactions After a Bank branch in the Philippines, all such branches shall be
Becomes Insolvent. — Any director or officer of any bank treated as one (1) unit for the purpose of this Act, and all
declared insolvent or placed under receivership by the references to the Philippine branches of foreign banks
Monetary Board who refuses to turn over the bank's shall be held to refer to such units. (68)
records and assets to the designated receivers, or who SECTION 75. Head Office Guarantee. — In order to
tampers with banks records, or who appropriates for provide effective protection of the interests of the
himself or another party or destroys or causes the depositors and other creditors of Philippine branches of a
misappropriation and destruction of the bank's assets, or foreign bank, the head office of such branches shall fully
who receives or permits or causes to be received in said guarantee the prompt payment of all liabilities of its
bank any deposit, collection of loans and/or receivables, or Philippine branch. (69)
who pays out or permits or causes to be paid out any
funds of said bank, or who transfers or permits or causes Residents and citizens of the Philippines who are
to be transferred any securities or property of said bank creditors of a branch in the Philippines of a foreign bank
shall be subject to the penal provisions of the New shall have preferential rights to the assets of such branch
Central Bank Act. (85a) in accordance with existing laws. (19)
SECTION 76. Summons and Legal Process. — Summons
and legal process served upon the Philippine agent or
CHAPTER VII Laws Governing Other Types of head of any foreign bank designated to accept service
Banks thereof shall give jurisdiction to the courts over such
bank, and service of notices on such agent or head shall
SECTION 71. Other Banking Laws. — The organization, be as binding upon the bank which he represents as if
ownership and capital requirements, powers, supervision made upon the bank itself.
and general conduct of business of thrift banks, rural
banks and cooperative banks shall be governed by the Should the authority of such agent or head to accept
provisions of the Thrift Banks Act, the Rural Banks Act, service of summons and legal processes for the bank or
and the Cooperative Code, respectively. notice to it be revoked, or should such agent or head
become mentally incompetent or otherwise unable to
The organization, ownership and capital requirements, accept service while exercising such authority, it shall be
powers, supervision and general conduct of business of the duty of the bank to name and designate promptly
Islamic banks shall be governed by special laws. another agent or head upon whom service of summons
The provisions of this Act, however, insofar as they are not and processes in legal proceedings against the bank and
in conflict with the provisions of the Thrift Banks Act, the of notices affecting the bank may be made, and to file
Rural Banks Act, and the Cooperative Code shall likewise with the Securities and Exchange Commission a duly
apply to thrift banks, rural banks, and cooperative banks, authenticated nomination of such agent.
respectively. However, for purposes of prescribing the In the absence of the agent or head or should there be no
minimum ratio which the net worth of a thrift bank must person authorized by the bank upon whom service of
bear to its total risk assets, the provisions of Section 33 of summons, processes and all legal notices may be made,
this Act shall govern. (n) service of summons, processes and legal notices may be
made upon the Bangko Sentral Deputy Governor
In-Charge of the supervising and examining departments
CHAPTER VIII Foreign Banks and such service shall be as effective as if made upon the
SECTION 72. Transacting Business in the Philippines. — bank or its duly authorized agent or head.
The entry of foreign banks in the Philippines through the In case of service for the bank upon the Bangko Sentral
establishment of branches shall be governed by the Deputy Governor In-Charge of the supervising and
provisions of the Foreign Banks Liberalization Act. examining departments, the said Deputy Governor shall
The conduct of offshore banking business in the register and transmit by mail to the president or the
Philippines shall be governed by the provisions of the secretary of the bank at its head or principal office a copy,
Presidential Decree No. 1034, otherwise known as the duly certified by him, of the summons, process, or notice.
"Offshore Banking System Decree." (14a) The sending of such copy of the summons, process, or
notice shall be a necessary part of the services and shall
SECTION 73. Acquisition of Voting Stock in a Domestic complete the service. The registry receipt of mailing shall
Bank. — Within seven (7) years from the effectivity of this be prima facie evidence of the transmission of the
Act and subject to guidelines issued pursuant to the summons, process or notice. All costs necessarily incurred
Foreign Banks Liberalization Act, the Monetary Board by the said Deputy Governor for the making and mailing
may authorize a foreign bank to acquire up to one and sending of a copy of the summons, process, or notice
hundred percent (100%) of the voting stock of only one (1)



to the president or the secretary of the bank at its head or 83.1. Act as trustee on any mortgage or bond issued by
principal office shall be paid in advance by the party at any municipality, corporation, or any body politic and to
whose instance the service is made. (17) accept and execute any trust consistent with law;
SECTION 77. Laws Applicable. — In all matters not 83.2. Act under the order or appointment of any court as
specifically covered by special provisions applicable only guardian, receiver, trustee, or depositary of the estate of
to a foreign bank or its branches and other offices in the any minor or other incompetent person, and as receiver
Philippines, any foreign bank licensed to do business in and depositary of any moneys paid into court by parties
the Philippines shall be bound by the provisions of this to any legal proceedings and of property of any kind
Act, all other laws, rules and regulations applicable to which may be brought under the jurisdiction of the court;
banks organized under the laws of the Philippines of the 83.3. Act as the executor of any will when it is named the
same class, except those that provide for the creation, executor thereof;
formation, organization or dissolution of corporations or
for the fixing of the relations, liabilities, responsibilities, or 83.4. Act as administrator of the estate of any deceased
duties of stockholders, members, directors or officers of person, with the will annexed, or as administrator of the
corporations to each other or to the corporation. (18) estate of any deceased person when there is no will;
SECTION 78. Revocation of License of a Foreign Bank. — 83.5. Accept and execute any trust for the holding,
The Monetary Board may revoke the license to transact management, and administration of any estate, real or
business in the Philippines of any foreign bank, if it finds personal, and the rents, issues and profits thereof; and
that the foreign bank is insolvent or in imminent danger 83.6. Establish and manage common trust funds, subject
thereof or that its continuance in business will involve to such rules and regulations as may be prescribed by the
probable loss to those transacting business with it. After Monetary Board. (58)
the revocation of its license, it shall be unlawful for any
such foreign bank to transact business in the Philippines SECTION 84. Deposit for the Faithful Performance of
unless its license is renewed or reissued. After the Trust Duties. — Before transacting trust business, every
revocation of such license, the Bangko Sentral shall take trust entity shall deposit with the Bangko Sentral as
the necessary action to protect the creditors of such security for the faithful performance of its trust duties,
foreign bank and the public. The provisions of the New cash or securities approved by the Monetary Board in an
Central Bank Act on sanctions and penalties shall likewise amount equal to not less than Five hundred thousand
be applicable. (16) pesos (P500,000.00) or such higher amount as may be
fixed by the Monetary Board: Provided, however, That the
Monetary Board shall require every trust entity to increase
CHAPTER IX Trust Operations the amount of its cash or securities on deposit with the
Bangko Sentral whenever in its judgment such increase
SECTION 79. Authority to Engage in Trust Business. — is necessary by reason of the trust business of such entity:
Only a stock corporation or a person duly authorized by Provided, further, That the paid-in capital and surplus of
the Monetary Board to engage in trust business shall act such entity must be at least equal to the amount required
as a trustee or administer any trust or hold property in to be deposited with the Bangko Sentral in accordance
trust or on deposit for the use, benefit, or behoof of with the provisions of this paragraph. Should the capital
others. For purposes of this Act, such a corporation shall and surplus fall below said amount, the Monetary Board
be referred to as a trust entity. (56a; 57a) shall have the same authority as that granted to it under
SECTION 80. Conduct of Trust Business. — A trust entity the provisions of the fifth paragraph of Section 34 of this
shall administer the funds or property under its custody Act.
with the diligence that a prudent man would exercise in A trust entity so long as it shall continue to be solvent and
the conduct of an enterprise of a like character and with comply with laws or regulations shall have the right to
similar aims. collect the interest earned on such securities deposited
No trust entity shall, for the account of the trustor or the with the Bangko Sentral and, from time to time, with the
beneficiary of the trust, purchase or acquire property approval of the Bangko Sentral, to exchange the
from, or sell, transfer, assign or lend money or property to, securities for others. If the trust entity fails to comply with
or purchase debt instruments of, any of the departments, any law or regulation, the Bangko Sentral shall retain
directors, officers, stockholders, or employees of the trust such interest on the securities deposited with it for the
entity, relatives within the first degree of consanguinity or benefit of rightful claimants. All claims arising out of the
affinity, or the related interests, of such directors, officers trust business of a trust entity shall have priority over all
and stockholders, unless the transaction is specifically other claims as regards the cash or securities deposited
authorized by the trustor and the relationship of the as above provided. The Monetary Board may not permit
trustee and the other party involved in the transaction is the cash or securities deposited in accordance with the
fully disclosed to the trustor or beneficiary of the trust provisions of this Section to be reduced below the
prior to the transaction. prescribed minimum amount until the depositing entity
shall discontinue its trust business and shall satisfy the
The Monetary Board shall promulgate such rules and Monetary Board that it has complied with all its
regulations as may be necessary to prevent obligations in connection with such business. (65a)
circumvention of this prohibition or the evasion of the
responsibility herein imposed on a trust entity. (56) SECTION 85. Bond of Certain Persons for the Faithful
Performance of Duties. — Before an executor,
SECTION 81. Registration of Articles of Incorporation administrator, guardian, trustee, receiver or depositary
and By-Laws of a Trust Entity. — The Securities and appointed by the court enters upon the execution of his
Exchange Commission shall not register the articles of duties, he shall, upon order of the court, file a bond in
incorporation and by-laws or any amendment thereto, of such sum as the court may direct.
any trust entity, unless accompanied by a certificate of
authority issued by the Bangko Sentral. (n) Upon the application of any executor, administrator,
guardian, trustee, receiver, depositary or any other person
SECTION 82. Minimum Capitalization. — A trust entity, in interest, the court may, after notice and hearing, order
before it can engage in trust or other fiduciary business, that the subject matter of the trust or any part thereof be
shall comply with the minimum paid-in capital deposited with a trust entity. Upon presentation of proof
requirement which will be determined by the Monetary to the court that the subject matter of the trust has been
Board. (n) deposited with a trust entity, the court may order that the
SECTION 83. Powers of a Trust Entity. — A trust entity, in bond given by such persons for the faithful performance
addition to the general powers incident to corporations, of their duties be reduced to such sums as it may deem
shall have the power to: proper: Provided, however, That the reduced bond shall
be sufficient to secure adequately the proper
administration and care of any property remaining under



the control of such persons and the proper accounting for building and loan associations shall continue to be

such property. governed by Sections 39 to 55, Chapter VI of the General
Property deposited with any trust entity in conformity Banking Act, as amended, including such rules and
with this Section shall be held by such entity under the regulations issued pursuant thereto. Upon assumption by
orders and direction of the court. (59) the Home Insurance and Guaranty Corporation of
supervising and regulatory powers over building and loan
SECTION 86. Exemption of Trust Entity from Bond associations, all references in Sections 39 to 55 of the
Requirement. — No bond or other security shall be General Banking Act, as amended, to the Bangko Sentral
required by the court from a trust entity for the faithful and the Monetary Board shall be deemed to refer to the
performance of its duties as court-appointed trustee, Home Insurance and Guaranty Corporation and its board
executor, administrator, guardian, receiver, or depositary. of directors, respectively. (n)
However, the court may, upon proper application with it
showing special cause therefor, require the trust entity to SECTION 95. Repealing Clause. — Except as may be
post a bond or other security for the protection of funds provided for in Sections 34 and 94 of this Act, the General
or property confided to such entity. (59) Banking Act, as amended, and the provisions of any other
law, special charters, rule or regulation issued pursuant to
SECTION 87. Separation of Trust Business from General said General Banking Act, as amended, or parts thereof,
Business. — The trust business and all funds, properties which may be inconsistent with the provisions of this Act
or securities received by any trust entity as executor, are hereby repealed. The provisions of paragraph 8,
administrator, guardian, trustee, receiver, or depositary Section 8, Republic Act No. 3591, as amended by Republic
shall be kept separate and distinct from the general Act No. 7400, are likewise repealed. (90a)
business including all other funds, properties, and assets
of such trust entity. The accounts of all such funds, SECTION 96. Separability Clause. — If any provision or
properties, or securities shall likewise be kept separate section of this Act or the application thereof to any
and distinct from the accounts of the general business of person or circumstance is held invalid, the other
the trust entity. (61) provisions or sections of this Act, and the application of
such provision or section to other persons or
SECTION 88. Investment Limitations of a Trust Entity. — circumstances, shall not be affected thereby. (n)
Unless otherwise directed by the instrument creating the
trust, the lending and investment of funds and other SECTION 97. Effectivity Clause. — This Act shall take
assets acquired by a trust entity as executor, effect fifteen (15) days following its publication in the
administrator, guardian, trustee, receiver or depositary of Official Gazette or in two (2) national newspapers of
the estate of any minor or other incompetent person shall general circulation. (91)
be limited to loans or investments as may be prescribed Approved: May 23, 2000
by law, the Monetary Board or any court of competent Published in Malaya and The Manila Times on May 29,
jurisdiction. (63a) 2000. Published in the Official Gazette, Vol. 96 No. 40,
SECTION 89. Real Estate Acquired by a Trust Entity. — page 6235 on October 2, 2000.
Unless otherwise specifically directed by the trustor or (The General Banking Law of 2000, Republic Act No.
the nature of the trust, real estate acquired by a trust 8791, [May 23, 2000])
entity in whatever manner and for whatever purpose,
shall likewise be governed by the relevant provisions of
Section 52 of this Act. (64a)
SECTION 90. Investment of Non-Trust Funds. — The
RA No 8293 | Intellectual Property Code
investment of funds other than trust funds of a trust of the Philippines
entity which is a bank, financing company or an As amended by RA No 9150, 9502, 10372
investment house shall be governed by the relevant
provisions of this Act and other applicable laws. (64)
SECTION 91. Sanctions and Penalties. — A trust entity or June 6, 1997

any of its officers and directors found to have willfully
violated any pertinent provisions of this Act, shall be AN ACT PRESCRIBING THE INTELLECTUAL PROPERTY
subject to the sanctions and penalties provided under CODE AND ESTABLISHING THE INTELLECTUAL
Section 66 of this Act as well as Sections 36 and 37 of the PROPERTY OFFICE, PROVIDING FOR ITS POWERS AND
New Central Bank Act. (63) FUNCTIONS, AND FOR OTHER PURPOSES
SECTION 92. Exemption of Trust Assets from Claims. —
No assets held by a trust entity in its capacity as trustee
shall be subject to any claims other than those of the PART I The Intellectual Property Office
parties interested in the specific trusts. (65)
SECTION 1. Title. — This Act shall be known as the
SECTION 93. Establishment of Branches of a Trust "Intellectual Property Code of the Philippines."
Entity. — The ordinary business of a trust entity shall be
SECTION 2. Declaration of State Policy. — The State
transacted at the place of business specified in its articles
recognizes that an effective intellectual and industrial
of incorporation. Such trust entity may, with prior
property system is vital to the development of domestic
approval of the Monetary Board, establish branches in the
and creative activity, facilitates transfer of technology,
Philippines, and the said entity shall be responsible for all
attracts foreign investments, and ensures market access
business conducted in such branches to the same extent
for our products. It shall protect and secure the exclusive
and in the same manner as though such business had all
rights of scientists, inventors, artists and other gifted
been conducted in the head office.
citizens to their intellectual property and creations,
For the purpose of this Act, the trust entity and its particularly when beneficial to the people, for such
branches shall be treated as one unit. (67) periods as provided in this Act.
The use of intellectual property bears a social function. To
this end, the State shall promote the diffusion of
CHAPTER X Final Provisions knowledge and information for the promotion of national
SECTION 94. Phase Out of Bangko Sentral Powers Over development and progress and the common good.
Building and Loan Associations. — Within a period of It is also the policy of the State to streamline
three (3) years from the effectivity of this Act, the Bangko administrative procedures of registering patents,
Sentral shall phase out and transfer its supervising and trademarks and copyright, to liberalize the registration on
regulatory powers over building and loan associations to the transfer of technology, and to enhance the
the Home Insurance and Guaranty Corporation which
shall assume the same. Until otherwise provided by law,



enforcement of intellectual property rights in the 6.2. The Office shall be divided into seven (7) Bureaus,
Philippines. (n) each of which shall be headed by a Director and assisted
SECTION 3. International Conventions and Reciprocity. by an Assistant Director. These Bureaus are:
— Any person who is a national or who is domiciled or has a) The Bureau of Patents;
a real and effective industrial establishment in a country b) The Bureau of Trademarks;
which is a party to any convention, treaty or agreement
relating to intellectual property rights or the repression of c) The Bureau of Legal Affairs;
unfair competition, to which the Philippines is also a d) The Documentation, Information and Technology
party, or extends reciprocal rights to nationals of the Transfer Bureau;
Philippines by law, shall be entitled to benefits to the
extent necessary to give effect to any provision of such e) The Management Information System and EDP
convention, treaty or reciprocal law, in addition to the Bureau;
rights to which any owner of an intellectual property right f) The Administrative, Financial and Personnel Services
is otherwise entitled by this Act. (n) Bureau; and
SECTION 4. Definitions. — 4.1. The term "intellectual (g) The Bureau of Copyright and Other Related Rights.
property rights" consists of: (as amended by RA No 10372)
a) Copyright and Related Rights; 6.3. The Director General, Deputies Director General,
b) Trademarks and Service Marks; Directors and Assistant Directors shall be appointed by
the President, and the other officers and employees of
c) Geographic Indications; the Office by the Secretary of Trade and Industry,
d) Industrial Designs; conformably with and under the Civil Service Law. (n)
e) Patents; SECTION 7. The Director General and Deputies Director
General. — 7.1. Functions. — The Director General shall
f) Layout-Designs (Topographies) of Integrated Circuits; exercise the following powers and functions:
and
a) Manage and direct all functions and activities of the
g) Protection of Undisclosed Information (n, TRIPS). Office, including the promulgation of rules and
4.2. The term "technology transfer arrangements" refers regulations to implement the objectives, policies, plans,
to contracts or agreements involving the transfer of programs and projects of the Office: Provided, That in the
systematic knowledge for the manufacture of a product, exercise of the authority to propose policies and
the application of a process, or rendering of a service standards in relation to the following: (1) the effective,
including management contracts; and the transfer, efficient, and economical operations of the Office
assignment or licensing of all forms of intellectual requiring statutory enactment; (2) coordination with
property rights, including licensing of computer software other agencies of government in relation to the
except computer software developed for mass market. enforcement of intellectual property rights; (3) the
4.3. The term "Office" refers to the Intellectual Property recognition of attorneys, agents, or other persons
Office created by this Act. representing applicants or other parties before the Office;
and (4) the establishment of fees for the filing and
4.4. The term "IPO Gazette" refers to the gazette processing of an application for a patent, utility model or
published by the Office under this Act. (n) industrial design or mark or a collective mark, geographic
SECTION 5. Functions of the Intellectual Property Office indication and other marks of ownership, and for all other
(IPO). — 5.1. To administer and implement the State services performed and materials furnished by the Office,
policies declared in this Act, there is hereby created the the Director General shall be subject to the supervision of
Intellectual Property Office (IPO) which shall have the the Secretary of Trade and Industry;
following functions: b) Exercise exclusive appellate jurisdiction over all
a) Examine applications for grant of letters patent for decisions rendered by the Director of Legal Affairs, the
inventions and register utility models and industrial Director of Patents, the Director of Trademarks, the
designs; Director of Copyright and Other Related Rights, and the
Director of the Documentation, Information and
b) Examine applications for the registration of marks, Technology Transfer Bureau. The decisions of the Director
geographic indication, integrated circuits; General in the exercise of his appellate jurisdiction in
c) Register technology transfer arrangements and settle respect of the decisions of the Director of Patents, the
disputes involving technology transfer payments covered Director of Trademarks and the Director of Copyright and
by the provisions of Part II, Chapter IX on Voluntary Other Related Rights shall be appealable to the Court of
Licensing and develop and implement strategies to Appeals in accordance with the Rules of Court; and those
promote and facilitate technology transfer; in respect of the decisions of the Director of the
Documentation, Information and Technology Transfer
d) Promote the use of patent information as a tool for Bureau shall be appealable to the Secretary of Trade and
technology development; Industry;
e) Publish regularly in its own publication the patents, (c) Undertake enforcement functions supported by
marks, utility models and industrial designs, issued and concerned agencies such as the Philippine National
approved, and the technology transfer arrangements Police, the National Bureau of Investigation, the Bureau of
registered; Customs, the Optical Media Board, and the local
f) Administratively adjudicate contested proceedings government units, among others;
affecting intellectual property rights; and (d) Conduct visits during reasonable hours to
g) Coordinate with other government agencies and the establishments and businesses engaging in activities
private sector efforts to formulate and implement plans violating intellectual property rights and provisions of this
and policies to strengthen the protection of intellectual Act based on report, information or complaint received by
property rights in the country. the office; and
5.2. The Office shall have custody of all records, books, (e) Such other functions in furtherance of protecting IP
drawings, specifications, documents, and other papers rights and objectives of this Act.
and things relating to intellectual property rights (as amended by RA No 10372)
applications filed with the Office. (n)
7.2. Qualifications. — The Director General and the
SECTION 6. The Organizational Structure of the IPO. — Deputies Director General must be natural born citizens
6.1. The Office shall be headed by a Director General who of the Philippines, at least thirty-five (35) years of age on
shall be assisted by two (2) Deputies Director General. the day of their appointment, holders of a college degree,



and of proven competence, integrity, probity and Director of Legal Affairs shall have the power to hold and
independence: Provided, That the Director General and at punish for contempt all those who disregard orders or
least one (1) Deputy Director General shall be members of writs issued in the course of the proceedings. (n)
the Philippine Bar who have engaged in the practice of (b) After formal investigation, the Director for Legal Affairs
law for at least ten (10) years:Provided, further, That in the may impose one (1) or more of the following
selection of the Director General and the Deputies administrative penalties:
Director General, consideration shall be given to such
qualifications as would result, as far as practicable, in the (i) The issuance of a cease and desist order which shall
balanced representation in the Directorate General of the specify the acts that the respondent shall cease and
various fields of intellectual property. desist from and shall require him to submit a compliance
report within a reasonable time which shall be fixed in
7.3. Term of Office. — The Director General and the the order;
Deputies Director General shall be appointed by the
President for a term of five (5) years and shall be eligible (ii) The acceptance of a voluntary assurance of
for reappointment only once: Provided, That the first compliance or discontinuance as may be imposed. Such
Director General shall have a first term of seven (7) years. voluntary assurance may include one or more of the
Appointment to any vacancy shall be only for the following:
unexpired term of the predecessor. (1) An assurance to comply with the provisions of the
7.4. The Office of the Director General. — The Office of the intellectual property law violated;
Director General shall consist of the Director General and (2) An assurance to refrain from engaging in unlawful
the Deputies Director General, their immediate staff and and unfair acts and practices subject of the formal
such Offices and Services that the Director General will investigation;
set up to support directly the Office of the Director
General. (n) (3) An assurance to recall, replace, repair, or refund the
money value of defective goods distributed in commerce;
SECTION 8. The Bureau of Patents. — The Bureau of and
Patents shall have the following functions:
(4) An assurance to reimburse the complainant the
8.1. Search and examination of patent applications and expenses and costs incurred in prosecuting the case in
the grant of patents; the Bureau of Legal Affairs.
8.2. Registration of utility models, industrial designs, and The Director of Legal Affairs may also require the
integrated circuits; and respondent to submit periodic compliance reports and
8.3. Conduct studies and researches in the field of patents file a bond to guarantee compliance of his undertaking;
in order to assist the Director General in formulating (iii) The condemnation or seizure of products which are
policies on the administration and examination of subject of the offense. The goods seized hereunder shall
patents. (n) be disposed of in such manner as may be deemed
SECTION 9. The Bureau of Trademarks. — The Bureau of appropriate by the Director of Legal Affairs, such as by
Trademarks shall have the following functions: sale, donation to distressed local governments or to
charitable or relief institutions, exportation, recycling into
9.1. Search and examination of the applications for the other goods, or any combination thereof, under such
registration of marks, geographic indications and other guidelines as he may provide;
marks of ownership and the issuance of the certificates of
registration; and (iv) The forfeiture of paraphernalia and all real and
personal properties which have been used in the
9.2. Conduct studies and researches in the field of commission of the offense;
trademarks in order to assist the Director General in
formulating policies on the administration and (v) The imposition of administrative fines in such amount
examination of trademarks. (n) as deemed reasonable by the Director of Legal Affairs,
which shall in no case be less than Five thousand pesos
SEC. 9A. The Bureau of Copyright and Other Related (P5,000) nor more than One hundred fifty thousand
Rights. — The Bureau of Copyright and Other Related pesos (P150,000). In addition, an additional fine of not
Rights shall have the following functions: more than One thousand pesos (P1,000) shall be imposed
9A.1. Exercise original jurisdiction to resolve disputes for each day of continuing violation;
relating to the terms of a license involving the author's (vi) The cancellation of any permit, license, authority, or
right to public performance or other communication of registration which may have been granted by the Office,
his work; or the suspension of the validity thereof for such period of
9A.2. Accept, review and decide on applications for the time as the Director of Legal Affairs may deem reasonable
accreditation of collective management organizations or which shall not exceed one (1) year;
similar entities; (vii) The withholding of any permit, license, authority, or
9A.3. Conduct studies and researches in the field of registration which is being secured by the respondent
copyright and related rights; and from the Office;
9A.4. Provide other copyright and related rights service (viii) The assessment of damages;
and charge reasonable fees therefor. (ix) Censure; and
(as amended by RA No 10372) (x) Other analogous penalties or sanctions. (Secs. 6, 7, 8,
SECTION 10. The Bureau of Legal Affairs. — The Bureau and 9, Executive Order No. 913 [1983]a)
of Legal Affairs shall have the following functions: 10.3. The Director General may by Regulations establish
10.1. Hear and decide opposition to the application for the procedure to govern the implementation of this
registration of marks; cancellation of trademarks; subject Section. (n)
to the provisions of Section 64, cancellation of patents, SECTION 11. The Documentation, Information and
utility models, and industrial designs; and petitions for Technology Transfer Bureau. — The Documentation,
compulsory licensing of patents; Information and Technology Transfer Bureau shall have
10.2.(a) Exercise original jurisdiction in administrative the following functions:
complaints for violations of laws involving intellectual 11.1. Support the search and examination activities of the
property rights: Provided, That its jurisdiction is limited to Office through the following activities:
complaints where the total damages claimed are not less
than Two hundred thousand pesos (P200,000): Provided, (a) Maintain and upkeep classification systems whether
further, That availment of the provisional remedies may they be national or international such as the International
be granted in accordance with the Rules of Court. The Patent Classification (IPC) system;


(b) Provide advisory services for the determination of employee attitudes towards the organization through the
search patterns; continuing design and implementation of employee
(c) Maintain search files and search rooms and reference development programs. (n)
libraries; and SECTION 14. Use of Intellectual Property Rights Fees by
(d) Adapt and package industrial property information. the IPO. — 14.1. For a more effective and expeditious
implementation of this Act, the Director General shall be
11.2. Establish networks or intermediaries or regional authorized to retain, without need of a separate approval
representatives; from any government agency, and subject only to the
11.3. Educate the public and build awareness on existing accounting and auditing rules and regulations,
intellectual property through the conduct of seminars all the fees, fines, royalties and other charges, collected by
and lectures, and other similar activities; the Office under this Act and the other laws that the
Office will be mandated to administer, for use in its
11.4. Establish working relations with research and operations, like upgrading of its facilities, equipment
development institutions as well as with local and outlay, human resource development, and the acquisition
international intellectual property professional groups of the appropriate office space, among others, to improve
and the like; the delivery of its services to the public. This amount,
11.5. Perform state-of-the-art searches; which shall be in addition to the Office's annual budget,
shall be deposited and maintained in a separate account
11.6. Promote the use of patent information as an effective or fund, which may be used or disbursed directly by the
tool to facilitate the development of technology in the Director General.
country;
14.2. After five (5) years from the coming into force of this
11.7. Provide technical, advisory, and other services relating Act, the Director General shall, subject to the approval of
to the licensing and promotion of technology, and carry the Secretary of Trade and Industry, determine if the fees
out an efficient and effective program for technology and charges mentioned in Subsection 14.1 hereof that the
transfer; and Office shall collect are sufficient to meet its budgetary
11.8. Register technology transfer arrangements, and requirements. If so, it shall retain all the fees and charges
settle disputes involving technology transfer payments. it shall collect under the same conditions indicated in
(n) said Subsection 14.1 but shall forthwith, cease to receive
SECTION 12. The Management Information Services any funds from the annual budget of the National
and EDP Bureau. — The Management Information Government; if not, the provisions of said Subsection 14.1
Services and EDP Bureau shall: shall continue to apply until such time when the Director
General, subject to the approval of the Secretary of Trade
12.1. Conduct automation planning, research and and Industry, certifies that the above-stated fees and
development, testing of systems, contracts with firms, charges the Office shall collect are enough to fund its
contracting, purchase and maintenance of equipment, operations. (n)
design and maintenance of systems, user consultation,
and the like; and SECTION 15. Special Technical and Scientific Assistance.
— The Director General is empowered to obtain the
12.2. Provide management information support and assistance of technical, scientific or other qualified
service to the Office. (n) officers and employees of other departments, bureaus,
SECTION 13. The Administrative, Financial and Human offices, agencies and instrumentalities of the
Resource Development Service Bureau. — 13.1. The Government, including corporations owned, controlled or
Administrative Service shall: (a) Provide services relative to operated by the Government, when deemed necessary in
procurement and allocation of supplies and equipment, the consideration of any matter submitted to the Office
transportation, messengerial work, cashiering, payment relative to the enforcement of the provisions of this Act.
of salaries and other Office's obligations, office (Sec. 3, R.A. No. 165a)
maintenance, proper safety and security, and other utility SECTION 16. Seal of Office. — The Office shall have a seal,
services; and comply with government regulatory the form and design of which shall be approved by the
requirements in the areas of performance appraisal, Director General. (Sec. 4, R.A. No. 165a)
compensation and benefits, employment records and
reports; SECTION 17. Publication of Laws and Regulations. —
The Director General shall cause to be printed and make
(b) Receive all applications filed with the Office and available for distribution, pamphlet copies of this Act,
collect fees therefor; and other pertinent laws, executive orders and information
(c) Publish patent applications and grants, trademark circulars relating to matters within the jurisdiction of the
applications, and registration of marks, industrial designs, Office. (Sec. 5, R.A. No. 165a)
utility models, geographic indication, and lay-out-designs SECTION 18. The IPO Gazette. — All matters required to
of integrated circuits registrations. be published under this Act shall be published in the
13.2. The Patent and Trademark Administration Services Office's own publication to be known as the IPO Gazette.
shall perform the following functions among others: (n)
(a) Maintain registers of assignments, mergings, licenses, SECTION 19. Disqualification of Officers and Employees
and bibliographic on patents and trademarks; of the Office. — All officers and employees of the Office
shall not apply or act as an attorney or patent agent of an
(b) Collect maintenance fees, issue certified copies of application for a grant of patent, for the registration of a
documents in its custody and perform similar other utility model, industrial design or mark nor acquire,
activities; and except by hereditary succession, any patent or utility
(c) Hold in custody all the applications filed with the model, design registration, or mark or any right, title or
office, and all patent grants, certificate of registrations interest therein during their employment and for one (1)
issued by the office, and the like. year thereafter. (Sec. 77, R.A. No. 165a)
13.3. The Financial Service shall formulate and manage a
financial program to ensure availability and proper PART II The Law on Patents
utilization of funds; provide for an effective monitoring
system of the financial operations of the Office; and
13.4. The Human Resource Development Service shall CHAPTER I General Provisions
design and implement human resource development SECTION 20. Definition of Terms Used in Part II, The
plans and programs for the personnel of the Office; Law on Patents. — As used in Part II, the following terms
provide for present and future manpower needs of the shall have the following meanings:
organization; maintain high morale and favorable



20.1. "Bureau" means the Bureau of Patents; in accordance with this Act, filed or effective in the
20.2. "Director" means the Director of Patents; Philippines, with a filing or priority date that is earlier than
the filing or priority date of the application: Provided, That
20.3. "Regulations" means the Rules of Practice in Patent the application which has validly claimed the filing date
Cases formulated by the Director of Patents and of an earlier application under Section 31 of this Act, shall
promulgated by the Director General; be prior art with effect as of the filing date of such earlier
20.4. "Examiner" means the patent examiner; application: Provided,further, That the applicant or the
inventor identified in both applications are not one and
20.5. "Patent application" or "application" means an the same. (Sec. 9, R.A. No. 165a)
application for a patent for an invention except in
Chapters XII and XIII, where "application" means an SECTION 25. Non-Prejudicial Disclosure. — 25.1. The
application for a utility model and an industrial design, disclosure of information contained in the application
respectively; and during the twelve (12) months preceding the filing date or
the priority date of the application shall not prejudice the
20.6. "Priority date" means the date of filing of the foreign applicant on the ground of lack of novelty if such
application for the same invention referred to in Section disclosure was made by:
31 of this Act. (n)
(a) The inventor;
(b) A patent office and the information was contained (a)
CHAPTER II Patentability
in another application filed by the inventor and should
SECTION 21. Patentable Inventions. — Any technical not have been disclosed by the office, or (b) in an
solution of a problem in any field of human activity which application filed without the knowledge or consent of the
is new, involves an inventive step and is industrially inventor by a third party which obtained the information
applicable shall be patentable. It may be, or may relate to, directly or indirectly from the inventor; or
a product, or process, or an improvement of any of the
(c) A third party which obtained the information directly
foregoing. (Sec. 7, R.A. No. 165a)
or indirectly from the inventor.
SECTION 22. Non-Patentable Inventions. — The
25.2. For the purposes of Subsection 25.1, "inventor" also
following shall be excluded from patent protection:
means any person who, at the filing date of application,
22.1. Discoveries, scientific theories and mathematical had the right to the patent. (n)
methods, and in the case of drugs and medicines, the
SECTION 26. Inventive Step. — 26.1. An invention involves
mere discovery of a new form or new property of a known
an inventive step if, having regard to prior art, it is not
substance which does not result in the enhancement of
obvious to a person skilled in the art at the time of the
the known efficacy of that substance, or the mere
filing date or priority date of the application claiming the
discovery of any new property or new use for a known
invention. (n)
substance, or the mere use of a known process unless
such known process results in a new product that 26.2. In the case of drugs and medicines, there is no
employs at least one new reactant. inventive step if the invention results from the mere
discovery of a new form or new property of a known
For the purpose of this clause, salts, esters, ethers,
substance which does not result in the enhancement of
polymorphs, metabolites, pure form, particle size, isomers,
the known efficacy of that substance, or the mere
mixtures of isomers, complexes, combinations, and other
discovery of any new property or new use for a known
derivatives of a known substance shall be considered to
substance, or the mere use of a known process unless
be the same substance, unless they differ significantly in
such known process results in a new product that
properties with regard to efficacy;
employs at least one new reactant.
(as amended by RA No 9502)
22.2. Schemes, rules and methods of performing mental
SECTION 27. Industrial Applicability. — An invention that
acts, playing games or doing business, and programs for
can be produced and used in any industry shall be
computers;
industrially applicable. (n)
22.3. Methods for treatment of the human or animal body
by surgery or therapy and diagnostic methods practiced
on the human or animal body. This provision shall not CHAPTER III Right to a Patent
apply to products and composition for use in any of these SECTION 28. Right to a Patent. — The right to a patent
methods; belongs to the inventor, his heirs, or assigns. When two (2)
22.4. Plant varieties or animal breeds or essentially or more persons have jointly made an invention, the right
biological process for the production of plants or animals. to a patent shall belong to them jointly. (Sec. 10, R.A. No.
This provision shall not apply to micro-organisms and 165a)
non-biological and microbiological processes. SECTION 29. First to File Rule. — If two (2) or more
Provisions under this subsection shall not preclude persons have made the invention separately and
Congress to consider the enactment of a law providing independently of each other, the right to the patent shall
sui generis protection of plant varieties and animal belong to the person who filed an application for such
breeds and a system of community intellectual rights invention, or where two or more applications are filed for
protection: the same invention, to the applicant who has the earliest
filing date or, the earliest priority date. (3rd sentence, Sec.
22.5. Aesthetic creations; and 10, R.A. No. 165a)
22.6. Anything which is contrary to public order or SECTION 30. Inventions Created Pursuant to a
morality. (Sec. 8, R.A. No. 165a) Commission. — 30.1. The person who commissions the
SECTION 23. Novelty. — An invention shall not be work shall own the patent, unless otherwise provided in
considered new if it forms part of a prior art. (Sec. 9, R.A. the contract.
No. 165a) 30.2. In case the employee made the invention in the
SECTION 24. Prior Art. — Prior art shall consist of: course of his employment contract, the patent shall
belong to:
24.1. Everything which has been made available to the
public anywhere in the world, before the filing date or the (a) The employee, if the inventive activity is not a part of
priority date of the application claiming the invention; his regular duties even if the employee uses the time,
and facilities and materials of the employer.
24.2. The whole contents of an application for a patent,
utility model, or industrial design registration, published


(b) The employer, if the invention is the result of the SECTION 38. Unity of Invention. — 38.1. The application
performance of his regularly-assigned duties, unless there shall relate to one invention only or to a group of
is an agreement, express or implied, to the contrary. (n) inventions forming a single general inventive concept.
SECTION 31. Right of Priority. — An application for patent 38.2. If several independent inventions which do not form
filed by any person who has previously applied for the a single general inventive concept are claimed in one
same invention in another country which by treaty, application, the Director may require that the application
convention, or law affords similar privileges to Filipino be restricted to a single invention. A later application filed
citizens, shall be considered as filed as of the date of filing for an invention divided out shall be considered as having
the foreign application: Provided, That: (a) the local been filed on the same day as the first application:
application expressly claims priority; (b) it is filed within Provided, That the later application is filed within four (4)
twelve (12) months from the date the earliest foreign months after the requirement to divide becomes final, or
application was filed; and (c) a certified copy of the within such additional time, not exceeding four (4)
foreign application together with an English translation is months, as may be granted: Provided, further, That each
filed within six (6) months from the date of filing in the divisional application shall not go beyond the disclosure
Philippines. (Sec. 15, R.A. No. 165a) in the initial application.
38.3.The fact that a patent has been granted on an
CHAPTER IV Patent Application application that did not comply with the requirement of
unity of invention shall not be a ground to cancel the
SECTION 32. The Application. — 32.1. The patent patent. (Sec. 17, R.A. No. 165a)
application shall be in Filipino or English and shall contain
the following: SECTION 39. Information Concerning Corresponding
Foreign Application for Patents. — The applicant shall, at
(a) A request for the grant of a patent; the request of the Director, furnish him with the date and
(b) A description of the invention; number of any application for a patent filed by him
abroad, hereafter referred to as the "foreign application,"
(c) Drawings necessary for the understanding of the
relating to the same or essentially the same invention as
invention;
that claimed in the application filed with the Office and
(d) One or more claims; and other documents relating to the foreign application. (n)
(e) An abstract.
32.2. No patent may be granted unless the application CHAPTER V Procedure for Grant of Patent
identifies the inventor. If the applicant is not the inventor, SECTION 40. Filing Date Requirements. — 40.1. The filing
the Office may require him to submit said authority. (Sec. date of a patent application shall be the date of receipt by
13, R.A. No. 165a) the Office of at least the following elements:
SECTION 33. Appointment of Agent or Representative. (a) An express or implicit indication that a Philippine
— An applicant who is not a resident of the Philippines patent is sought;
must appoint and maintain a resident agent or
representative in the Philippines upon whom notice or (b) Information identifying the applicant; and
process for judicial or administrative procedure relating to (c) Description of the invention and one (1) or more claims
the application for patent or the patent may be served. in Filipino or English.
(Sec. 11, R.A. No. 165a)
40.2. If any of these elements is not submitted within the
SECTION 34. The Request. — The request shall contain a period set by the Regulations, the application shall be
petition for the grant of the patent, the name and other considered withdrawn. (n)
data of the applicant, the inventor and the agent and the
title of the invention. (n) SECTION 41. According a Filing Date. — The Office shall
examine whether the patent application satisfies the
SECTION 35. Disclosure and Description of the requirements for the grant of date of filing as provided in
Invention. — 35.1. Disclosure. — The application shall Section 40 hereof. If the date of filing cannot be
disclose the invention in a manner sufficiently clear and accorded, the applicant shall be given an opportunity to
complete for it to be carried out by a person skilled in the correct the deficiencies in accordance with the
art. Where the application concerns a microbiological implementing Regulations. If the application does not
process or the product thereof and involves the use of a contain all the elements indicated in Section 40, the filing
micro-organism which cannot be sufficiently disclosed in date should be that date when all the elements are
the application in such a way as to enable the invention received. If the deficiencies are not remedied within the
to be carried out by a person skilled in the art, and such prescribed time limit, the application shall be considered
material is not available to the public, the application withdrawn. (n)
shall be supplemented by a deposit of such material with
an international depository institution. SECTION 42. Formality Examination. — 42.1. After the
patent application has been accorded a filing date and
35.2. Description. — The Regulations shall prescribe the the required fees have been paid on time in accordance
contents of the description and the order of presentation. with the Regulations, the applicant shall comply with the
(Sec. 14, R.A. No. 165a) formal requirements specified by Section 32 and the
SECTION 36. The Claims. — 36.1. The application shall Regulations within the prescribed period, otherwise the
contain one (1) or more claims which shall define the application shall be considered withdrawn.
matter for which protection is sought. Each claim shall be 42.2. The Regulations shall determine the procedure for
clear and concise, and shall be supported by the the re-examination and revival of an application as well as
description. the appeal to the Director of Patents from any final action
36.2.The Regulations shall prescribe the manner of the by the examiner. (Sec. 16, R.A. No. 165a)
presentation of claims. (n) SECTION 43. Classification and Search. — An application
SECTION 37. The Abstract. — The abstract shall consist of that has complied with the formal requirements shall be
a concise summary of the disclosure of the invention as classified and a search conducted to determine the prior
contained in the description, claims and drawings in art. (n)
preferably not more than one hundred fifty (150) words. It SECTION 44. Publication of Patent Application. — 44.1.
must be drafted in a way which allows the clear The patent application shall be published in the IPO
understanding of the technical problem, the gist of the Gazette together with a search document established by
solution of that problem through the invention, and the or on behalf of the Office citing any documents that
principal use or uses of the invention. The abstract shall reflect prior art, after the expiration of eighteen (18)
merely serve for technical information. (n) months from the filing date or priority date.


44.2. After publication of a patent application, any 52.2. Any interested party may inspect the complete
interested party may inspect the application documents description, claims, and drawings of the patent on file
filed with the Office. with the Office. (Sec. 18, R.A. No. 165a)
44.3. The Director General, subject to the approval of the SECTION 53. Contents of Patent. — The patent shall be
Secretary of Trade and Industry, may prohibit or restrict issued in the name of the Republic of the Philippines
the publication of an application, if in his opinion, to do so under the seal of the Office and shall be signed by the
would be prejudicial to the national security and interests Director, and registered together with the description,
of the Republic of the Philippines. (n) claims, and drawings, if any, in books and records of the
SECTION 45. Confidentiality Before Publication. — A Office. (Secs. 19 and 20, R.A. No. 165a)
patent application, which has not yet been published, SECTION 54. Term of Patent. — The term of a patent shall
and all related documents, shall not be made available for be twenty (20) years from the filing date of the
inspection without the consent of the applicant. (n) application. (Sec. 21, R.A. No. 165a)
SECTION 46. Rights Conferred by a Patent Application SECTION 55. Annual Fees. — 55.1. To maintain the patent
After Publication. — The applicant shall have all the application or patent, an annual fee shall be paid upon
rights of a patentee under Section 76 against any person the expiration of four (4) years from the date the
who, without his authorization, exercised any of the rights application was published pursuant to Section 44 hereof,
conferred under Section 71 of this Act in relation to the and on each subsequent anniversary of such date.
invention claimed in the published patent application, as Payment may be made within three (3) months before
if a patent had been granted for that invention: Provided, the due date. The obligation to pay the annual fees shall
That the said person had: terminate should the application be withdrawn, refused,
46.1. Actual knowledge that the invention that he was or cancelled.
using was the subject matter of a published application; 55.2. If the annual fee is not paid, the patent application
or shall be deemed withdrawn or the patent considered as
46.2. Received written notice that the invention that he lapsed from the day following the expiration of the period
was using was the subject matter of a published within which the annual fees were due. A notice that the
application being identified in the said notice by its serial application is deemed withdrawn or the lapse of a patent
number: Provided, That the action may not be filed until for non-payment of any annual fee shall be published in
after the grant of a patent on the published application the IPO Gazette and the lapse shall be recorded in the
and within four (4) years from the commission of the acts Register of the Office.
complained of. (n) 55.3. A grace period of six (6) months shall be granted for
SECTION 47. Observation by Third Parties. — Following the payment of the annual fee, upon payment of the
the publication of the patent application, any person may prescribed surcharge for delayed payment. (Sec. 22, R.A.
present observations in writing concerning the No. 165a)
patentability of the invention. Such observations shall be SECTION 56. Surrender of Patent. — 56.1. The owner of
communicated to the applicant who may comment on the patent, with the consent of all persons having grants
them. The Office shall acknowledge and put such or licenses or other right, title or interest in and to the
observations and comment in the file of the application patent and the invention covered thereby, which have
to which it relates. (n) been recorded in the Office, may surrender his patent or
SECTION 48. Request for Substantive Examination. — any claim or claims forming part thereof to the Office for
48.1. The application shall be deemed withdrawn unless cancellation.
within six (6) months from the date of publication under 56.2. A person may give notice to the Office of his
Section 41, a written request to determine whether a opposition to the surrender of a patent under this section,
patent application meets the requirements of Sections 21 and if he does so, the Bureau shall notify the proprietor of
to 27 and Sections 32 to 39 and the fees have been paid the patent and determine the question.
on time. 56.3. If the Office is satisfied that the patent may properly
48.2. Withdrawal of the request for examination shall be be surrendered, he may accept the offer and, as from the
irrevocable and shall not authorize the refund of any fee. day when notice of his acceptance is published in the IPO
(n) Gazette, the patent shall cease to have effect, but no
SECTION 49. Amendment of Application. — An applicant action for infringement shall lie and no right
may amend the patent application during examination: compensation shall accrue for any use of the patented
Provided, That such amendment shall not include new invention before that day for the services of the
matter outside the scope of the disclosure contained in government. (Sec. 24, R.A. No. 165a)
the application as filed. (n) SECTION 57. Correction of Mistakes of the Office. — The
SECTION 50. Grant of Patent. — 50.1. If the application Director shall have the power to correct, without fee, any
meets the requirements of this Act, the Office shall grant mistake in a patent incurred through the fault of the
the patent: Provided, That all the fees are paid on time. Office when clearly disclosed in the records thereof, to
make the patent conform to the records. (Sec. 25, R.A. No.
50.2. If the required fees for grant and printing are not 165)
paid in due time, the application shall be deemed to be
withdrawn. SECTION 58. Correction of Mistake in the Application. —
On request of any interested person and payment of the
50.3. A patent shall take effect on the date of the prescribed fee, the Director is authorized to correct any
publication of the grant of the patent in the IPO Gazette. mistake in a patent of a formal and clerical nature, not
(Sec. 18, R.A. No. 165a) incurred through the fault of the Office. (Sec. 26, R.A. No.
SECTION 51. Refusal of the Application. — 51.1. The final 165a)
order of refusal of the examiner to grant the patent shall SECTION 59. Changes in Patents. — 59.1. The owner of a
be appealable to the Director in accordance with this Act. patent shall have the right to request the Bureau to make
51.2. The Regulations shall provide for the procedure by the changes in the patent in order to:
which an appeal from the order of refusal from the (a) Limit the extent of the protection conferred by it;
Director shall be undertaken. (n)
(b) Correct obvious mistakes or to correct clerical errors;
SECTION 52. Publication Upon Grant of Patent. — 52.1. and
The grant of the patent together with other related
information shall be published in the IPO Gazette within (c) Correct mistakes or errors, other than those referred to
the time prescribed by the Regulations. in letter (b), made in good faith: Provided, That where the
change would result in a broadening of the extent of
protection conferred by the patent, no request may be



made after the expiration of two (2) years from the grant during the cancellation proceedings, the patent and the
of a patent and the change shall not affect the rights of invention to which it relates meet the requirement of this
any third party which has relied on the patent, as Act, it may decide to maintain the patent as amended:
published. Provided, That the fee for printing of a new patent is paid
59.2. No change in the patent shall be permitted under within the time limit prescribed in the Regulations.
this section, where the change would result in the 65.3. If the fee for the printing of a new patent is not paid
disclosure contained in the patent going beyond the in due time, the patent should be revoked.
disclosure contained in the application filed. 65.4. If the patent is amended under Subsection 65.2
59.3. If, and to the extent to which the Office changes the hereof, the Bureau shall, at the same time as it publishes
patent according to this section, it shall publish the same. the mention of the cancellation decision, publish the
(n) abstract, representative claims and drawings indicating
SECTION 60. Form and Publication of Amendment. — clearly what the amendments consist of. (n)
An amendment or correction of a patent shall be SECTION 66. Effect of Cancellation of Patent or Claim.
accomplished by a certificate of such amendment or — The rights conferred by the patent or any specified
correction, authenticated by the seal of the Office and claim or claims cancelled shall terminate. Notice of the
signed by the Director, which certificate shall be attached cancellation shall be published in the IPO Gazette. Unless
to the patent. Notice of such amendment or correction restrained by the Director General, the decision or order
shall be published in the IPO Gazette and copies of the to cancel by Director of Legal Affairs shall be immediately
patent kept or furnished by the Office shall include a copy executory even pending appeal. (Sec. 32, R.A. No. 165a)
of the certificate of amendment or correction. (Sec. 27,
R.A. No. 165)
CHAPTER VII Remedies of a Person with a Right
to a Patent
CHAPTER VI Cancellation of Patents and
SECTION 67. Patent Application by Persons Not Having
Substitution of Patentee the Right to a Patent. — 67.1. If a person referred to in
SECTION 61. Cancellation of Patents. — 61.1. Any Section 29 other than the applicant, is declared by final
interested person may, upon payment of the required fee, court order or decision as having the right to the patent,
petition to cancel the patent or any claim thereof, or parts such person may, within three (3) months after the
of the claim, on any of the following grounds: decision has become final:
(a) That what is claimed as the invention is not new or (a) Prosecute the application as his own application in
patentable; place of the applicant;
(b) That the patent does not disclose the invention in a (b) File a new patent application in respect of the same
manner sufficiently clear and complete for it to be carried invention;
out by any person skilled in the art; or (c) Request that the application be refused; or
(c) That the patent is contrary to public order or morality. (d) Seek cancellation of the patent, if one has already
61.2. Where the grounds for cancellation relate to some of been issued.
the claims or parts of the claim, cancellation may be 67.2. The provisions of Subsection 38.2 shall apply mutatis
effected to such extent only. (Secs. 28 and 29, R.A. No. mutandis to a new application filed under Subsection
165a) 67.1(b). (n)
SECTION 62. Requirement of the Petition. — The petition SECTION 68. Remedies of the True and Actual Inventor.
for cancellation shall be in writing, verified by the — If a person, who was deprived of the patent without his
petitioner or by any person in his behalf who knows the consent or through fraud is declared by final court order
facts, specify the grounds upon which it is based, include or decision to be the true and actual inventor, the court
a statement of the facts to be relied upon, and filed with shall order for his substitution as patentee, or at the
the Office. Copies of printed publications or of patents of option of the true inventor, cancel the patent, and award
other countries, and other supporting documents actual and other damages in his favor if warranted by the
mentioned in the petition shall be attached thereto, circumstances. (Sec. 33, R.A. No. 165a)
together with the translation thereof in English, if not in
the English language. (Sec. 30, R.A. No. 165) SECTION 69. Publication of the Court Order. — The court
shall furnish the Office a copy of the order or decision
SECTION 63. Notice of Hearing. — Upon filing of a referred to in Sections 67 and 68, which shall be
petition for cancellation, the Director of Legal Affairs shall published in the IPO Gazette within three (3) months
forthwith serve notice of the filing thereof upon the from the date such order or decision became final and
patentee and all persons having grants or licenses, or any executory, and shall be recorded in the register of the
other right, title or interest in and to the patent and the Office. (n)
invention covered thereby, as appears of record in the
Office, and of notice of the date of hearing thereon on SECTION 70. Time to File Action in Court. — The actions
such persons and the petitioner. Notice of the filing of the indicated in Sections 67 and 68 shall be filed within one
petition shall be published in the IPO Gazette. (Sec. 31, (1) year from the date of publication made in accordance
R.A. No. 165a) with Sections 44 and 51, respectively. (n)
SECTION 64. Committee of Three. — In cases involving
highly technical issues, on motion of any party, the CHAPTER VIII Rights of Patentees and
Director of Legal Affairs may order that the petition be Infringement of Patents
heard and decided by a committee composed of the
Director of Legal Affairs as chairman and two (2) SECTION 71. Rights Conferred by Patent. — 71.1. A patent
members who have the experience or expertise in the shall confer on its owner the following exclusive rights:
field of technology to which the patent sought to be (a) Where the subject matter of a patent is a product, to
cancelled relates. The decision of the committee shall be restrain, prohibit and prevent any unauthorized person or
appealable to the Director General. (n) entity from making, using, offering for sale, selling or
SECTION 65. Cancellation of the Patent. — 65.1. If the importing that product;
Committee finds that a case for cancellation has been (b) Where the subject matter of a patent is a process, to
proved, it shall order the patent or any specified claim or restrain, prevent or prohibit any unauthorized person or
claims thereof cancelled. entity from using the process, and from manufacturing,
65.2. If the Committee finds that, taking into dealing in, using, selling or offering for sale, or importing
consideration the amendment made by the patentee


any product obtained directly or indirectly from such Government may exploit the invention even without
process. agreement of the patent owner where:
71.2.Patent owners shall also have the right to assign, or (a) The public interest, in particular, national security,
transfer by succession the patent, and to conclude nutrition, health or the development of other sectors, as
licensing contracts for the same. (Sec. 37, R.A. No. 165a) determined by the appropriate agency of the
SECTION 72. Limitations of Patent Rights. — The owner government, so requires; or
of a patent has no right to prevent third parties from (b) A judicial or administrative body has determined that
performing, without his authorization, the acts referred to the manner or exploitation, by the owner of the patent or
in Section 71 hereof in the following circumstances: his licensee, is anti-competitive; or
72.1. Using a patented product which has been put on the (c) In the case of drugs and medicines, there is a national
market in the Philippines by the owner of the product, or emergency or other circumstance of extreme urgency
with his express consent, insofar as such use is performed requiring the use of the invention; or
after that product has been so put on the said market: (d) In the case of drugs and medicines, there is public
Provided, That, with regard to drugs and medicines, the non-commercial use of the patent by the patentee,
limitation on patent rights shall apply after a drug or without satisfactory reason; or
medicine has been introduced in the Philippines or
anywhere else in the world by the patent owner, or by any (e) In the case of drugs and medicines, the demand for
party authorized to use the invention: Provided, further, the patented article in the Philippines is not being met to
That the right to import the drugs and medicines an adequate extent and on reasonable terms, as
contemplated in this section shall be available to any determined by the Secretary of the Department of
government agency or any private third party; Health.
72.2. Where the act is done privately and on a 74.2. Unless otherwise provided herein, the use by the
non-commercial scale or for a non-commercial purpose: Government, or third person authorized by the
Provided, That it does not significantly prejudice the Government shall be subject, where applicable, to the
economic interests of the owner of the patent; following provisions:
72.3. Where the act consists of making or using (a) In situations of national emergency or other
exclusively for experimental use of the invention for circumstances of extreme urgency as provided under
scientific purposes or educational purposes and such Section 74.1(c), the right holder shall be notified as soon
other activities directly related to such scientific or as reasonably practicable;
educational experimental use; (b) In the case of public non-commercial use of the
72.4. In the case of drugs and medicines, where the act patent by the patentee, without satisfactory reason, as
includes testing, using, making or selling the invention provided under Section 74.1 (d), the right holder shall be
including any data related thereto, solely for purposes informed promptly: Provided, That, the Government or
reasonably related to the development and submission of third person authorized by the Government, without
information and issuance of approvals by government making a patent search, knows or has demonstrable
regulatory agencies required under any law of the ground to know that a valid patent is or will be used by or
Philippines or of another country that regulates the for the Government;
manufacture, construction, use or sale of any product: (c) If the demand for the patented article in the
Provided, That, in order to protect the data submitted by Philippines is not being met to an adequate extent and
the original patent holder from unfair commercial use on reasonable terms as provided under Section 74.1 (e),
provided in Article 39.3 of the Agreement on the right holder shall be informed promptly;
Trade-Related Aspects of Intellectual Property Rights
(TRIPS Agreement), the Intellectual Property Office, in (d) The scope and duration of such use shall be limited to
consultation with the appropriate government agencies, the purpose for which it was authorized;
shall issue the appropriate rules and regulations (e) Such use shall be non-exclusive;
necessary therein not later than one hundred twenty
(120) days after the enactment of this law; (f) The right holder shall be paid adequate remuneration
in the circumstances of each case, taking into account
72.5. Where the act consists of the preparation for the economic value of the authorization; and
individual cases, in a pharmacy or by a medical
professional, of a medicine in accordance with a medical (g) The existence of a national emergency or other
prescription or acts concerning the medicine so circumstances of extreme urgency, referred to under
prepared; and Section 74.1 (c), shall be subject to the determination of
the President of the Philippines for the purpose of
72.6 Where the invention is used in any ship, vessel, determining the need for such use or other exploitation,
aircraft, or land vehicle of any other country entering the which shall be immediately executory.
territory of the Philippines temporarily or accidentally:
Provided, That such invention is used exclusively for the 74.3. All cases arising from the implementation of this
needs of the ship, vessel, aircraft, or land vehicle and not provision shall be cognizable by courts with appropriate
used for the manufacturing of anything to be sold within jurisdiction provided by law.
the Philippines. (Secs. 38 and 39, R.A. No. 165a) No court, except the Supreme Court of the Philippines,
(as amended by RA No 9502) shall issue any temporary restraining order or preliminary
injunction or such other provisional remedies that will
SECTION 73. Prior User. — 73.1. Notwithstanding Section prevent its immediate execution.
72 hereof, any prior user, who, in good faith was using the
invention or has undertaken serious preparations to use 74.4. The Intellectual Property Office (IPO), in consultation
the invention in his enterprise or business, before the with the appropriate government agencies, shall issue
filing date or priority date of the application on which a the appropriate implementing rules and regulations for
patent is granted, shall have the right to continue the use the use or exploitation of patented inventions as
thereof as envisaged in such preparations within the contemplated in this section within one hundred twenty
territory where the patent produces its effect. (120) days after the effectivity of this law.
73.2. The right of the prior user may only be transferred or (as amended by RA No 9502)

assigned together with his enterprise or business, or with SECTION 75. Extent of Protection and Interpretation of
that part of his enterprise or business in which the use or Claims. — 75.1. The extent of protection conferred by the
preparations for use have been made. (Sec. 40, R.A. No. patent shall be determined by the claims, which are to be
165a) interpreted in the light of the description and drawings.
SECTION 74. Use of Invention by Government. — 74.1. A 75.2. For the purpose of determining the extent of
Government agency or third person authorized by the protection conferred by the patent, due account shall be



taken of elements which are equivalent to the elements patented product, or on the container or package in
expressed in the claims, so that a claim shall be which the article is supplied to the public, or on the
considered to cover not only all the elements as advertising material relating to the patented product or
expressed therein, but also equivalents. (n) process, are placed the words "Philippine Patent" with the
SECTION 76. Civil Action for Infringement. — 76.1. The number of the patent. (Sec. 44, R.A. No. 165a)
making, using, offering for sale, selling, or importing a SECTION 81. Defenses in Action for Infringement. — In
patented product or a product obtained directly or an action for infringement, the defendant, in addition to
indirectly from a patented process, or the use of a other defenses available to him, may show the invalidity
patented process without the authorization of the of the patent, or any claim thereof, on any of the grounds
patentee constitutes patent infringement: Provided, That, on which a petition of cancellation can be brought under
this shall not apply to instances covered by Sections 72.1 Section 61 hereof. (Sec. 45, R.A. No. 165)
and 72.4 (Limitations of Patent Rights); Section 74 (Use of SECTION 82. Patent Found Invalid May be Cancelled. —
Invention by Government); Section 93.6 (Compulsory In an action for infringement, if the court shall find the
Licensing); and Section 93-A (Procedures on Issuance of a patent or any claim to be invalid, it shall cancel the same,
Special Compulsory License under the TRIPS Agreement) and the Director of Legal Affairs upon receipt of the final
of this Code.(as amended by RA No 9502) judgment of cancellation by the court, shall record that
76.2. Any patentee, or anyone possessing any right, title or fact in the register of the Office and shall publish a notice
interest in and to the patented invention, whose rights to that effect in the IPO Gazette. (Sec. 46, R.A. No. 165a)
have been infringed, may bring a civil action before a SECTION 83. Assessor in Infringement Action. — 83.1.
court of competent jurisdiction, to recover from the Two (2) or more assessors may be appointed by the court.
infringer such damages sustained thereby, plus The assessors shall be possessed of the necessary
attorney's fees and other expenses of litigation, and to scientific and technical knowledge required by the
secure an injunction for the protection of his rights. subject matter in litigation. Either party may challenge
76.3. If the damages are inadequate or cannot be readily the fitness of any assessor proposed for appointment.
ascertained with reasonable certainty, the court may 83.2. Each assessor shall receive a compensation in an
award by way of damages a sum equivalent to reasonable amount to be fixed by the court and advanced by the
royalty. complaining party, which shall be awarded as part of his
76.4. The court may, according to the circumstances of costs should he prevail in the action. (Sec. 47, R.A. No.
the case, award damages in a sum above the amount 165a)
found as actual damages sustained: Provided, That the SECTION 84. Criminal Action for Repetition of
award does not exceed three (3) times the amount of Infringement. — If infringement is repeated by the
such actual damages. infringer or by anyone in connivance with him after
76.5. The court may, in its discretion, order that the finality of the judgment of the court against the infringer,
infringing goods, materials and implements the offenders shall, without prejudice to the institution of
predominantly used in the infringement be disposed of a civil action for damages, be criminally liable therefor
outside the channels of commerce or destroyed, without and, upon conviction, shall suffer imprisonment for the
compensation. period of not less than six (6) months but not more than
76.6. Anyone who actively induces the infringement of a three (3) years and/or a fine of not less than One hundred
patent or provides the infringer with a component of a thousand pesos (P100,000) but not more than Three
patented product or of a product produced because of a hundred thousand pesos (P300,000), at the discretion of
patented process knowing it to be especially adopted for the court. The criminal action herein provided shall
infringing the patented invention and not suitable for prescribe in three (3) years from date of the commission
substantial non-infringing use shall be liable as a of the crime. (Sec. 48, R.A. No. 165a)
contributory infringer and shall be jointly and severally
liable with the infringer. (Sec. 42, R.A. No. 165a) CHAPTER IX Voluntary Licensing
SECTION 77. Infringement Action by a Foreign National. SECTION 85. Voluntary License Contract. — To
— Any foreign national or juridical entity who meets the encourage the transfer and dissemination of technology,
requirements of Section 3 and not engaged in business in prevent or control practices and conditions that may in
the Philippines, to which a patent has been granted or particular cases constitute an abuse of intellectual
assigned under this Act, may bring an action for property rights having an adverse effect on competition
infringement of patent, whether or not it is licensed to do and trade, all technology transfer arrangements shall
business in the Philippines under existing law. (Sec. 41-A, comply with the provisions of this Chapter. (n)
R.A. No. 165a)
SECTION 86. Jurisdiction to Settle Disputes on Royalties.
SECTION 78. Process Patents; Burden of Proof . — If the — The Director of the Documentation, Information and
subject matter of a patent is a process for obtaining a Technology Transfer Bureau shall exercise quasi-judicial
product, any identical product shall be presumed to have jurisdiction in the settlement of disputes between parties
been obtained through the use of the patented process if to a technology transfer arrangement arising from
the product is new or there is substantial likelihood that technology transfer payments, including the fixing of
the identical product was made by the process and the appropriate amount or rate of royalty. (n)
owner of the patent has been unable despite reasonable
efforts, to determine the process actually used. In SECTION 87. Prohibited Clauses. — Except in cases
ordering the defendant to prove that the process to under Section 91, the following provisions shall be
obtain the identical product is different from the deemed prima facie to have an adverse effect on
patented process, the court shall adopt measures to competition and trade:
protect, as far as practicable, his manufacturing and 87.1. Those which impose upon the licensee the obligation
business secrets. (n) to acquire from a specific source capital goods,
SECTION 79. Limitation of Action for Damages. — No intermediate products, raw materials, and other
damages can be recovered for acts of infringement technologies, or of permanently employing personnel
committed more than four (4) years before the institution indicated by the licensor;
of the action for infringement. (Sec. 43, R.A. No. 165) 87.2. Those pursuant to which the licensor reserves the
SECTION 80. Damages; Requirement of Notice. — right to fix the sale or resale prices of the products
Damages cannot be recovered for acts of infringement manufactured on the basis of the license;
committed before the infringer had known, or had 87.3. Those that contain restrictions regarding the volume
reasonable grounds to know of the patent. It is presumed and structure of production;
that the infringer had known of the patent if on the


87.4. Those that prohibit the use of competitive transfer arrangement during the whole term of the
technologies in a non-exclusive technology transfer technology transfer arrangement. (Sec. 33-C (1), R.A. 165a)
agreement; SECTION 91. Exceptional Cases. — In exceptional or
87.5. Those that establish a full or partial purchase option meritorious cases where substantial benefits will accrue
in favor of the licensor; to the economy, such as high technology content,
87.6. Those that obligate the licensee to transfer for free increase in foreign exchange earnings, employment
to the licensor the inventions or improvements that may generation, regional dispersal of industries and/or
be obtained through the use of the licensed technology; substitution with or use of local raw materials, or in the
case of Board of Investments, registered companies with
87.7. Those that require payment of royalties to the pioneer status, exemption from any of the above
owners of patents for patents which are not used; requirements may be allowed by the Documentation,
87.8. Those that prohibit the licensee to export the Information and Technology Transfer Bureau after
licensed product unless justified for the protection of the evaluation thereof on a case by case basis. (n)
legitimate interest of the licensor such as exports to SECTION 92. Non-Registration with the Documentation,
countries where exclusive licenses to manufacture and/or Information and Technology Transfer Bureau. —
distribute the licensed product(s) have already been Technology transfer arrangements that conform with the
granted; provisions of Sections 86 and 87 need not be registered
87.9. Those which restrict the use of the technology with the Documentation, Information and Technology
supplied after the expiration of the technology transfer Transfer Bureau. Non-conformance with any of the
arrangement, except in cases of early termination of the provisions of Sections 87 and 88, however, shall
technology transfer arrangement due to reason(s) automatically render the technology transfer
attributable to the licensee; arrangement unenforceable, unless said technology
transfer arrangement is approved and registered with the
87.10. Those which require payments for patents and Documentation, Information and Technology Transfer
other industrial property rights after their expiration, Bureau under the provisions of Section 91 on exceptional
termination arrangement; cases. (n)
87.11. Those which require that the technology recipient
shall not contest the validity of any of the patents of the
CHAPTER X Compulsory Licensing
technology supplier;
SECTION 93. Grounds for Compulsory Licensing. — The
87.12. Those which restrict the research and development
Director General of the Intellectual Property Office may
activities of the licensee designed to absorb and adapt
grant a license to exploit a patented invention, even
the transferred technology to local conditions or to
without the agreement of the patent owner, in favor of
initiate research and development programs in
any person who has shown his capability to exploit the
connection with new products, processes or equipment;
invention, under any of the following circumstances:
87.13. Those which prevent the licensee from adapting
93.1. National emergency or other circumstances of
the imported technology to local conditions, or
extreme urgency;
introducing innovation to it, as long as it does not impair
the quality standards prescribed by the licensor; 93.2. Where the public interest, in particular, national
security, nutrition, health or the development of other
87.14. Those which exempt the licensor for liability for
vital sectors of the national economy as determined by
non-fulfilment of his responsibilities under the
the appropriate agency of the Government, so requires; or
technology transfer arrangement and/or liability arising
from third party suits brought about by the use of the 93.3. Where a judicial or administrative body has
licensed product or the licensed technology; and determined that the manner of exploitation by the owner
of the patent or his licensee is anti-competitive; or
87.15. Other clauses with equivalent effects. (Sec. 33-C (2),
RA 165a) 93.4. In case of public non-commercial use of the patent
by the patentee, without satisfactory reason;
SECTION 88. Mandatory Provisions. — The following
provisions shall be included in voluntary license contracts: 93.5. If the patented invention is not being worked in the
Philippines on a commercial scale, although capable of
88.1. That the laws of the Philippines shall govern the
being worked, without satisfactory reason: Provided, That
interpretation of the same and in the event of litigation,
the importation of the patented article shall constitute
the venue shall be the proper court in the place where
working or using the patent; (Secs. 34, 34-A, 34-B, R.A. No.
the licensee has its principal office;
165a) and
88.2. Continued access to improvements in techniques
93.6. Where the demand for patented drugs and
and processes related to the technology shall be made
medicines is not being met to an adequate extent and on
available during the period of the technology transfer
reasonable terms, as determined by the Secretary of the
arrangement;
Department of Health.
88.3. In the event the technology transfer arrangement
shall provide for arbitration, the Procedure of Arbitration
of the Arbitration Law of the Philippines or the Arbitration SECTION 93-A. Procedures on Issuance of a Special
Rules of the United Nations Commission on International Compulsory License under the TRIPS Agreement. —
Trade Law (UNCITRAL) or the Rules of Conciliation and 93-A.1. The Director General of the Intellectual Property
Arbitration of the International Chamber of Commerce Office, upon the written recommendation of the
(ICC) shall apply and the venue of arbitration shall be the Secretary of the Department of Health, shall, upon filing
Philippines or any neutral country; and of a petition, grant a special compulsory license for the
importation of patented drugs and medicines. The
88.4. The Philippine taxes on all payments relating to the
special compulsory license for the importation
technology transfer arrangement shall be borne by the
contemplated under this provision shall be an additional
licensor. (n)
special alternative procedure to ensure access to quality
SECTION 89. Rights of Licensor. — In the absence of any affordable medicines and shall be primarily for domestic
provision to the contrary in the technology transfer consumption: Provided, That adequate remuneration
arrangement, the grant of a license shall not prevent the shall be paid to the patent owner either by the exporting
licensor from granting further licenses to third person nor or importing country. The compulsory license shall also
from exploiting the subject matter of the technology contain a provision directing the grantee the license to
transfer arrangement himself. (Sec. 33-B, R.A. 165a) exercise reasonable measures to prevent the
SECTION 90. Rights of Licensee. — The licensee shall be re-exportation of the products imported under this
entitled to exploit the subject matter of the technology provision.


The grant of a special compulsory license under this SECTION 96. Compulsory Licensing of Patents Involving
provision shall be an exception to Sections 100.4 and 100.6 Semi-Conductor Technology. — In the case of
of Republic Act No. 8293 and shall be immediately compulsory licensing of patents involving
executory. semi-conductor technology, the license may only be
No court, except the Supreme Court of the Philippines, granted in case of public non-commercial use or to
shall issue any temporary restraining order or preliminary remedy a practice determined after judicial or
injunction or such other provisional remedies that will administrative process to be anti-competitive. (n)
prevent the grant of the special compulsory license. SECTION 97. Compulsory License Based on
93-A.2. A compulsory license shall also be available for the Interdependence of Patents. — If the invention
manufacture and export of drugs and medicines to any protected by a patent, hereafter referred to as the "second
country having insufficient or no manufacturing capacity patent," within the country cannot be worked without
in the pharmaceutical sector to address public health infringing another patent, hereafter referred to as the
problems: Provided, That, a compulsory license has been "first patent," granted on a prior application or benefiting
granted by such country or such country has, by from an earlier priority, a compulsory license may be
notification or otherwise, allowed importation into its granted to the owner of the second patent to the extent
jurisdiction of the patented drugs and medicines from necessary for the working of his invention, subject to the
the Philippines in compliance with the TRIPS Agreement. following conditions:
93-A.3. The right to grant a special compulsory license 97.1. The invention claimed in the second patent involves
under this section shall not limit or prejudice the rights, an important technical advance of considerable
obligations and flexibilities provided under the TRIPS economic significance in relation to the first patent;
Agreement and under Philippine laws, particularly 97.2. The owner of the first patent shall be entitled to a
Section 72.1 and Section 74 of the Intellectual Property cross-license on reasonable terms to use the invention
Code, as amended under this Act. It is also without claimed in the second patent;
prejudice to the extent to which drugs and medicines 97.3. The use authorized in respect of the first patent shall
produced under a compulsory license can be exported as be non-assignable except with the assignment of the
allowed in the TRIPS Agreement and applicable laws. second patent; and
(as amended by RA No 9502) 97.4. The terms and conditions of Sections 95, 96 and 98
SECTION 94. Period for Filing a Petition for a to 100 of this Act. (Sec. 34-C, R.A. No. 165a)
Compulsory License. — 94.1. A compulsory license may SECTION 98. Form and Contents of Petition. — The
not be applied for on the ground stated in Subsection petition for compulsory licensing must be in writing,
93.5 before the expiration of a period of four (4) years from verified by the petitioner and accompanied by payment
the date of filing of the application or three (3) years from of the required filing fee. It shall contain the name and
the date of the patent whichever period expires last. address of the petitioner as well as those of the
94.2. A compulsory license which is applied for on any of respondents, the number and date of issue of the patent
the grounds stated in Subsections 93.2, 93.3, 93.4, and 93.6 in connection with which compulsory license is sought,
and Section 97 may be applied for at any time after the the name of the patentee, the title of the invention, the
grant of the patent. (Sec. 34(1), R.A. No. 165) statutory grounds upon which compulsory license is
(as amended by RA No 9502) sought, the ultimate facts constituting the petitioner's
cause of action, and the relief prayed for. (Sec. 34-D, R.A.
SECTION 95. Requirement to Obtain a License on No. 165)
Reasonable Commercial Terms. — 95.1. The license will
only be granted after the petitioner has made efforts to SECTION 99. Notice of Hearing. — 99.1. Upon filing of a
obtain authorization from the patent owner on petition, the Director of Legal Affairs shall forthwith serve
reasonable commercial terms and conditions but such notice of the filing thereof upon the patent owner and all
efforts have not been successful within a reasonable persons having grants or licenses, or any other right, title
period of time. or interest in and to the patent and invention covered
thereby as appears of record in the Office, and of notice of
95.2. The requirement under Subsection 95.1 shall not the date of hearing thereon, on such persons and
apply in any of the following cases: petitioner. The resident agent or representative
(a) Where the petition for compulsory license seeks to appointed in accordance with Section 33 hereof, shall be
remedy a practice determined after judicial or bound to accept service of notice of the filing of the
administrative process to be anti-competitive; petition within the meaning of this Section.
(b) In situations of national emergency or other 99.2. In every case, the notice shall be published by the
circumstances of extreme urgency; said Office in a newspaper of general circulation, once a
week for three (3) consecutive weeks and once in the IPO
(c) In cases of public non-commercial use; and Gazette at applicant's expense. (Sec. 34-E, R.A. No. 165)
(d) In cases where the demand for the patented drugs SECTION 100. Terms and Conditions of Compulsory
and medicines in the Philippines is not being met to an License. — The basic terms and conditions including the
adequate extent and on reasonable terms, as determined rate of royalties of a compulsory license shall be fixed by
by the Secretary of the Department of Health. the Director of Legal Affairs subject to the following
95.3. In situations of national emergency or other conditions:
circumstances of extreme urgency, the right holder shall 100.1. The scope and duration of such license shall be
be notified as soon as reasonably practicable. limited to the purpose for which it was authorized;
95.4. In the case of public non-commercial use, where the 100.2. The license shall be non-exclusive;
government or contractor, without making a patent
search, knows or has demonstrable grounds to know that 100.3. The license shall be non-assignable, except with
a valid patent is or will be used by or for the government, that part of the enterprise or business with which the
the right holder shall be informed promptly. (n) invention is being exploited;
95.5. Where the demand for the patented drugs and 100.4. Use of the subject matter of the license shall be
medicines in the Philippines is not being met to an devoted predominantly for the supply of the Philippine
adequate extent and on reasonable terms, as determined market: Provided, That this limitation shall not apply
by the Secretary of the Department of Health, the right where the grant of the license is based on the ground
holder shall be informed promptly. that the patentee's manner of exploiting the patent is
determined by judicial or administrative process, to be
(as amended by RA No 9502) (n) anti-competitive.


100.5. The license may be terminated upon proper records kept for the purpose. The original documents
showing that circumstances which led to its grant have together with a signed duplicate thereof shall be filed,
ceased to exist and are unlikely to recur:Provided, That and the contents thereof should be kept confidential. If
adequate protection shall be afforded to the legitimate the original is not available, an authenticated copy
interest of the licensee; and thereof in duplicate may be filed. Upon recording, the
100.6. The patentee shall be paid adequate remuneration Office shall retain the duplicate, return the original or the
taking into account the economic value of the grant or authenticated copy to the party who filed the same and
authorization, except that in cases where the license was notice of the recording shall be published in the IPO
granted to remedy a practice which was determined after Gazette.
judicial or administrative process, to be anti-competitive, 106.2.Such instruments shall be void as against any
the need to correct the anti-competitive practice may be subsequent purchaser or mortgagee for valuable
taken into account in fixing the amount of remuneration. consideration and without notice, unless, it is so recorded
(Sec. 35-B, R.A. No. 165a) in the Office, within three (3) months from the date of
SECTION 101. Amendment, Cancellation, Surrender of said instrument, or prior to the subsequent purchase or
Compulsory License. — 101.1. Upon the request of the mortgage. (Sec. 53, R.A. No. 165a)
patentee or the licensee, the Director of Legal Affairs may SECTION 107. Rights of Joint Owners. — If two (2) or
amend the decision granting the compulsory license, more persons jointly own a patent and the invention
upon proper showing of new facts or circumstances covered thereby, either by the issuance of the patent in
justifying such amendment. their joint favor or by reason of the assignment of an
101.2. Upon the request of the patentee, the said Director undivided share in the patent and invention or by reason
may cancel the compulsory license: of the succession in title to such share, each of the joint
owners shall be entitled to personally make, use, sell, or
(a) If the ground for the grant of the compulsory license import the invention for his own profit: Provided,
no longer exists and is unlikely to recur; however, That neither of the joint owners shall be entitled
(b) If the licensee has neither begun to supply the to grant licenses or to assign his right, title or interest or
domestic market nor made serious preparation therefor; part thereof without the consent of the other owner or
owners, or without proportionally dividing the proceeds
(c) If the licensee has not complied with the prescribed with such other owner or owners. (Sec. 54, R.A. No. 165)
terms of the license;
101.3. The licensee may surrender the license by a written
CHAPTER XII Registration of Utility Models
declaration submitted to the Office.
SECTION 108. Applicability of Provisions Relating to
101.4. The said Director shall cause the amendment,
Patents. — 108.1. Subject to Section 109, the provisions
surrender, or cancellation in the Register, notify the
governing patents shall apply, mutatis mutandis, to the
patentee, and/or the licensee, and cause notice thereof to
registration of utility models.
be published in the IPO Gazette. (Sec. 35-D, R.A. No. 165a)
108.2. Where the right to a patent conflicts with the right
SECTION 102. Licensee's Exemption from Liability. —
to a utility model registration in the case referred to in
Any person who works a patented product, substance
Section 29, the said provision shall apply as if the word
and/or process under a license granted under this
"patent" were replaced by the words "patent or utility
Chapter, shall be free from any liability for infringement:
model registration". (Sec. 55, R.A. No. 165a)
Provided, however, That in the case of voluntary licensing,
no collusion with the licensor is proven. This is without SECTION 109. Special Provisions Relating to Utility
prejudice to the right of the rightful owner of the patent Models. — 109.1. (a) An invention qualifies for registration
to recover from the licensor whatever he may have as a utility model if it is new and industrially applicable.
received as royalties under the license. (Sec. 35-E, R.A. No. (b) Section 21, "Patentable Inventions", shall apply except
165a) the reference to inventive step as a condition of
protection.
CHAPTER XI Assignment and Transmission of 109.2. Sections 43 to 49 shall not apply in the case of
Rights applications for registration of a utility model.
SECTION 103. Transmission of Rights. — 103.1. Patents or 109.3. A utility model registration shall expire, without any
applications for patents and invention to which they possibility of renewal, at the end of the seventh year after
relate, shall be protected in the same way as the rights of the date of the filing of the application.
other property under the Civil Code. 109.4. In proceedings under Sections 61 to 64, the utility
103.2. Inventions and any right, title or interest in and to model registration shall be canceled on the following
patents and inventions covered thereby, may be assigned grounds:
or transmitted by inheritance or bequest or may be the (a) That the claimed invention does not qualify for
subject of a license contract. (Sec. 50, R.A. No. 165a) registration as a utility model and does not meet the
SECTION 104. Assignment of Inventions. — An requirements of registrability, in particular having regard
assignment may be of the entire right, title or interest in to Subsection 109.1 and Sections 22, 23, 24 and 27;
and to the patent and the invention covered thereby, or of (b) That the description and the claims do not comply
an undivided share of the entire patent and invention, in with the prescribed requirements;
which event the parties become joint owners thereof. An
assignment may be limited to a specified territory. (Sec. (c) That any drawing which is necessary for the
51, R.A. No. 165) understanding of the invention has not been furnished;
SECTION 105. Form of Assignment. — The assignment (d) That the owner of the utility model registration is not
must be in writing, acknowledged before a notary public the inventor or his successor in title. (Secs. 55, 56, and 57,
or other officer authorized to administer oath or perform R.A. No. 165a)
notarial acts, and certified under the hand and official SECTION 110. Conversion of Patent Applications or
seal of the notary or such other officer. (Sec. 52, R.A. No. Applications for Utility Model Registration. — 110.1. At
165) any time before the grant or refusal of a patent, an
SECTION 106. Recording. — 106.1. The Office shall record applicant for a patent may, upon payment of the
assignments, licenses and other instruments relating to prescribed fee, convert his application into an application
the transmission of any right, title or interest in and to for registration of a utility model, which shall be accorded
inventions, and patents or application for patents or the filing date of the initial application. An application
inventions to which they relate, which are presented in may be converted only once.
due form to the Office for registration, in books and



110.2. At any time before the grant or refusal of a utility origin of the right to the industrial design or
model registration, an applicant for a utility model layout-design registration.
registration may, upon payment of the prescribed fee, 114.2. The application may be accompanied by a
convert his application into a patent application, which specimen of the article embodying the industrial design
shall be accorded the filing date of the initial application. or layout-design and shall be subject to the payment of
(Sec. 58, R.A. No. 165a) the prescribed fee.
SECTION 111. Prohibition Against Filing of Parallel (as amended by RA No 9150) (n)
Applications. — An applicant may not file two (2)
applications for the same subject, one for utility model SECTION 115. Several Industrial Designs in One
registration and the other for the grant of a patent Application. — Two (2) or more industrial designs may be
whether simultaneously or consecutively. (Sec. 59, R.A. the subject of the same application: Provided, That they
No. 165a) relate to the same sub-class of the International
Classification or to the same set or composition of
articles. (n)
CHAPTER XIII Industrial Design And
SECTION 116. Examination. — 116.1. The Office shall accord
Layout-designs (Topographies) of Integrated
as the filing date the date of receipt of the application
Circuits containing indications allowing the identity of the
SECTION 112. Definition of Terms. — 1. An Industrial applicant to be established and a representation of the
Design is any composition of lines or colors or any article embodying the industrial design or the
three-dimensional form, whether or not associated with layout-design or a pictorial representation thereof.
lines or colors: Provided, That such composition or form 116.2. If the application does not meet these
gives a special appearance to and can serve as pattern for requirements, the filing date should be that date when all
an industrial product or handicraft; the elements specified in Sec. 114 are filed or the mistakes
2. Integrated Circuit means a product, in its final form, or corrected. Otherwise, if the requirements are not
an intermediate form, in which the elements, at least one complied within the prescribed period, the application
of which is an active element, and some or all of the shall be considered withdrawn.
interconnections are integrally formed in and/or on a 116.3. After the application has been accorded a filing date
piece of material, and which is intended to perform an and the required fees paid on time, the applicant shall
electronic function; and comply with the requirements of Sec. 114 within the
3. Layout-Design is synonymous with 'Topography' and prescribed period, otherwise the application shall be
means the three-dimensional disposition, however considered withdrawn.
expressed, of the elements, at least one of which is an 116.4. The Office shall examine whether the industrial
active element, and of some or all of the interconnections design or layout-design complies with requirements of
of an integrated circuit, or such a three-dimensional Sec. 112 (Definitions) and Sec. 113 (Substantive Conditions
disposition prepared for an integrated circuit intended for for Protection).
manufacture.
(as amended by RA No 9150) (n)
SECTION 117. Registration. — 117.1 Where the Office finds
SECTION 113. Substantive Conditions for Protection. — that the conditions referred to in Sec. 113 are fulfilled, it
113.1. Only industrial designs that are new or ornamental shall order that registration be effected in the industrial
shall benefit from protection under this Act. design or layout-design register and cause the issuance
113.2. Industrial designs dictated essentially by technical or of an industrial design or layout-design certificate of
functional considerations to obtain a technical result or registration; otherwise, it shall refuse the application.
those that are contrary to public order, health or morals 117.2. The form and contents of an industrial design or
shall not be protected. layout-design certificate shall be established by the
113.3. Only layout-designs of integrated circuits that are Regulations: Provided, That the name and address of the
original shall benefit from protection under this Act. A creator shall be mentioned in every case.
layout-design shall be considered original if it is the result 117.3. Registration shall be published in the form and
of its creator's own intellectual effort and is not within the period fixed by the Regulations.
commonplace among creators of layout-designs and
manufacturers of integrated circuits at the time of its 117.4. The Office shall record in the register any change in
creation. the identity of the proprietor of the industrial design or
layout-design or his representative, if proof thereof is
113.4. A layout-design consisting of a combination of furnished to it. A fee shall be paid, with the request to
elements and interconnections that are commonplace record the change in the identity of the proprietor. If the
shall be protected only if the combination, taken as a fee is not paid, the request shall be deemed not to have
whole, is original. been filed. In such case, the former proprietor and the
(as amended by RA No 9150) (n) former representative shall remain subject to the rights
and obligations as provided in this Act.
SECTION 114. Contents of the Application. — 114.1. Every
application for registration of an industrial design or 117.5. Anyone may inspect the Register and the files of
layout-design shall contain: registered industrial designs or layout-designs including
files of cancellation proceedings.
(a) A request for registration of the industrial design or
layout-design; (as amended by RA No 9150) (n)
(b) Information identifying the applicant; SECTION 118. The Term of Industrial Design or
Layout-Design Registration. — 118.1. The registration of
(c) An indication of the kind of article of manufacture or
an industrial design shall be for a period of five (5) years
handicraft to which the industrial design or layout-design
from the filing date of the application.
shall be applied;
118.2. The registration of an industrial design may be
(d) A representation of the article of manufacture or
renewed for not more than two (2) consecutive periods of
handicraft by way of drawings, photographs or adequate
five (5) years each, by paying the renewal fee.
graphic representation of the industrial design or of the
layout-design as applied to the article of manufacture or 118.3. The renewal fee shall be paid within twelve (12)
handicraft which clearly and fully discloses those features months preceding the expiration of the period of
for which protection is claimed; and registration. However, a grace period of six (6) months
shall be granted for payment of the fees after such
(e) The name and address of the creator, or where the
expiration, upon payment of a surcharge.
applicant is not the creator, a statement indicating the



118.4. The Regulations shall fix the amount of renewal fee, limitation of layout-design rights provided hereunder
the surcharge and other requirements regarding the shall govern;
recording of renewals of registration. CHAPTER X — Compulsory Licensing;
118.5. Registration of a layout-design shall be valid for a CHAPTER XI — Assignment and Transmission of Rights.
period of ten (10) years, without renewal, and such validity
to be counted from the date of commencement of the 119.4. Rights Conferred to the Owner of a Layout-Design
protection accorded to the layout-design. The protection Registration. — The owner of a layout-design registration
of a layout-design under this Act shall commence: shall enjoy the following rights:
a) on the date of the first commercial exploitation, (1) to reproduce, whether by incorporation in an
anywhere in the world, of the layout-design by or with the integrated circuit or otherwise, the registered
consent of the right holder: Provided, That an application layout-design in its entirety or any part thereof, except
for registration is filed with the Intellectual Property the act of reproducing any part that does not comply
Office within two (2) years from such date of first with the requirement of originality; and
commercial exploitation; or (2) to sell or otherwise distribute for commercial purposes
b) on the filing date accorded to the application for the the registered layout-design, an article or an integrated
registration of the layout-design if the layout-design has circuit in which the registered layout-design is
not been previously exploited commercially anywhere in incorporated.
the world. 119.5. Limitations of Layout Rights. — The owner of a
(as amended by RA No 9150) layout design has no right to prevent third parties from
reproducing, selling or otherwise distributing for
SECTION 119. Application of Other Sections and commercial purposes the registered layout-design in the
Chapters. — 119.1. The following provisions relating to following circumstances:
patents shall apply mutatis mutandis to an industrial
design registration: (1) Reproduction of the registered layout-design for
private purposes or for the sole purpose of evaluation,
SECTION 21 — Novelty; analysis, research or teaching;
SECTION 24 — Prior art: Provided, That the disclosure is (2) Where the act is performed in respect of a
contained in printed documents or in any tangible form; layout-design created on the basis of such analysis or
SECTION 25 — Non-prejudicial Disclosure, evaluation and which is itself original in the meaning as
SECTION 28 — Right to a Patent; provided herein;
SECTION 29 — First to File Rule; (3) Where the act is performed in respect of a registered
layout-design, or in respect of an integrated circuit in
SECTION 30 — Inventions Created Pursuant to a which such a layout-design is incorporated, that has been
Commission; put on the market by or with the consent of the right
SECTION 31 — Right of Priority: Provided, That the holder;
application for industrial design shall be filed within six (6) (4) In respect of an integrated circuit where the person
months from the earliest filing date of the corresponding performing or ordering such an act did not know and had
foreign application; no reasonable ground to know when acquiring the
SECTION 33 — Appointment of Agent or Representative; integrated circuit or the article incorporating such an
integrated circuit, that it incorporated an unlawfully
SECTION 51 — Refusal of the Application; reproduced layout-design: Provided, however, That after
SECTIONS 56 to 60 — Surrender, Correction of and the time that such person has received sufficient notice
Changes in Patent; that the layout-design was unlawfully reproduced, that
person may perform any of the said acts only with respect
CHAPTER VII — Remedies of a Person with a Right to to the stock on hand or ordered before such time and
Patent; shall be liable to pay to the right holder a sum equivalent
CHAPTER VIII — Rights of Patentees and Infringement of to at least 5% of net sales or such other reasonable royalty
Patents; and as would be payable under a freely negotiated license in
CHAPTER XI — Assignment and Transmission of Rights. respect of such layout-design; or
119.2. If the essential elements of an industrial design (5) Where the act is performed in respect of an identical
which is the subject of an application have been obtained layout design which is original and has been created
from the creation of another person without his consent, independently by a third party.
protection under this Chapter cannot be invoked against (as amended by RA No 9150) (n)
the injured party. SECTION 120. Cancellation of Design Registration. —
119.3. The following provisions relating to patents shall 120.1. At any time during the term of the industrial design
apply mutatis mutandis to a layout-design of integrated registration, any person upon payment of the required
circuits registration: fee, may petition the Director of Legal Affairs to cancel
SECTION 28 — Right to a Patent; the industrial design on any of the following grounds:
SECTION 29 — First to File Rule; (a) If the subject matter of the industrial design is not
registerable within the terms of Sections 112 and 113;
SECTION 30 — Inventions Created Pursuant to a
Commission; (b) If the subject matter is not new; or
SECTION 33 — Appointment of Agent or Representative; (c) If the subject matter of the industrial design extends
beyond the content of the application as originally filed.
SECTION 56 — Surrender of Patent;
120.2. Where the grounds for cancellation relate to a part
SECTION 57 — Correction of Mistakes of the Office; of the industrial design, cancellation may be effected to
SECTION 58 — Correction of Mistakes in the Application; such extent only. The restriction may be effected in the
form of an alteration of the effected features of the
SECTION 59 — Changes in Patents’ design.
SECTION 60 — Form and Publication of Amendment; 120.3. Grounds for Cancellation of Layout-Design of
CHAPTER VII — Remedies of a Person with a Right to Integrated Circuits. — Any interested person may petition
Patent; that the registration of a layout-design be cancelled on
the ground that:
CHAPTER VIII — Rights of Patentees and Infringement of
Patents: Provided, That the layout-design rights and (i) the layout-design is not protectable under this Act;


(ii) the right holder is not entitled to protection under this the competent authority of the Philippines to be
Act; or well-known internationally and in the Philippines,
(iii) where the application for registration of the whether or not it is registered here, as being already the
layout-design, was not filed within two (2) years from its mark of a person other than the applicant for registration,
first commercial exploitation anywhere in the world. and used for identical or similar goods or services:
Provided, That in determining whether a mark is
Where the grounds for cancellation are established with well-known, account shall be taken of the knowledge of
respect only to a part of the layout-design, only the the relevant sector of the public, rather than of the public
corresponding part of the registration shall be cancelled. at large, including knowledge in the Philippines which
Any cancelled layout-design registration or part thereof, has been obtained as a result of the promotion of the
shall be regarded as null and void from the beginning mark;
and may be expunged from the records of the (f) Is identical with, or confusingly similar to, or constitutes
Intellectual Property Office. Reference to all cancelled a translation of a mark considered well-known in
layout-design registration shall be published in the IPO accordance with the preceding paragraph, which is
Gazette. registered in the Philippines with respect to goods or
(as amended by RA No 9150) (n) services which are not similar to those with respect to
which registration is applied for:Provided, That use of the
mark in relation to those goods or services would indicate
PART III The Law on Trademarks, Service Marks a connection between those goods or services, and the
owner of the registered mark: Provided, further, That the
and Trade Names interests of the owner of the registered mark are likely to
SECTION 121. Definitions. — As used in Part III, the be damaged by such use;
following terms have the following meanings: (g) Is likely to mislead the public, particularly as to the
121.1. "Mark" means any visible sign capable of nature, quality, characteristics or geographical origin of
distinguishing the goods (trademark) or services (service the goods or services;
mark) of an enterprise and shall include a stamped or (h) Consists exclusively of signs that are generic for the
marked container of goods; (Sec. 38, R.A. No. 166a) goods or services that they seek to identify;
121.2. "Collective mark" means any visible sign designated (i) Consists exclusively of signs or of indications that have
as such in the application for registration and capable of become customary or usual to designate the goods or
distinguishing the origin or any other common services in everyday language or in bona fide and
characteristic, including the quality of goods or services of established trade practice;
different enterprises which use the sign under the control
of the registered owner of the collective mark; (Sec. 40, (j) Consists exclusively of signs or of indications that may
R.A. No. 166a) serve in trade to designate the kind, quality, quantity,
intended purpose, value, geographical origin, time or
121.3. "Trade name" means the name or designation production of the goods or rendering of the services, or
identifying or distinguishing an enterprise; (Sec. 38, R.A. other characteristics of the goods or services;
No. 166a)
(k) Consists of shapes that may be necessitated by
121.4. "Bureau" means the Bureau of Trademarks; technical factors or by the nature of the goods
121.5. "Director" means the Director of Trademarks; themselves or factors that affect their intrinsic value;
121.6. "Regulations" means the Rules of Practice in (l) Consists of color alone, unless defined by a given form;
Trademarks and Service Marks formulated by the Director or
of Trademarks and approved by the Director General; and (m) Is contrary to public order or morality.
121.7. "Examiner" means the trademark examiner. (Sec. 38, 123.2. As regards signs or devices mentioned in
R.A. No. 166a) paragraphs (j), (k), and (l), nothing shall prevent the
SECTION 122. How Marks are Acquired. — The rights in a registration of any such sign or device which has become
mark shall be acquired through registration made validly distinctive in relation to the goods for which registration
in accordance with the provisions of this law. (Sec. 2-A, is requested as a result of the use that have been made of
R.A. No. 166a) it in commerce in the Philippines. The Office may accept
as prima facie evidence that the mark has become
SECTION 123. Registrability. — 123.1. A mark cannot be distinctive, as used in connection with the applicant's
registered if it: goods or services in commerce, proof of substantially
(a) Consists of immoral, deceptive or scandalous matter, exclusive and continuous use thereof by the applicant in
or matter which may disparage or falsely suggest a commerce in the Philippines for five (5) years before the
connection with persons, living or dead, institutions, date on which the claim of distinctiveness is made.
beliefs, or national symbols, or bring them into contempt 123.3. The nature of the goods to which the mark is
or disrepute; applied will not constitute an obstacle to registration.
(b) Consists of the flag or coat of arms or other insignia of (Sec. 4, R.A. No. 166a)
the Philippines or any of its political subdivisions, or of any SECTION 124. Requirements of Application. — 124.1. The
foreign nation, or any simulation thereof; application for the registration of the mark shall be in
(c) Consists of a name, portrait or signature identifying a Filipino or in English and shall contain the following:
particular living individual except by his written consent, (a) A request for registration;
or the name, signature, or portrait of a deceased
President of the Philippines, during the life of his widow, if (b) The name and address of the applicant;
any, except by written consent of the widow; (c) The name of a State of which the applicant is a
(d) Is identical with a registered mark belonging to a national or where he has domicile; and the name of a
different proprietor or a mark with an earlier filing or State in which the applicant has a real and effective
priority date, in respect of: industrial or commercial establishment, if any;
(i) The same goods or services, or (d) Where the applicant is a juridical entity, the law under
which it is organized and existing;
(ii) Closely related goods or services, or
(e) The appointment of an agent or representative, if the
(iii) If it nearly resembles such a mark as to be likely to applicant is not domiciled in the Philippines;
deceive or cause confusion;
(f) Where the applicant claims the priority of an earlier
(e) Is identical with, or confusingly similar to, or application, an indication of:
constitutes a translation of a mark which is considered by



i) The name of the State with whose national office the (e) The list of the goods or services for which the
earlier application was filed or if filed with an office other registration is sought.
than a national office, the name of that office, 127.2. No filing date shall be accorded until the required
ii) The date on which the earlier application was filed, and fee is paid. (n)
iii) Where available, the application number of the earlier SECTION 128. Single Registration for Goods and/or
application; Services. — Where goods and/or services belonging to
(g) Where the applicant claims color as a distinctive several classes of the Nice Classification have been
feature of the mark, a statement to that effect as well as included in one (1) application, such an application shall
the name or names of the color or colors claimed and an result in one registration. (n)
indication, in respect of each color, of the principal parts SECTION 129. Division of Application. — Any application
of the mark which are in that color; referring to several goods or services, hereafter referred to
(h) Where the mark is a three-dimensional mark, a as the "initial application," may be divided by the
statement to that effect; applicant into two (2) or more applications, hereafter
referred to as the "divisional applications," by distributing
(i) One or more reproductions of the mark, as prescribed among the latter the goods or services referred to in the
in the Regulations; initial application. The divisional applications shall
(j) A transliteration or translation of the mark or of some preserve the filing date of the initial application or the
parts of the mark, as prescribed in the Regulations; benefit of the right of priority. (n)
(k) The names of the goods or services for which the SECTION 130. Signature and Other Means of
registration is sought, grouped according to the classes of Self-Identification. — 130.1. Where a signature is required,
the Nice Classification, together with the number of the the Office shall accept:
class of the said Classification to which each group of (a) A hand-written signature; or
goods or services belongs; and
(b) The use of other forms of signature, such as a printed
(l) A signature by, or other self-identification of, the or stamped signature, or the use of a seal, instead of a
applicant or his representative. hand-written signature: Provided, That where a seal is
124.2. The applicant or the registrant shall file a used, it should be accompanied by an indication in letters
declaration of actual use of the mark with evidence to of the name of the signatory.
that effect, as prescribed by the Regulations within three 130.2. The Office shall accept communications to it by
(3) years from the filing date of the application. telecopier, or by electronic means subject to the
Otherwise, the application shall be refused or the mark conditions or requirements that will be prescribed by the
shall be removed from the Register by the Director. Regulations. When communications are made by
124.3. One (1) application may relate to several goods telefacsimile, the reproduction of the signature, or the
and/or services, whether they belong to one (1) class or to reproduction of the seal together with, where required,
several classes of the Nice Classification. the indication in letters of the name of the natural person
whose seal is used, appears. The original communications
124.4. If during the examination of the application, the must be received by the Office within thirty (30) days
Office finds factual basis to reasonably doubt the veracity from date of receipt of the telefacsimile.
of any indication or element in the application, it may
require the applicant to submit sufficient evidence to 130.3. No attestation, notarization, authentication,
remove the doubt. (Sec. 5, R.A. No. 166a) legalization or other certification of any signature or other
means of self-identification referred to in the preceding
SECTION 125. Representation; Address for Service. — If paragraphs, will be required, except, where the signature
the applicant is not domiciled or has no real and effective concerns the surrender of a registration. (n)
commercial establishment in the Philippines, he shall
designate by a written document filed in the Office, the SECTION 131. Priority Right. — 131.1. An application for
name and address of a Philippine resident who may be registration of a mark filed in the Philippines by a person
served notices or process in proceedings affecting the referred to in Section 3, and who previously duly filed an
mark. Such notices or services may be served upon the application for registration of the same mark in one of
person so designated by leaving a copy thereof at the those countries, shall be considered as filed as of the day
address specified in the last designation filed. If the the application was first filed in the foreign country.
person so designated cannot be found at the address 131.2. No registration of a mark in the Philippines by a
given in the last designation, such notice or process may person described in this section shall be granted until
be served upon the Director. (Sec. 3, R.A. No. 166a) such mark has been registered in the country of origin of
SECTION 126. Disclaimers. — The Office may allow or the applicant.
require the applicant to disclaim an unregistrable 131.3. Nothing in this section shall entitle the owner of a
component of an otherwise registrable mark but such registration granted under this section to sue for acts
disclaimer shall not prejudice or affect the applicant's or committed prior to the date on which his mark was
owner's rights then existing or thereafter arising in the registered in this country: Provided, That,
disclaimed matter, nor such shall disclaimer prejudice or notwithstanding the foregoing, the owner of a
affect the applicant's or owner's right on another well-known mark as defined in Section 123.1(e) of this Act,
application of later date if the disclaimed matter became that is not registered in the Philippines, may, against an
distinctive of the applicant's or owner's goods, business or identical or confusingly similar mark, oppose its
services. (Sec. 13, R.A. No. 166a) registration, or petition the cancellation of its registration
SECTION 127. Filing Date. — 127.1. Requirements. — The or sue for unfair competition, without prejudice to
filing date of an application shall be the date on which availing himself of other remedies provided for under the
the Office received the following indications and law.
elements in English or Filipino: 131.4. In like manner and subject to the same conditions
(a) An express or implicit indication that the registration and requirements, the right provided in this section may
of a mark is sought; be based upon a subsequent regularly filed application in
the same foreign country: Provided, That any foreign
(b) The identity of the applicant; application filed prior to such subsequent application has
(c) Indications sufficient to contact the applicant or his been withdrawn, abandoned, or otherwise disposed of,
representative, if any; without having been laid open to public inspection and
without leaving any rights outstanding, and has not
(d) A reproduction of the mark whose registration is served, nor thereafter shall serve, as a basis for claiming a
sought; and right of priority. (Sec. 37, R.A. No. 166a)


SECTION 132. Application Number and Filing Date. — SECTION 137. Registration of Mark and Issuance of a
132.1. The Office shall examine whether the application Certificate to the Owner or his Assignee. — 137.1. The
satisfies the requirements for the grant of a filing date as Office shall maintain a Register in which shall be
provided in Section 127 and Regulations relating thereto. registered marks, numbered in the order of their
If the application does not satisfy the filing requirements, registration, and all transactions in respect of each mark,
the Office shall notify the applicant who shall within a required to be recorded by virtue of this law.
period fixed by the Regulations complete or correct the 137.2. The registration of a mark shall include a
application as required, otherwise, the application shall reproduction of the mark and shall mention: its number;
be considered withdrawn. the name and address of the registered owner and, if the
132.2 Once an application meets the filing requirements registered owner's address is outside the country, his
of Section 127, it shall be numbered in the sequential address for service within the country; the dates of
order, and the applicant shall be informed of the application and registration; if priority is claimed, an
application number and the filing date of the application indication of this fact, and the number, date and country
will be deemed to have been abandoned. (n) of the application, basis of the priority claims; the list of
SECTION 133. Examination and Publication. — 133.1. goods or services in respect of which registration has
Once the application meets the filing requirements of been granted, with the indication of the corresponding
Section 127, the Office shall examine whether the class or classes; and such other data as the Regulations
application meets the requirements of Section 124 and may prescribe from time to time.
the mark as defined in Section 121 is registrable under 137.3. A certificate of registration of a mark may be issued
Section 123. to the assignee of the applicant: Provided, That the
133.2. Where the Office finds that the conditions referred assignment is recorded in the Office. In case of a change
to in Subsection 133.1 are fulfilled, it shall, upon payment of ownership, the Office shall at the written request
of the prescribed fee, forthwith cause the application, as signed by the owner, or his representative, or by the new
filed, to be published in the prescribed manner. owner, or his representative and upon a proper showing
and the payment of the prescribed fee, issue to such
133.3. If after the examination, the applicant is not entitled assignee a new certificate of registration of the said mark
to registration for any reason, the Office shall advise the in the name of such assignee, and for the unexpired part
applicant thereof and the reasons therefor. The applicant of the original period.
shall have a period of four (4) months in which to reply or
amend his application, which shall then be re-examined. 137.4. The Office shall record any change of address, or
The Regulations shall determine the procedure for the address for service, which shall be notified to it by the
re-examination or revival of an application as well as the registered owner.
appeal to the Director of Trademarks from any final 137.5. In the absence of any provision to the contrary in
action by the Examiner. this Act, communications to be made to the registered
133.4. An abandoned application may be revived as a owner by virtue of this Act shall be sent to him at his last
pending application within three (3) months from the recorded address and, at the same, at his last recorded
date of abandonment, upon good cause shown and the address for service. (Sec. 19, R.A. No. 166a)
payment of the required fee. SECTION 138. Certificates of Registration. — A certificate
133.5. The final decision of refusal of the Director of of registration of a mark shall be prima facie evidence of
Trademarks shall be appealable to the Director General in the validity of the registration, the registrant's ownership
accordance with the procedure fixed by the Regulations. of the mark, and of the registrant's exclusive right to use
(Sec. 7, R.A. No. 166a) the same in connection with the goods or services and
those that are related thereto specified in the certificate.
SECTION 134. Opposition. — Any person who believes (Sec. 20, R.A. No. 165)
that he would be damaged by the registration of a mark
may, upon payment of the required fee and within thirty SECTION 139. Publication of Registered Marks;
(30) days after the publication referred to in Subsection Inspection of Register. — 139.1. The Office shall publish, in
133.2, file with the Office an opposition to the application. the form and within the period fixed by the Regulations,
Such opposition shall be in writing and verified by the the marks registered, in the order of their registration,
oppositor or by any person on his behalf who knows the reproducing all the particulars referred to in Subsection
facts, and shall specify the grounds on which it is based 137.2.
and include a statement of the facts relied upon. Copies 139.2. Marks registered at the Office may be inspected
of certificates of registration of marks registered in other free of charge and any person may obtain copies thereof
countries or other supporting documents mentioned in at his own expense. This provision shall also be applicable
the opposition shall be filed therewith, together with the to transactions recorded in respect of any registered
translation in English, if not in the English language. For mark. (n)
good cause shown and upon payment of the required SECTION 140. Cancellation upon Application by
surcharge, the time for filing an opposition may be Registrant; Amendment or Disclaimer of Registration.
extended by the Director of Legal Affairs, who shall notify — Upon application of the registrant, the Office may
the applicant of such extension. The Regulations shall fix permit any registration to be surrendered for cancellation,
the maximum period of time within which to file the and upon cancellation the appropriate entry shall be
opposition. (Sec. 8, R.A. No. 165a) made in the records of the Office. Upon application of the
SECTION 135. Notice and Hearing. — Upon the filing of registrant and payment of the prescribed fee, the Office
an opposition, the Office shall serve notice of the filing on for good cause may permit any registration to be
the applicant, and of the date of the hearing thereof upon amended or to be disclaimed in part: Provided, That the
the applicant and the oppositor and all other persons amendment or disclaimer does not alter materially the
having any right, title or interest in the mark covered by character of the mark. Appropriate entry shall be made in
the application, as appear of record in the Office. (Sec. 9, the records of the Office upon the certificate of
R.A. No. 165) registration or, if said certificate is lost or destroyed, upon
SECTION 136. Issuance and Publication of Certificate. — a certified copy thereof. (Sec. 14, R.A. No. 166)
When the period for filing the opposition has expired, or SECTION 141. Sealed and Certified Copies as Evidence.
when the Director of Legal Affairs shall have denied the — Copies of any records, books, papers, or drawings
opposition, the Office upon payment of the required fee, belonging to the Office relating to marks, and copies of
shall issue the certificate of registration. Upon issuance of registrations, when authenticated by the seal of the
a certificate of registration, notice thereof making Office and certified by the Director of the Administrative,
reference to the publication of the application shall be Financial and Human Resource Development Service
published in the IPO Gazette. (Sec. 10, R.A. No. 165) Bureau or in his name by an employee of the Office duly
authorized by said Director, shall be evidence in all cases



wherein the originals would be evidence; and any person expiration of the period for which the registration was
who applies and pays the prescribed fee shall secure such issued or renewed, or it may be made within six (6)
copies. (n) months after such expiration on payment of the
SECTION 142. Correction of Mistakes Made by the additional fee herein prescribed.
Office. — Whenever a material mistake in a registration 146.3. If the Office refuses to renew the registration, it
incurred through the fault of the Office is clearly disclosed shall notify the registrant of his refusal and the reasons
by the records of the Office, a certificate stating the fact therefor.
and nature of such mistake shall be issued without 146.4.An applicant for renewal not domiciled in the
charge, recorded and a printed copy thereof shall be Philippines shall be subject to and comply with the
attached to each printed copy of the registration. Such requirements of this Act. (Sec. 15, R.A. No. 166a)
corrected registration shall thereafter have the same
effect as the original certificate; or in the discretion of the SECTION 147. Rights Conferred. — 147.1. Except in cases of
Director of the Administrative, Financial and Human importation of drugs and medicines allowed under
Resource Development Service Bureau a new certificate Section 72.1 of this Act and of off-patent drugs and
of registration may be issued without charge. All medicines, the owner of a registered mark shall have the
certificates of correction heretofore issued in accordance exclusive right to prevent all third parties not having the
with the Regulations and the registration to which they owner's consent from using in the course of trade
are attached shall have the same force and effect as if identical or similar signs or containers for goods or
such certificates and their issuance had been authorized services which are identical or similar to those in respect
by this Act. (n) of which the trademark is registered where such use
would result in a likelihood of confusion. In case of the use
SECTION 143. Correction of Mistakes Made by Applicant. of an identical sign for identical goods or services, a
— Whenever a mistake is made in a registration and such likelihood of confusion shall be presumed.
mistake occurred in good faith through the fault of the
applicant, the Office may issue a certificate upon the There shall be no infringement of trademarks or
payment of the prescribed fee: Provided, That the tradenames of imported or sold patented drugs and
correction does not involve any change in the registration medicines allowed under Section 72.1 of this Act, as well
that requires republication of the mark. (n) as imported or sold off-patent drugs and medicines:
Provided, That, said drugs and medicines bear the
SECTION 144. Classification of Goods and Services. — registered marks that have not been tampered,
144.1. Each registration, and any publication of the Office unlawfully modified, or infringed upon, under Section 155
which concerns an application or registration effected by of this Code.
the Office shall indicate the goods or services by their
names, grouped according to the classes of the Nice (as amended by RA No 9502)
Classification, and each group shall be preceded by the 147.2. The exclusive right of the owner of a well-known
number of the class of that Classification to which that mark defined in Subsection 123.1(e) which is registered in
group of goods or services belongs, presented in the the Philippines, shall extend to goods and services which
order of the classes of the said Classification. are not similar to those in respect of which the mark is
144.2.Goods or services may not be considered as being registered: Provided, That use of that mark in relation to
similar or dissimilar to each other on the ground that, in those goods or services would indicate a connection
any registration or publication by the Office, they appear between those goods or services and the owner of the
in different classes of the Nice Classification. (Sec. 6, R.A. registered mark: Provided, further, That the interests of
No. 166a) the owner of the registered mark are likely to be
damaged by such use. (n)
SECTION 145. Duration. — A certificate of registration
shall remain in force for ten (10) years: Provided, That the SECTION 148. Use of Indications by Third Parties for
registrant shall file a declaration of actual use and Purposes Other than those for which the Mark is Used.
evidence to that effect, or shall show valid reasons based — Registration of the mark shall not confer on the
on the existence of obstacles to such use, as prescribed registered owner the right to preclude third parties from
by the Regulations, within one (1) year from the fifth using bona fide their names, addresses, pseudonyms, a
anniversary of the date of the registration of the mark. geographical name, or exact indications concerning the
Otherwise, the mark shall be removed from the Register kind, quality, quantity, destination, value, place of origin,
by the Office. (Sec. 12, R.A. No. 166a) or time of production or of supply, of their goods or
services: Provided, That such use is confined to the
SECTION 146. Renewal. — 146.1. A certificate of purposes of mere identification or information and
registration may be renewed for periods of ten (10) years cannot mislead the public as to the source of the goods
at its expiration upon payment of the prescribed fee and or services. (n)
upon filing of a request. The request shall contain the
following indications: SECTION 149. Assignment and Transfer of Application
and Registration. — 149.1. An application for registration
(a) An indication that renewal is sought; of a mark, or its registration, may be assigned or
(b) The name and address of the registrant or his transferred with or without the transfer of the business
successor-in-interest, hereafter referred to as the "right using the mark. (n)
holder"; 149.2. Such assignment or transfer shall, however, be null
(c) The registration number of the registration concerned; and void if it is liable to mislead the public, particularly as
(d) The filing date of the application which resulted in the regards the nature, source, manufacturing process,
registration concerned to be renewed; characteristics, or suitability for their purpose, of the
goods or services to which the mark is applied.
(e )Where the right holder has a representative, the name
and address of that representative; 149.3. The assignment of the application for registration of
a mark, or of its registration, shall be in writing and
(f) The names of the recorded goods or services for which require the signatures of the contracting parties.
the renewal is requested or the names of the recorded Transfers by mergers or other forms of succession may be
goods or services for which the renewal is not requested, made by any document supporting such transfer.
grouped according to the classes of the Nice
Classification to which that group of goods or services 149.4. Assignments and transfers of registrations of marks
belongs and presented in the order of the classes of the shall be recorded at the Office on payment of the
said Classification; and prescribed fee; assignment and transfers of applications
for registration shall, on payment of the same fee, be
(g) A signature by the right holder or his representative. provisionally recorded, and the mark, when registered,
146.2. Such request shall be in Filipino or English and may shall be in the name of the assignee or transferee.
be made at any time within six (6) months before the



149.5. Assignments and transfers shall have no effect 152.3. The use of a mark in connection with one or more of
against third parties until they are recorded at the Office. the goods or services belonging to the class in respect of
(Sec. 31, R.A. No. 166a) which the mark is registered shall prevent its cancellation
SECTION 150. License Contracts. — 150.1. Any license or removal in respect of all other goods or services of the
contract concerning the registration of a mark, or an same class.
application therefor, shall provide for effective control by 152.4. The use of a mark by a company related with the
the licensor of the quality of the goods or services of the registrant or applicant shall inure to the latter's benefit,
licensee in connection with which the mark is used. If the and such use shall not affect the validity of such mark or
license contract does not provide for such quality control, of its registration: Provided, That such mark is not used in
or if such quality control is not effectively carried out, the such manner as to deceive the public. If use of a mark by
license contract shall not be valid. a person is controlled by the registrant or applicant with
150.2. A license contract shall be submitted to the Office respect to the nature and quality of the goods or services,
which shall keep its contents confidential but shall record such use shall inure to the benefit of the registrant or
it and publish a reference thereto. A license contract shall applicant. (n)
have no effect against third parties until such recording is SECTION 153. Requirements of Petition; Notice and
effected. The Regulations shall fix the procedure for the Hearing. — Insofar as applicable, the petition for
recording of the license contract. (n) cancellation shall be in the same form as that provided in
SECTION 151. Cancellation. — 151.1. A petition to cancel a Section 134 hereof, and notice and hearing shall be as
registration of a mark under this Act may be filed with provided in Section 135 hereof.
the Bureau of Legal Affairs by any person who believes SECTION 154. Cancellation of Registration. — If the
that he is or will be damaged by the registration of a Bureau of Legal Affairs finds that a case for cancellation
mark under this Act as follows: has been made out, it shall order the cancellation of the
(a) Within five (5) years from the date of the registration registration. When the order or judgment becomes final,
of the mark under this Act. any right conferred by such registration upon the
registrant or any person in interest of record shall
(b) At any time, if the registered mark becomes the terminate. Notice of cancellation shall be published in the
generic name for the goods or services, or a portion IPO Gazette. (Sec. 19, R.A. No. 166a)
thereof, for which it is registered, or has been abandoned,
or its registration was obtained fraudulently or contrary to SECTION 155. Remedies; Infringement. — Any person
the provisions of this Act, or if the registered mark is who shall, without the consent of the owner of the
being used by, or with the permission of, the registrant so registered mark:
as to misrepresent the source of the goods or services on 155.1. Use in commerce any reproduction, counterfeit,
or in connection with which the mark is used. If the copy, or colorable imitation of a registered mark or the
registered mark becomes the generic name for less than same container or a dominant feature thereof in
all of the goods or services for which it is registered, a connection with the sale, offering for sale, distribution,
petition to cancel the registration for only those goods or advertising of any goods or services including other
services may be filed. A registered mark shall not be preparatory steps necessary to carry out the sale of any
deemed to be the generic name of goods or services goods or services on or in connection with which such
solely because such mark is also used as a name of or to use is likely to cause confusion, or to cause mistake, or to
identify a unique product or service. The primary deceive; or
significance of the registered mark to the relevant public 155.2. Reproduce, counterfeit, copy or colorably imitate a
rather than purchaser motivation shall be the test for registered mark or a dominant feature thereof and apply
determining whether the registered mark has become such reproduction, counterfeit, copy or colorable
the generic name of goods or services on or in imitation to labels, signs, prints, packages, wrappers,
connection with which it has been used. (n) receptacles or advertisements intended to be used in
(c) At any time, if the registered owner of the mark commerce upon or in connection with the sale, offering
without legitimate reason fails to use the mark within the for sale, distribution, or advertising of goods or services on
Philippines, or to cause it to be used in the Philippines by or in connection with which such use is likely to cause
virtue of a license during an uninterrupted period of three confusion, or to cause mistake, or to deceive, shall be
(3) years or longer. liable in a civil action for infringement by the registrant
151.2. Notwithstanding the foregoing provisions, the court for the remedies hereinafter set forth: Provided, That the
or the administrative agency vested with jurisdiction to infringement takes place at the moment any of the acts
hear and adjudicate any action to enforce the rights to a stated in Subsection 155.1 or this subsection are
registered mark shall likewise exercise jurisdiction to committed regardless of whether there is actual sale of
determine whether the registration of said mark may be goods or services using the infringing material. (Sec. 22,
cancelled in accordance with this Act. The filing of a suit R.A. No. 166a)
to enforce the registered mark with the proper court or SECTION 156. Actions, and Damages and Injunction for
agency shall exclude any other court or agency from Infringement. — 156.1. The owner of a registered mark
assuming jurisdiction over a subsequently filed petition may recover damages from any person who infringes his
to cancel the same mark. On the other hand, the earlier rights, and the measure of the damages suffered shall be
filing of petition to cancel the mark with the Bureau of either the reasonable profit which the complaining party
Legal Affairs shall not constitute a prejudicial question would have made, had the defendant not infringed his
that must be resolved before an action to enforce the rights, or the profit which the defendant actually made
rights to same registered mark may be decided. (Sec. 17, out of the infringement, or in the event such measure of
R.A. No. 166a) damages cannot be readily ascertained with reasonable
SECTION 152. Non-use of a Mark When Excused. — 152.1. certainty, then the court may award as damages a
Non-use of a mark may be excused if caused by reasonable percentage based upon the amount of gross
circumstances arising independently of the will of the sales of the defendant or the value of the services in
trademark owner. Lack of funds shall not excuse non-use connection with which the mark or trade name was used
of a mark. in the infringement of the rights of the complaining
party. (Sec. 23, first par., R.A. No. 166a)
152.2. The use of the mark in a form different from the
form in which it is registered, which does not alter its 156.2. On application of the complainant, the court may
distinctive character, shall not be ground for cancellation impound during the pendency of the action, sales
or removal of the mark and shall not diminish the invoices and other documents evidencing sales. (n)
protection granted to the mark. 156.3. In cases where actual intent to mislead the public or
to defraud the complainant is shown, in the discretion of


the court, the damages may be doubled. (Sec. 23, first injunction or restraining order with respect to such
par., R.A. No. 166) infringing matter. (n) and
156.4. The complainant, upon proper showing, may also 159.4 There shall be no infringement of trademarks or
be granted injunction. (Sec. 23, second par., R.A. No. 166a) tradenames of imported or sold drugs and medicines
SECTION 157. Power of Court to Order Infringing allowed under Section 72.1 of this Act, as well as imported
Material Destroyed. — 157.1 In any action arising under or sold off-patent drugs and medicines: Provided, That
this Act, in which a violation of any right of the owner of said drugs and medicines bear the registered marks that
the registered mark is established, the court may order have not been tampered, unlawfully modified, or
that goods found to be infringing be, without infringed upon as defined under Section 155 of this
compensation of any sort, disposed of outside the Code.(as amended by RA No 9502)
channels of commerce in such a manner as to avoid any SECTION 160. Right of Foreign Corporation to Sue in
harm caused to the right holder, or destroyed; and all Trademark or Service Mark Enforcement Action. — Any
labels, signs, prints, packages, wrappers, receptacles and foreign national or juridical person who meets the
advertisements in the possession of the defendant, requirements of Section 3 of this Act and does not
bearing the registered mark or trade name or any engage in business in the Philippines may bring a civil or
reproduction, counterfeit, copy or colorable imitation administrative action hereunder for opposition,
thereof, all plates, molds, matrices and other means of cancellation, infringement, unfair competition, or false
making the same, shall be delivered up and destroyed. designation of origin and false description, whether or
157.2.In regard to counterfeit goods, the simple removal of not it is licensed to do business in the Philippines under
the trademark affixed shall not be sufficient other than in existing laws. (Sec. 21-A, R.A. No. 166a)
exceptional cases which shall be determined by the SECTION 161. Authority to Determine Right to
Regulations, to permit the release of the goods into the Registration. — In any action involving a registered mark,
channels of commerce. (Sec. 24, R.A. No. 166a) the court may determine the right to registration, order
SECTION 158. Damages; Requirement of Notice. — In the cancellation of a registration, in whole or in part, and
any suit for infringement, the owner of the registered otherwise rectify the register with respect to the
mark shall not be entitled to recover profits or damages registration of any party to the action in the exercise of
unless the acts have been committed with knowledge this. Judgment and orders shall be certified by the court
that such imitation is likely to cause confusion, or to cause to the Director, who shall make appropriate entry upon
mistake, or to deceive. Such knowledge is presumed if the records of the Bureau, and shall be controlled thereby.
the registrant gives notice that his mark is registered by (Sec. 25, R.A. No. 166a)
displaying with the mark the words '"Registered Mark" or SECTION 162. Action for False or Fraudulent
the letter R within a circle or if the defendant had Declaration. — Any person who shall procure registration
otherwise actual notice of the registration. (Sec. 21, R.A. in the Office of a mark by a false or fraudulent declaration
No. 166a) or representation, whether oral or in writing, or by any
SECTION 159. Limitations to Actions for Infringement. — false means, shall be liable in a civil action by any person
Notwithstanding any other provision of this Act, the injured thereby for any damages sustained in
remedies given to the owner of a right infringed under consequence thereof (Sec. 26, R.A. No. 166)
this Act shall be limited as follows: SECTION 163. Jurisdiction of Court. — All actions under
159.1. Notwithstanding the provisions of Section 155 Sections 150, 155, 164, and 166 to 169 shall be brought
hereof, a registered mark shall have no effect against any before the proper courts with appropriate jurisdiction
person who, in good faith, before the filing date or the under existing laws. (Sec. 27, R.A. No. 166)
priority date, was using the mark for the purposes of his SECTION 164. Notice of Filing Suit Given to the Director.
business or enterprise: Provided, That his right may only — It shall be the duty of the clerks of such courts within
be transferred or assigned together with his enterprise or one (1) month after the filing of any action, suit, or
business or with that part of his enterprise or business in proceeding involving a mark registered under the
which the mark is used. provisions of this Act, to notify the Director in writing
159.2. Where an infringer who is engaged solely in the setting forth: the names and addresses of the litigants
business of printing the mark or other infringing and designating the number of the registration or
materials for others is an innocent infringer, the owner of registrations and within one (1) month after the judgment
the right infringed shall be entitled as against such is entered or an appeal is taken, the clerk of court shall
infringer only to an injunction against future printing. give notice thereof to the Office, and the latter shall
endorse the same upon the filewrapper of the said
159.3. Where the infringement complained of is contained registration or registrations and incorporate the same as
in or is part of paid advertisement in a newspaper, a part of the contents of said filewrapper. (n)
magazine, or other similar periodical or in an electronic
communication, the remedies of the owner of the right SECTION 165. Trade Names or Business Names. — 165.1.
infringed as against the publisher or distributor of such A name or designation may not be used as a trade name
newspaper, magazine, or other similar periodical or if by its nature or the use to which such name or
electronic communication shall be limited to an designation may be put, it is contrary to public order or
injunction against the presentation of such advertising morals and if, in particular, it is liable to deceive trade
matter in future issues of such newspapers, magazines, or circles or the public as to the nature of the enterprise
other similar periodicals or in future transmissions of such identified by that name.
electronic communications. The limitations of this 165.2. (a)Notwithstanding any laws or regulations
subparagraph shall apply only to innocent infringers: providing for any obligation to register trade names, such
Provided, That such injunctive relief shall not be available names shall be protected, even prior to or without
to the owner of the right infringed with respect to an registration, against any unlawful act committed by third
issue of a newspaper, magazine, or other similar parties.
periodical or an electronic communication containing (b) In particular, any subsequent use of the trade name by
infringing matter where restraining the dissemination of a third party, whether as a trade name or a mark or
such infringing matter in any particular issue of such collective mark, or any such use of a similar trade name or
periodical or in an electronic communication would delay mark, likely to mislead the public, shall be deemed
the delivery of such issue or transmission of such unlawful.
electronic communication is customarily conducted in
accordance with the sound business practice, and not 165.3. The remedies provided for in Sections 153 to 156 and
due to any method or device adopted to evade this Sections 166 and 167 shall apply mutatis mutandis.
section or to prevent or delay the issuance of an 165.4. Any change in the ownership of a trade name shall
be made with the transfer of the enterprise or part



thereof identified by that name. The provisions of contained, or the devices or words thereon, or in any
Subsections 149.2 to 149.4 shall apply mutatis mutandis. other feature of their appearance, which would be likely
SECTION 166. Goods Bearing Infringing Marks or Trade to influence purchasers to believe that the goods offered
Names. — No article of imported merchandise which are those of a manufacturer or dealer, other than the
shall copy or simulate the name of any domestic product, actual manufacturer or dealer, or who otherwise clothes
or manufacturer, or dealer, or which shall copy or the goods with such appearance as shall deceive the
simulate a mark registered in accordance with the public and defraud another of his legitimate trade, or any
provisions of this Act, or shall bear a mark or trade name subsequent vendor of such goods or any agent of any
calculated to induce the public to believe that the article vendor engaged in selling such goods with a like
is manufactured in the Philippines, or that it is purpose;
manufactured in any foreign country or locality other (b) Any person who by any artifice, or device, or who
than the country or locality where it is in fact employs any other means calculated to induce the false
manufactured, shall be admitted to entry at any belief that such person is offering the services of another
customhouse of the Philippines. In order to aid the who has identified such services in the mind of the
officers of the customs service in enforcing this public; or
prohibition, any person who is entitled to the benefits of (c) Any person who shall make any false statement in the
this Act, may require that his name and residence, and course of trade or who shall commit any other act
the name of the locality in which his goods are contrary to good faith of a nature calculated to discredit
manufactured, a copy of the certificate of registration of the goods, business or services of another.
his mark or trade name, to be recorded in books which
shall be kept for this purpose in the Bureau of Customs, 168.4. The remedies provided by Sections 156, 157 and 161
under such regulations as the Collector of Customs with shall apply mutatis mutandis. (Sec. 29, R.A. No. 166a)
the approval of the Secretary of Finance shall prescribe, SECTION 169. False Designations of Origin; False
and may furnish to the said Bureau facsimiles of his Description or Representation. — 169.1. Any person who,
name, the name of the locality in which his goods are on or in connection with any goods or services, or any
manufactured, or his registered mark or trade name, and container for goods, uses in commerce any word, term,
thereupon the Collector of Customs shall cause one (1) or name, symbol, or device, or any combination thereof, or
more copies of the same to be transmitted to each any false designation of origin, false or misleading
collector or to other proper officer of the Bureau of description of fact, or false or misleading representation
Customs. (Sec. 35,R.A. No. 166) of fact, which:
SECTION 167. Collective Marks. — 167.1. Subject to (a) Is likely to cause confusion, or to cause mistake, or to
Subsections 167.2 and 167.3, Sections 122 to 164 and 166 deceive as to the affiliation, connection, or association of
shall apply to collective marks, except that references such person with another person, or as to the origin,
therein to "mark" shall be read as "collective mark". sponsorship, or approval of his or her goods, services, or
167.2. (a) An application for registration of a collective commercial activities by another person; or
mark shall designate the mark as a collective mark and (b) In commercial advertising or promotion,
shall be accompanied by a copy of the agreement, if any, misrepresents the nature, characteristics, qualities, or
governing the use of the collective mark. geographic origin of his or her or another person's goods,
(b) The registered owner of a collective mark shall notify services, or commercial activities, shall be liable to a civil
the Director of any changes made in respect of the action for damages and injunction provided in Sections
agreement referred to in paragraph (a). 156 and 157 of this Act by any person who believes that he
or she is or is likely to be damaged by such act.
167.3. In addition to the grounds provided in Section 149,
the Court shall cancel the registration of a collective mark 169.2. Any goods marked or labelled in contravention of
if the person requesting the cancellation proves that only the provisions of this Section shall not be imported into
the registered owner uses the mark, or that he uses or the Philippines or admitted entry at any customhouse of
permits its use in contravention of the agreements the Philippines. The owner, importer, or consignee of
referred to in Subsection 166.2 or that he uses or permits goods refused entry at any customhouse under this
its use in a manner liable to deceive trade circles or the section may have any recourse under the customs
public as to the origin or any other common revenue laws or may have the remedy given by this Act in
characteristics of the goods or services concerned. cases involving goods refused entry or seized. (Sec. 30,
R.A. No. 166a)
167.4. The registration of a collective mark, or an
application therefor shall not be the subject of a license SECTION 170. Penalties. — Independent of the civil and
contract. (Sec. 40, R.A. No. 166a) administrative sanctions imposed by law, a criminal
penalty of imprisonment from two (2) years to five (5)
SECTION 168. Unfair Competition, Rights, Regulation years and a fine ranging from Fifty thousand pesos
and Remedies. — 168.1. A person who has identified in (P50,000) to Two hundred thousand pesos (P200,000),
the mind of the public the goods he manufactures or shall be imposed on any person who is found guilty of
deals in, his business or services from those of others, committing any of the acts mentioned in Section 155,
whether or not a registered mark is employed, has a Section 168 and Subsection 169.1. (Arts. 188 and 189,
property right in the goodwill of the said goods, business Revised Penal Code)
or services so identified, which will be protected in the
same manner as other property rights.
168.2. Any person who shall employ deception or any PART IV The Law on Copyright
other means contrary to good faith by which he shall pass
off the goods manufactured by him or in which he deals,
or his business, or services for those of the one having CHAPTER I Preliminary Provisions
established such goodwill, or who shall commit any acts SECTION 171. Definitions. — For the purpose of this Act,
calculated to produce said result, shall be guilty of unfair the following terms have the following meaning:
competition, and shall be subject to an action therefor.
171.1. "Author" is the natural person who has created the
168.3. In particular, and without in any way limiting the work;
scope of protection against unfair competition, the
following shall be deemed guilty of unfair competition: 171.2. A "collective work" is a work which has been created
by two (2) or more natural persons at the initiative and
(a) Any person, who is selling his goods and gives them under the direction of another with the understanding
the general appearance of goods of another that it will be disclosed by the latter under his own name
manufacturer or dealer, either as to the goods themselves and that contributing natural persons will not be
or in the wrapping of the packages in which they are identified;


171.3. 'Communication to the public' or 'communicate to performance; and any number or code that represent
the public' means any communication to the public, such information, when any of these items is attached to
including broadcasting, rebroadcasting, retransmitting a copy of the work, sound recording or fixation of
by cable, broadcasting and retransmitting by satellite, performance or appears in conjunction with the
and includes the making of a work available to the public communication to the public of a work, sound recording
by wire or wireless means in such a way that members of or performance.
the public may access these works from a place and time (as amended by RA No 10372)
individually chosen by them; (as amended by RA No
10372)
171.4. A "computer" is an electronic or similar device CHAPTER II Original Works
having information-processing capabilities, and a SECTION 172. Literary and Artistic Works. — 172.1. Literary
"computer program" is a set of instructions expressed in and artistic works, hereinafter referred to as "works", are
words, codes, schemes or in any other form, which is original intellectual creations in the literary and artistic
capable when incorporated in a medium that the domain protected from the moment of their creation and
computer can read, of causing the computer to perform shall include in particular:
or achieve a particular task or result;
(a) Books, pamphlets, articles and other writings;
171.5. "Public lending" is the transfer of possession of the
(b) Periodicals and newspapers;
original or a copy of a work or sound recording for a
limited period, for non-profit purposes, by an institution (c) Lectures, sermons, addresses, dissertations prepared
the services of which are available to the public, such as for oral delivery, whether or not reduced in writing or
public library or archive; other material form;
171.6. "Public performance", in the case of a work other (d) Letters;
than an audiovisual work, is the recitation, playing, (e) Dramatic or dramatico-musical compositions;
dancing, acting or otherwise performing the work, either choreographic works or entertainment in dumb shows;
directly or by means of any device or process; in the case
of an audiovisual work, the showing of its images in (f) Musical compositions, with or without words;
sequence and the making of the sounds accompanying it (g) Works of drawing, painting, architecture, sculpture,
audible; and, in the case of a sound recording, making the engraving, lithography or other works of art; models or
recorded sounds audible at a place or at places where designs for works of art;
persons outside the normal circle of a family and that
family's closest social acquaintances are or can be (h) Original ornamental designs or models for articles of
present, irrespective of whether they are or can be manufacture, whether or not registrable as an industrial
present at the same place and at the same time, or at design, and other works of applied art;
different places and/or at different times, and where the (i) Illustrations, maps, plans, sketches, charts and
performance can be perceived without the need for three-dimensional works relative to geography,
communication within the meaning of Subsection 171.3; topography, architecture or science;
171.7. "Published works" means works, which, with the (j) Drawings or plastic works of a scientific or technical
consent of the authors, are made available to the public character;
by wire or wireless means in such a way that members of
(k) Photographic works including works produced by a
the public may access these works from a place and time
process analogous to photography; lantern slides;
individually chosen by them: Provided, That availability of
such copies has been such, as to satisfy the reasonable (l) Audiovisual works and cinematographic works and
requirements of the public, having regard to the nature of works produced by a process analogous to
the work; cinematography or any process for making audio-visual
recordings;
171.8. "Rental" is the transfer of the possession of the
original or a copy of a work or a sound recording for a (m) Pictorial illustrations and advertisements;
limited period of time, for profit-making purposes; (n) Computer programs; and
171.9. 'Reproduction' is the making of one (1) or more (o) Other literary, scholarly, scientific and artistic works.
copies, temporary or permanent, in whole or in part, of a
work or a sound recording in any manner or form without 172.2. Works are protected by the sole fact of their
prejudice to the provisions of Section 185 of this Act (Sec. creation, irrespective of their mode or form of expression,
41[E], P.D. No. 49a); (as amended by RA No 10372) as well as of their content, quality and purpose. (Sec. 2,
P.D. No. 49a)
171.10. A "work of applied art" is an artistic creation with
utilitarian functions or incorporated in a useful article,
whether made by hand or produced on an industrial CHAPTER III Derivative Works
scale; SECTION 173. Derivative Works. — 173.1. The following
171.11. A "work of the Government of the Philippines" is a derivative works shall also be protected by copyright:
work created by an officer or employee of the Philippine (a) Dramatizations, translations, adaptations,
Government or any of its subdivisions and abridgments, arrangements, and other alterations of
instrumentalities, including government-owned or literary or artistic works; and
controlled corporations as a part of his regularly
prescribed official duties. (b) Collections of literary, scholarly or artistic works, and
compilations of data and other materials which are
171.12. 'Technological measure' means any technology, original by reason of the selection or coordination or
device or component that, in the normal course of its arrangement of their contents. (Sec. 2, (P) and (Q), P.D. No.
operation, restricts acts in respect of a work, performance 49)
or sound recording, which are not authorized by the
authors, performers or producers of sound recordings 173.2. The works referred to in paragraphs (a) and (b) of
concerned or permitted by law; Subsection 173.1 shall be protected as new works:
Provided, however, That such new work shall not affect
171.13. 'Rights management information' means the force of any subsisting copyright upon the original
information which identifies the work, sound recording or works employed or any part thereof, or be construed to
performance; the author of the work, producer of the imply any right to such use of the original works, or to
sound recording or performer of the performance; the secure or extend copyright in such original works. (Sec. 8,
owner of any right in the work, sound recording or P.D. 49; Art. 10, TRIPS)
performance; or information about the terms and
conditions of the use of the work, sound recording or SECTION 174. Published Edition of Work. — In addition to
the right to publish granted by the author, his heirs, or



assigns, the publisher shall have a copyright consisting 178.1. Subject to the provisions of this section, in the case
merely of the right of reproduction of the typographical of original literary and artistic works, copyright shall
arrangement of the published edition of the work. (n) belong to the author of the work;
178.2. In the case of works of joint authorship, the
CHAPTER IV Works Not Protected co-authors shall be the original owners of the copyright
and in the absence of agreement, their rights shall be
SECTION 175. Unprotected Subject Matter. — governed by the rules on co-ownership. If, however, a
Notwithstanding the provisions of Sections 172 and 173, work of joint authorship consists of parts that can be used
no protection shall extend, under this law, to any idea, separately and the author of each part can be identified,
procedure, system, method or operation, concept, the author of each part shall be the original owner of the
principle, discovery or mere data as such, even if they are copyright in the part that he has created;
expressed, explained, illustrated or embodied in a work;
news of the day and other miscellaneous facts having the 178.3. In the case of work created by an author during and
character of mere items of press information; or any in the course of his employment, the copyright shall
official text of a legislative, administrative or legal nature, belong to:
as well as any official translation thereof. (n) (a) The employee, if the creation of the object of copyright
SECTION 176. Works of the Government. — 176.1. No is not a part of his regular duties even if the employee
copyright shall subsist in any work of the Government of uses the time, facilities and materials of the employer.
the Philippines. However, prior approval of the (b) The employer, if the work is the result of the
government agency or office wherein the work is created performance of his regularly-assigned duties, unless there
shall be necessary for exploitation of such work for profit. is an agreement, express or implied, to the contrary.
Such agency or office may, among other things, impose
as a condition the payment of royalties. No prior approval 178.4. In the case of a work commissioned by a person
or conditions shall be required for the use for any purpose other than an employer of the author and who pays for it
of statutes, rules and regulations, and speeches, lectures, and the work is made in pursuance of the commission,
sermons, addresses, and dissertations, pronounced, read the person who so commissioned the work shall have
or rendered in courts of justice, before administrative ownership of the work, but the copyright thereto shall
agencies, in deliberative assemblies and in meetings of remain with the creator, unless there is a written
public character. (Sec. 9, first par., P.D. No. 49) stipulation to the contrary;
176.2. The author of speeches, lectures, sermons, 178.5. In the case of audiovisual work, the copyright shall
addresses, and dissertations mentioned in the preceding belong to the producer, the author of the scenario, the
paragraphs shall have the exclusive right of making a composer of the music, the film director, and the author
collection of his works. (n) of the work so adapted. However, subject to contrary or
other stipulations among the creators, the producer shall
176.3. Notwithstanding the foregoing provisions, the exercise the copyright to an extent required for the
Government is not precluded from receiving and holding exhibition of the work in any manner, except for the right
copyrights transferred to it by assignment, bequest or to collect performing license fees for the performance of
otherwise; nor shall publication or republication by the musical compositions, with or without words, which are
Government in a public document of any work in which incorporated into the work; and
copyright is subsisting be taken to cause any abridgment
or annulment of the copyright or to authorize any use or 178.6. In respect of letters, the copyright shall belong to
appropriation of such work without the consent of the the writer subject to the provisions of Article 723 of the
copyright owner. (Sec. 9, third par.,P.D. No. 49) Civil Code. (Sec. 6, P.D. No. 49a)
SECTION 179. Anonymous and Pseudonymous Works. —
For purposes of this Act, the publishers shall be deemed
CHAPTER V Copyright or Economic Rights to represent the authors of articles and other writings
SECTION 177. Copyright or Economic Rights. — Subject published without the names of the authors or under
to the provisions of Chapter VIII, copyright or economic pseudonyms, unless the contrary appears, or the
rights shall consist of the exclusive right to carry out, pseudonyms or adopted name leaves no doubt as to the
authorize or prevent the following acts: author's identity, or if the author of the anonymous works
177.1. Reproduction of the work or substantial portion of discloses his identity. (Sec. 7, P.D. 49)
the work;
177.2. Dramatization, translation, adaptation, abridgment, CHAPTER VII Transfer, Assignment And Licensing
arrangement or other transformation of the work; Of Copyright
177.3. The first public distribution of the original and each (as amended by RA No 10372)
copy of the work by sale or other forms of transfer of SECTION 180. Rights of Assignee. — 180.1. The copyright
ownership; may be assigned or licensed in whole or in part. Within
177.4. Rental of the original or a copy of an audiovisual or the scope of the assignment or license, the assignee or
cinematographic work, a work embodied in a sound licensee is entitled to all the rights and remedies which
recording, a computer program, a compilation of data the assignor or licensor had with respect to the copyright.
and other materials or a musical work in graphic form, 180.2. The copyright is not deemed assigned or licensed
irrespective of the ownership of the original or the copy inter vivos, in whole or in part, unless there is a written
which is the subject of the rental; (n) indication of such intention.
177.5. Public display of the original or a copy of the work; (as amended by RA No 10372)
177.6. Public performance of the work; and 180.3. The submission of a literary, photographic or artistic
177.7. Other communication to the public of the work. work to a newspaper, magazine or periodical for
(Sec. 5, P.D. No. 49a) publication shall constitute only a license to make a
single publication unless a greater right is expressly
granted. If two (2) or more persons jointly own a copyright
CHAPTER VI Ownership of Copyright or any part thereof, neither of the owners shall be entitled
SECTION 178. Rules on Copyright Ownership. — to grant licenses without the prior written consent of the
Copyright ownership shall be governed by the following other owner or owners. (Sec. 15, P.D. No. 49a)
rules: 180.4. Any exclusivity in the economic rights in a work
may be exclusively licensed. Within the scope of the
exclusive license, the licensee is entitled to all the rights


and remedies which the licensor had with respect to the to the provisions of Subsection 187.2, the private
copyright. reproduction of a published work in a single copy, where
180.5. The copyright owner has the right to regular the reproduction is made by a natural person exclusively
statements of accounts from the assignee or the licensee for research and private study, shall be permitted, without
with regard to assigned or licensed work. the authorization of the owner of copyright in the work.
(as amended by RA No 10372) 187.2. The permission granted under Subsection 187.1 shall

not extend to the reproduction of:
SECTION 181. Copyright and Material Object. — The
copyright is distinct from the property in the material (a) A work of architecture in the form of building or other
object subject to it. Consequently, the transfer, construction;
assignment or licensing of the copyright shall not itself (b) An entire book, or a substantial part thereof, or of a
constitute a transfer of the material object. Nor shall a musical work in graphic form by reprographic means;
transfer or assignment of the sole copy or of one or (c) A compilation of data and other materials;
several copies of the work imply transfer, assignment or
licensing of the copyright. (Sec. 16, P.D. No. 49) (as (d) A computer program except as provided in Section
amended by RA No 10372) 189; and
SECTION 182. Filing of Assignment or License. — An (e) Any work in cases where reproduction would
assignment or exclusive license may be filed in duplicate unreasonably conflict with a normal exploitation of the
with the National Library upon payment of the prescribed work or would otherwise unreasonably prejudice the
fee for registration in books and records kept for the legitimate interests of the author. (n)
purpose. Upon recording, a copy of the instrument shall SECTION 188. Reprographic Reproduction by Libraries.
be returned to the sender with a notation of the fact of — 188.1. Notwithstanding the provisions of Subsection
record. Notice of the record shall be published in the IPO 177.1., any library or archive whose activities are not for
Gazette. (Sec. 19, P.D. No. 49a) profit may, without the authorization of the author or
SECTION 183. Designation of Society. — The owners of copyright owner, make a limited number of copies of the
copyright and related rights or their heirs may designate work, as may be necessary for such institutions to fulfill
a society of artists, writers, composers and other their mandate, by reprographic reproduction:
right-holders to collectively manage their economic or (a) Where the work by reason of its fragile character or
moral rights on their behalf. For the said societies to rarity cannot be lent to user in its original form;
enforce the rights of their members, they shall first secure
the necessary accreditation from the Intellectual Property (b) Where the works are isolated articles contained in
Office. (Sec. 32, P.D. No. 49a) (as amended by RA No 10372) composite works or brief portions of other published
works and the reproduction is necessary to supply them,
when this is considered expedient, to persons requesting
CHAPTER VIII Limitations on Copyright their loan for purposes of research or study instead of
SECTION 184. Limitations on Copyright. — 184.1. The lending the volumes or booklets which contain them; and
reproduction or distribution of published articles or (c) Where the making of such limited copies is in order to
materials in a specialized format exclusively for the use of preserve and, if necessary in the event that it is lost,
the blind, visually- and reading-impaired persons: destroyed or rendered unusable, replace a copy, or to
Provided, That such copies and distribution shall be made replace, in the permanent collection of another similar
on a nonprofit basis and shall indicate the copyright library or archive, a copy which has been lost, destroyed or
owner and the date of the original publication. (as rendered unusable and copies are not available with the
amended by RA No 10372) publisher. (as amended by RA No 10372)
184.2. The provisions of this section shall be interpreted in 188.2. Notwithstanding the above provisions, it shall not
such a way as to allow the work to be used in a manner be permissible to produce a volume of a work published
which does not conflict with the normal exploitation of in several volumes or to produce missing tomes or pages
the work and does not unreasonably prejudice the right of magazines or similar works, unless the volume, tome or
holder's legitimate interests. part is out of stock: Provided, That every library which, by
SECTION 185. Fair Use of a Copyrighted Work. — 185.1. law, is entitled to receive copies of a printed work, shall be
The fair use of a copyrighted work for criticism, comment, entitled, when special reasons so require, to reproduce a
news reporting, teaching including limited number of copy of a published work which is considered necessary
copies for classroom use, scholarship, research, and for the collection of the library but which is out of stock.
similar purposes is not an infringement of copyright. (Sec. 13, P.D. 49a)
Decompilation, which is understood here to be the SECTION 189. Reproduction of Computer Program. —
reproduction of the code and translation of the forms of a 189.1. Notwithstanding the provisions of Section 177, the
computer program to achieve the interoperability of an reproduction in one (1) back-up copy or adaptation of a
independently created computer program with other computer program shall be permitted, without the
programs may also constitute fair use under the criteria authorization of the author of, or other owner of copyright
established by this section, to the extent that such in, a computer program, by the lawful owner of that
decompilation is done for the purpose of obtaining the computer program: Provided, That the copy or adaptation
information necessary to achieve such interoperability. (as is necessary for:
amended by RA No 10372)
(a) The use of the computer program in conjunction with
185.2. The fact that a work is unpublished shall not by a computer for the purpose, and to the extent, for which
itself bar a finding of fair use if such finding is made upon the computer program has been obtained; and
consideration of all the above factors.
(b) Archival purposes, and, for the replacement of the
SECTION 186. Work of Architecture. — Copyright in a lawfully owned copy of the computer program in the
work of architecture shall include the right to control the event that the lawfully obtained copy of the computer
erection of any building which reproduces the whole or a program is lost, destroyed or rendered unusable.
substantial part of the work either in its original form or in
189.2. No copy or adaptation mentioned in this Section
any form recognizably derived from the original:
shall be used for any purpose other than the ones
Provided, That the copyright in any such work shall not
determined in this Section, and any such copy or
include the right to control the reconstruction or
adaptation shall be destroyed in the event that continued
rehabilitation in the same style as the original of a
possession of the copy of the computer program ceases
building to which that copyright relates. (n)
to be lawful.
SECTION 187. Reproduction of Published Work. — 187.1.
Notwithstanding the provision of Section 177, and subject


189.3. This provision shall be without prejudice to the have his contribution attributed to him is deemed waived
application of Section 185 whenever appropriate. (n) unless he expressly reserves it. (Sec. 37, P.D. No. 49)
SECTION 190. Importation for Personal Purposes. — SECTION 197. Editing, Arranging and Adaptation of
Subject to the approval of the Secretary of Finance, the Work. — In the absence of a contrary stipulation at the
Commissioner of Customs is hereby empowered to make time an author licenses or permits another to use his
rules and regulations for preventing the importation or work, the necessary editing, arranging or adaptation of
exportation of infringing articles prohibited under Part IV such work, for publication, broadcast, use in a motion
of this Act and under relevant treaties and conventions to picture, dramatization, or mechanical or electrical
which the Philippines may be a party and for seizing and reproduction in accordance with the reasonable and
condemning and disposing of the same in case they are customary standards or requirements of the medium in
discovered after they have been imported or before they which the work is to be used, shall not be deemed to
are exported. (Sec. 30, P.D. No. 49) (as amended by RA No contravene the author's rights secured by this chapter.
10372) Nor shall complete destruction of a work unconditionally
transferred by the author be deemed to violate such
rights. (Sec. 38, P.D. No. 49)
CHAPTER IX Deposit and Notice
SECTION 198. Term of Moral Rights. — 198.1. The right of
SECTION 191. Deposit and Notice of Deposit with the an author under Section 193.1. shall last during the
National Library and the Supreme Court Library. — At lifetime of the author and in perpetuity after his death
any time during the subsistence of the copyright, the while the rights under Sections 193.2., 193.3. and 193.4.
owner of the copyright or of any exclusive right in the shall be coterminous with the economic rights, the moral
work may, for the purpose of completing the records of rights shall not be assignable or subject to license. The
the National Library and the Supreme Court Library, person or persons to be charged with the posthumous
register and deposit with them, by personal delivery or by enforcement of these rights shall be named in a written
registered mail, two (2) complete copies or reproductions instrument which shall be filed with the National Library.
of the work in such form as the Directors of the said In default of such person or persons, such enforcement
libraries may prescribe in accordance with regulations: shall devolve upon either the author's heirs, and in default
Provided, That only works in the field of law shall be of the heirs, the Director of the National Library. (as
deposited with the Supreme Court Library. Such amended by RA No 10372)
registration and deposit is not a condition of copyright
protection. (as amended by RA No 10372) 198.2. For purposes of this Section, "Person" shall mean
any individual, partnership, corporation, association, or
SECTION 192. Notice of Copyright. — Each copy of a work society. The Director of the National Library may prescribe
published or offered for sale may contain a notice bearing reasonable fees to be charged for his services in the
the name of the copyright owner, and the year of its first application of provisions of this Section. (Sec. 39, P.D. No.
publication, and, in copies produced after the creator's 49)
death, the year of such death. (Sec. 27, P.D. No. 49a)
SECTION 199. Enforcement Remedies. — Violation of any
of the rights conferred by this Chapter shall entitle those
CHAPTER X Moral Rights charged with their enforcement to the same rights and
SECTION 193. Scope of Moral Rights. — The author of a remedies available to a copyright owner. In addition,
work shall, independently of the economic rights in damages which may be availed of under the Civil Code
Section 177 or the grant of an assignment or license with may also be recovered. Any damage recovered after the
respect to such right, have the right: creator's death shall be held in trust for and remitted to
his heirs, and in default of the heirs, shall belong to the
193.1. To require that the authorship of the works be government. (Sec. 40, P.D. No. 49)
attributed to him, in particular, the right that his name, as
far as practicable, be indicated in a prominent way on the
copies, and in connection with the public use of his work; CHAPTER XI Rights to Proceeds in Subsequent
193.2. To make any alterations of his work prior to, or to Transfers
withhold it from publication; SECTION 200. Sale or Lease of Work. — In every sale or
193.3. To object to any distortion, mutilation or other lease of an original work of painting or sculpture or of the
modification of, or other derogatory action in relation to, original manuscript of a writer or composer, subsequent
his work which would be prejudicial to his honor or to the first disposition thereof by the author, the author or
reputation; and his heirs shall have an inalienable right to participate in
the gross proceeds of the sale or lease to the extent of five
193.4. To restrain the use of his name with respect to any percent (5%). This right shall exist during the lifetime of
work not of his own creation or in a distorted version of the author and for fifty (50) years after his death. (Sec. 31,
his work. (Sec. 34, P.D. No. 49) P.D. No. 49)
SECTION 194. Breach of Contract. — An author cannot SECTION 201. Works Not Covered. — The provisions of
be compelled to perform his contract to create a work or this Chapter shall not apply to prints, etchings,
for the publication of his work already in existence. engravings, works of applied art, or works of similar kind
However, he may be held liable for damages for breach of wherein the author primarily derives gain from the
such contract. (Sec. 35, P.D. No. 49) proceeds of reproductions. (Sec. 33, P.D. No. 49)
SECTION 195. Waiver of Moral Rights. — An author may
waive his rights mentioned in Section 193 by a written CHAPTER XII Rights of Performers, Producers of
instrument, but no such waiver shall be valid where its
effects is to permit another: Sounds Recordings and Broadcasting
Organizations
195.1. To use the name of the author, or the title of his
work, or otherwise to make use of his reputation with SECTION 202. Definitions. — For the purpose of this Act,
respect to any version or adaptation of his work which, the following terms shall have the following meanings:
because of alterations therein, would substantially tend to 202.1. "Performers" are actors, singers, musicians, dancers,
injure the literary or artistic reputation of another author; and other persons who act, sing, declaim, play in,
or interpret, or otherwise perform literary and artistic work;
195.2. To use the name of the author with respect to a 202.2. "Sound recording" means the fixation of the sounds
work he did not create. (Sec. 36, P.D. No. 49) of a performance or of other sounds, or representation of
SECTION 196. Contribution to Collective Work. — When sound, other than in the form of a fixation incorporated in
an author contributes to a collective work, his right to a cinematographic or other audiovisual work;


202.3. An "audiovisual work or fixation" is a work that performance, and to object to any distortion, mutilation
consists of a series of related images which impart the or other modification of his performances that would be
impression of motion, with or without accompanying prejudicial to his reputation. (as amended by RA No
sounds, susceptible of being made visible and, where 10372)
accompanied by sounds, susceptible of being made 204.2. The rights granted to a performer in accordance
audible; with Subsection 203.1 shall be maintained and exercised
202.4. "Fixation" means the embodiment of sounds, or of fifty (50) years after his death, by his heirs, and in default
the representations thereof, from which they can be of heirs, the government, where protection is claimed.
perceived, reproduced or communicated through a (Sec. 43, P.D. No. 49)
device; SECTION 205. Limitation on Right. — 205.1. Subject to the
202.5. "Producer of a sound recording" means the person, provisions of Section 206, once the performer has
or the legal entity, who or which takes the initiative and authorized the broadcasting or fixation of his
has the responsibility for the first fixation of the sounds of performance, the provisions of Sections 203 shall have no
a performance or other sounds, or the representation of further application.
sounds; 205.2.The provisions of Section 184 and Section 185 shall
202.6. "Publication of a fixed performance or a sound apply mutatis mutandis to performers. (n)
recording" means the offering of copies of the fixed SECTION 206. Additional Remuneration for Subsequent
performance or the sound recording to the public, with Communications or Broadcasts. — Unless otherwise
the consent of the right holder: Provided, That copies are provided in the contract, in every communication to the
offered to the public in reasonable quality; public or broadcast of a performance subsequent to the
202.7. "Broadcasting" means the transmission by wireless first communication or broadcast thereof by the
means for the public reception of sounds or of images or broadcasting organization, the performer shall be
of representations thereof; such transmission by satellite entitled to an additional remuneration equivalent to at
is also "broadcasting" where the means for decrypting are least five percent (5%) of the original compensation he or
provided to the public by the broadcasting organization she received for the first communication or broadcast. (n)
or with its consent; SECTION 207. Contract Terms. — Nothing in this Chapter
202.8. "Broadcasting organization" shall include a natural shall be construed to deprive performers of the right to
person or a juridical entity duly authorized to engage in agree by contracts on terms and conditions more
broadcasting; and favorable for them in respect of any use of their
202.9. "Communication to the public of a performance or performance. (n)
a sound recording" means the transmission to the public,
by any medium, otherwise than by broadcasting, of CHAPTER XIII Producers of Sound Recordings
sounds of a performance or the representations of
sounds fixed in a sound recording. For purposes of SECTION 208. Scope of Right. — Subject to the provisions
Section 209, "communication to the public" includes of Section 212, producers of sound recordings shall enjoy
making the sounds or representations of sounds fixed in the following exclusive rights:
a sound recording audible to the public. 208.1. The right to authorize the direct or indirect
SECTION 203. Scope of Performers' Rights. — Subject to reproduction of their sound recordings, in any manner or
the provisions of Section 212, performers shall enjoy the form; the placing of these reproductions in the market
following exclusive rights: and the right of rental or lending;
203.1. As regards their performances, the right of 208.2. The right to authorize the first public distribution of
authorizing: the original and copies of their sound recordings through
sale or rental or other forms of transferring ownership;
(a) The broadcasting and other communication to the and
public of their performance; and
208.3. The right to authorize the commercial rental to the
(b) The fixation of their unfixed performance. public of the original and copies of their sound
203.2. The right of authorizing the direct or indirect recordings, even after distribution by them by or pursuant
reproduction of their performances fixed in sound to authorization by the producer. (Sec. 46, P.D. No. 49a)
recordings or audiovisual works or fixations in any 208.4. The right to authorize the making available to the
manner or form; public of their sound recordings in such a way that
203.3. Subject to the provisions of Section 206, the right of members of the public may access the sound recording
authorizing the first public distribution of the original and from a place and at a time individually chosen or selected
copies of their performance fixed in sound recordings or by them, as well as other transmissions of a sound
audiovisual works or fixations through sale or rental of recording with like effect. (as amended by RA No 10372)
other forms of transfer of ownership; SECTION 209. Communication to the Public. — If a
203.4. The right of authorizing the commercial rental to sound recording published for commercial purposes, or a
the public of the original and copies of their reproduction of such sound recording, is used directly for
performances fixed in sound recordings or audiovisual broadcasting or for other communication to the public, or
works or fixations, even after distribution of them by, or is publicly performed with the intention of making and
pursuant to the authorization by the performer; and enhancing profit, a single equitable remuneration for the
performer or performers, and the producer of the sound
203.5. The right of authorizing the making available to the recording shall be paid by the user to both the
public of their performances fixed in sound recordings or performers and the producer, who, in the absence of any
audiovisual works or fixations, by wire or wireless means, agreement shall share equally. (Sec. 47, P.D. No. 49a)
in such a way that members of the public may access
them from a place and time individually chosen by them. SECTION 210. Limitation of Right. — Sections 184 and 185
(Sec. 42, P.D. No. 49A). shall apply mutatis mutandis to the producer of sound
recordings. (Sec. 48, P.D. No. 49a)
SECTION 204. Moral Rights of Performers. — 204.1.
Independently of a performer's economic rights, the CHAPTER XIV Broadcasting Organizations
performer shall, as regards his live aural performances or SECTION 211. Scope of Right. — Subject to the provisions
performances fixed in sound recordings or in audiovisual of Section 212, broadcasting organizations shall enjoy the
works or fixations, have the right to claim to be identified exclusive right to carry out, authorize or prevent any of
as the performer of his performances, except where the the following acts:
omission is dictated by the manner of the use of the



211.1. The rebroadcasting of their broadcasts;

211.2. The recording in any manner, including the making CHAPTER XVII Infringement
of films or the use of video tape, of their broadcasts for SECTION 216. Infringement. — A person infringes a right
the purpose of communication to the public of television protected under this Act when one:
broadcasts of the same; and
(a) Directly commits an infringement;
211.3. The use of such records for fresh transmissions or for
fresh recording. (Sec. 52, P.D. No. 49) (b) Benefits from the infringing activity of another person
who commits an infringement if the person benefiting
has been given notice of the infringing activity and has
CHAPTER XV Limitations on Protection the right and ability to control the activities of the other
SECTION 212. Limitations on Rights. — The provisions of person;
Chapter VIII shall apply mutatis mutandis to the rights of (c) With knowledge of infringing activity, induces, causes
performers, producers of sound recordings and or materially contributes to the infringing conduct of
broadcasting organizations. (as amended by RA No 10372) another.
CHAPTER XVI Term of Protection 216.1 Remedies for Infringement. — Any person infringing
SECTION 213. Term of Protection. — 213.1. Subject to the a right protected under this law shall be liable:
provisions of Subsections 213.2 to 213.5, the copyright in (a) To an injunction restraining such infringement. The
works under Sections 172 and 173 shall be protected court may also order the defendant to desist from an
during the life of the author and for fifty (50) years after infringement, among others, to prevent the entry into the
his death. This rule also applies to posthumous works. channels of commerce of imported goods that involve an
(Sec. 21, first sentence, P.D. No. 49a) infringement, immediately after customs clearance of
213.2. In case of works of joint authorship, the economic such goods.
rights shall be protected during the life of the last (b) To pay to the copyright proprietor or his assigns or
surviving author and for fifty (50) years after his death. heirs such actual damages, including legal costs and
(Sec. 21, second sentence, P.D. No. 49) other expenses, as he may have incurred due to the
213.3. In case of anonymous or pseudonymous works, the infringement as well as the profits the infringer may have
copyright shall be protected for fifty (50) years from the made due to such infringement, and in proving profits
date on which the work was first lawfully published: the plaintiff shall be required to prove sales only and the
Provided, That where, before the expiration of the said defendant shall be required to prove every element of
period, the author's identity is revealed or is no longer in cost which he claims, or, in lieu of actual damages and
doubt, the provisions of Subsections 213.1. and 213.2 shall profits, such damages which to the court shall appear to
apply, as the case may be: Provided, further, That such be just and shall not be regarded as penalty: Provided,
works if not published before shall be protected for fifty That the amount of damages to be awarded shall be
(50) years counted from the making of the work. (Sec. 23, doubled against any person who:
P.D. No. 49) (i) Circumvents effective technological measures; or
213.4. In case of works of applied art the protection shall (ii) Having reasonable grounds to know that it will induce,
be for a period of twenty-five (25) years from the date of enable, facilitate or conceal the infringement, remove or
making. (Sec. 24(B), P.D. No. 49a) alter any electronic rights management information from
213.5. In case of photographic works, the protection shall a copy of a work, sound recording, or fixation of a
be for fifty (50) years from publication of the work and, if performance, or distribute, import for distribution,
unpublished, fifty (50) years from the making. (Sec. 24(C), broadcast, or communicate to the public works or copies
P.D. 49a) of works without authority, knowing that electronic rights
management information has been removed or altered
213.6. In case of audio-visual works including those without authority.
produced by process analogous to photography or any
process for making audio-visual recordings, the term shall (as amended by RA No 10372)
be fifty (50) years from date of publication and, if (c) Deliver under oath, for impounding during the
unpublished, from the date of making. (Sec. 24(C), P.D. pendency of the action, upon such terms and conditions
No. 49a) as the court may prescribe, sales invoices and other
SECTION 214. Calculation of Term. — The term of documents evidencing sales, all articles and their
protection subsequent to the death of the author packaging alleged to infringe a copyright and
provided in the preceding Section shall run from the date implements for making them.
of his death or of publication, but such terms shall always (d) Deliver under oath for destruction without any
be deemed to begin on the first day of January of the compensation all infringing copies or devices, as well as
year following the event which gave rise to them. (Sec. 25, all plates, molds, or other means for making such
P.D. No. 49) infringing copies as the court may order.
SECTION 215. Term of Protection for Performers, (e) Such other terms and conditions, including the
Producers and Broadcasting Organizations. — 215.1. The payment of moral and exemplary damages, which the
rights granted to performers and producers of sound court may deem proper, wise and equitable and the
recordings under this law shall expire: destruction of infringing copies of the work even in the
(a) For performances not incorporated in recordings, fifty event of acquittal in a criminal case.
(50) years from the end of the year in which the The copyright owner may elect, at any time before final
performance took place; and judgment is rendered, to recover instead of actual
(b) For sound or image and sound recordings and for damages and profits, an award of statutory damages for
performances incorporated therein, fifty (50) years from all infringements involved in an action in a sum
the end of the year in which the recording took place. equivalent to the filing fee of the infringement action but
not less than Fifty thousand pesos (Php50.000.00). In
215.2. In case of broadcasts, the term shall be twenty (20) awarding statutory damages, the court may consider the
years from the date the broadcast took place. The following factors:
extended term shall be applied only to old works with
subsisting protection under the prior law. (Sec. 55, P.D. No. (1) The nature and purpose of the infringing act;
49a) (2) The flagrancy of the infringement;
(3) Whether the defendant acted in bad faith;


(4) The need for deterrence; (as amended by RA No 10372)

(5) Any loss that the plaintiff has suffered or is likely to 217.3. Any person who at the time when copyright
suffer by reason of the infringement; and subsists in a work has in his possession an article which
(6) Any benefit shown to have accrued to the defendant he knows, or ought to know, to be an infringing copy of
by reason of the infringement. the work for the purpose of:
In case the infringer was not aware and had no reason to (a) Selling, letting for hire, or by way of trade offering or
believe that his acts constitute an infringement of exposing for sale, or hire, the article;
copyright, the court in its discretion may reduce the (b) Distributing the article for purpose of trade, or for any
award of statutory damages to a sum of not more than other purpose to an extent that will prejudice the rights
Ten thousand pesos (Php10,000.00): Provided, That the of the copyright owner in the work; or
amount of damages to be awarded shall be doubled (c) Trade exhibit of the article in public, shall be guilty of
against any person who: an offense and shall be liable on conviction to
(i) Circumvents effective technological measures; or imprisonment and fine as above mentioned. (Sec. 29, P.D.
(ii) Having reasonable grounds to know that it will induce, No. 49a)
enable, facilitate or conceal the infringement, remove or SECTION 218. Affidavit Evidence. — 218.1. In an action
alter any electronic rights management information from under this Chapter, an affidavit made before a notary
a copy of a work, sound recording, or fixation of a public by or on behalf of the owner of the copyright in
performance, or distribute, import for distribution, any work or other subject matter and stating that:
broadcast, or communicate to the public works or copies (a) At the time specified therein, copyright subsisted in
of works without authority, knowing that electronic rights the work or other subject matter;
management information has been removed or altered
without authority. (b) He or the person named therein is the owner of the
copyright; and
(c) The copy of the work or other subject matter annexed
216.2. In an infringement action, the court shall also have thereto is a true copy thereof.
the power to order the seizure and impounding of any
article which may serve as evidence in the court The affidavit shall be admitted in evidence in any
proceedings, in accordance with the rules on search and proceedings under this Chapter and shall be prima facie
seizure involving violations of intellectual property rights proof of the matters therein stated until the contrary is
issued by the Supreme Court. (Sec. 28, P.D. No. 49a) proved, and the court before which such affidavit is
produced shall assume that the affidavit was made by or
The foregoing shall not preclude an independent suit for on behalf of the owner of the copyright.
relief by the injured party by way of damages, injunction,
accounts or otherwise. (as amended by RA No 10372)
(as amended by RA No 10372) 218.2. In an action under this Chapter:
SECTION 217. Criminal Penalties. — 217.1. Any person (a) Copyright shall be presumed to subsist in the work or
infringing any right secured by provisions of Part IV of this other subject matter to which the action relates if the
Act or aiding or abetting such infringement shall be defendant does not put in issue the question whether
guilty of a crime punishable by: copyright subsists in the work or other subject matter;
and
(a) Imprisonment of one (1) year to three (3) years plus a
fine ranging from Fifty thousand pesos (P50,000) to One (b) Where the subsistence of the copyright is established,
hundred fifty thousand pesos (P150,000) for the first the plaintiff shall be presumed to be the owner of the
offense. copyright if he claims to be the owner of the copyright
and the defendant does not put in issue the question of
(b) Imprisonment of three (3) years and one (1) day to six his ownership.
(6) years plus a fine ranging from One hundred fifty
thousand pesos (P150,000) to Five hundred thousand (c) Where the defendant, without good faith, puts in issue
pesos (P500,000) for the second offense. the questions of whether copyright subsists in a work or
other subject matter to which the action relates, or the
(c) Imprisonment of six (6) years and one (1) day to nine (9) ownership of copyright in such work or subject matter,
years plus a fine ranging from Five hundred thousand thereby occasioning unnecessary costs or delay in the
pesos (P500,000) to One million five hundred thousand proceedings, the court may direct that any costs to the
pesos (P1,500,000) for the third and subsequent offenses. defendant in respect of the action shall not be allowed by
(d) In all cases, subsidiary imprisonment in cases of him and that any costs occasioned by the defendant to
insolvency. other parties shall be paid by him to such other parties.
217.2. In determining the number of years of (n)
imprisonment and the amount of fine, the court shall SECTION 219. Presumption of Authorship. — 219.1. The
consider the value of the infringing materials that the natural person whose name is indicated on a work in the
defendant has produced or manufactured and the usual manner as the author shall, in the absence of proof
damage that the copyright owner has suffered by reason to the contrary, be presumed to be the author of the
of the infringement: Provided, That the respective work. This provision shall be applicable even if the name
maximum penalty stated in Section 217.1. (a), (b) and (c) is a pseudonym, where the pseudonym leaves no doubt
herein for the first, second, third and subsequent offense, as to the identity of the author.
shall be imposed when the infringement is committed 219.2. The person or body corporate whose name appears
by: on an audio-visual work in the usual manner shall, in the
(a) The circumvention of effective technological absence of proof to the contrary, be presumed to be the
measures; maker of said work. (n)
(b) The removal or alteration of any electronic rights SECTION 220. International Registration of Works. — A
management information from a copy of a work, sound statement concerning a work, recorded in an
recording, or fixation of a performance, by a person, international register in accordance with an international
knowingly and without authority; or treaty to which the Philippines is or may become a party,
(c) The distribution, importation for distribution, shall be construed as true until the contrary is proved
broadcast, or communication to the public of works or except:
copies of works, by a person without authority, knowing 220.1. Where the statement cannot be valid under this Act
that electronic rights management information has been or any other law concerning intellectual property.
removed or altered without authority.



220.2. Where the statement is contradicted by another be cognizable by the courts with appropriate jurisdiction
statement recorded in the international register. (n) under existing law. (Sec. 57, P.D. No. 49a)
SECTION 220A. Disclosure of Information. — Where any SECTION 226. Damages. — No damages may be
article or its packaging or an implement for making it is recovered under this Act after the lapse of four (4) years
seized or detained under a valid search and seizure under from the time the cause of action arose. (Sec. 58, P.D. No.
this Act is, or is reasonably suspected to be, by an 49). (as amended by RA No 10372)
authorized enforcement officer, in violation of this Act,
the said officer shall, wherever reasonably practicable,
notify the owner of the copyright in question or his CHAPTER XX Miscellaneous Provisions
authorized agent of the seizure or detention, as the case SECTION 227. Ownership of Deposit and Instruments. —
may be. (as amended by RA No 10372) All copies deposited and instruments in writing filed with
the National Library and the Supreme Court Library in
accordance with the provisions of this Act shall become
CHAPTER XVIII Scope of Application the property of the Government. (Sec. 60, P.D. No. 49)
SECTION 221. Points of Attachment for Works under SECTION 228. Public Records. — The section or division
Sections 172 and 173. — 221.1. The protection afforded by of the National Library and the Supreme Court Library
this Act to copyrightable works under Sections 172 and charged with receiving copies and instruments deposited
173 shall apply to: and with keeping records required under this Act and
(a) Works of authors who are nationals of, or have their everything in it shall be opened to public inspection. The
habitual residence in, the Philippines; Director of the National Library is empowered to issue
(b) Audio-visual works the producer of which has his such safeguards and regulations as may be necessary to
headquarters or habitual residence in the Philippines; implement this Section and other provisions of this Act.
(Sec. 61, P.D. No. 49)
(c) Works of architecture erected in the Philippines or
other artistic works incorporated in a building or other SECTION 229. Copyright Division; Fees. — The Copyright
structure located in the Philippines; Section of the National Library shall be classified as a
Division upon the effectivity of this Act. The National
(d) Works first published in the Philippines; and Library shall have the power to collect, for the discharge
(e) Works first published in another country but also of its services under this Act, such fees as may be
published in the Philippines within thirty days, promulgated by it from time to time subject to the
irrespective of the nationality or residence of the authors. approval of the Department Head. (Sec. 62, P.D. 49a)
221.2. The provisions of this Act shall also apply to works SECTION 230. Adoption of Intellectual Property (IP)
that are to be protected by virtue of and in accordance Policies. — Schools and universities shall adopt
with any international convention or other international intellectual property policies that would govern the use
agreement to which the Philippines is a party. (n) and creation of intellectual property with the purpose of
safeguarding the intellectual creations of the learning
SECTION 222. Points of Attachment for Performers. — institution and its employees, and adopting
The provisions of this Act on the protection of performers locally-established industry practice fair use guidelines.
shall apply to: These policies may be developed in relation to licensing
222.1. Performers who are nationals of the Philippines; agreements entered into by the learning institution with
a collective licensing organization (as amended by RA No
222.2. Performers who are not nationals of the Philippines 10372)
but whose performances:
(a) Take place in the Philippines; or
(b) Are incorporated in sound recordings that are PART V Final Provisions
protected under this Act; or SECTION 231. Equitable Principles to Govern
(c) Which has not been fixed in sound recording but are Proceedings. — In all inter partes proceedings in the
carried by broadcast qualifying for protection under this Office under this Act, the equitable principles of laches,
Act. (n) estoppel, and acquiescence where applicable, may be
considered and applied. (Sec. 9-A, R.A. No. 166)
SECTION 223. Points of Attachment for Sound
Recordings. — The provisions of this Act on the SECTION 232. Reverse Reciprocity of Foreign Laws. —
protection of sound recordings shall apply to: Any condition, restriction, limitation, diminution,
requirement, penalty or any similar burden imposed by
223.1. sound recordings the producers of which are the law of a foreign country on a Philippine national
nationals of the Philippines; and seeking protection of intellectual property rights in that
223.2. sound recordings that were first published in the country, shall reciprocally be enforceable upon nationals
Philippines. (n) of said country, within Philippine jurisdiction. (n)
SECTION 224. Points of Attachment for Broadcasts. — SECTION 233. Appeals. — 233.1. Appeals from decisions of
224.1. The provisions of this Act on the protection of regular courts shall be governed by the Rules of Court.
broadcasts shall apply to: Unless restrained by a higher court, the judgment of the
trial court shall be executory even pending appeal under
(a) Broadcasts of broadcasting organizations the such terms and conditions as the court may prescribe.
headquarters of which are situated in the Philippines; and
233.2. Unless expressly provided in this Act or other
(b) Broadcasts transmitted from transmitters situated in statutes, appeals from decisions of administrative officials
the Philippines. shall be provided in the Regulations. (n)
224.2. The provisions of this Act shall also apply to SECTION 234. Organization of the Office; Exemption
performers who, and to producers of sound recordings from the Salary Standardization Law and the Attrition
and broadcasting organizations which, are to be Law. — 234.1. The Office shall be organized within one (1)
protected by virtue of and in accordance with any year after the approval of this Act. It shall not be subject to
international convention or other international the provisions of Republic Act No. 7430.
agreement to which the Philippines is a party. (n)
234.2. The Office shall institute its own compensation
structure: Provided, That the Office shall make its own
CHAPTER XIX Institution of Actions system conform as closely as possible with the principles
SECTION 225. Jurisdiction. — Without prejudice to the provided for under Republic Act No. 6758. (n)
provisions of Subsection 7.1(c), actions under this Act shall SECTION 235. Abolition of the Bureau of Patents,
Trademarks, and Technology Transfer. — The Bureau of



Patents, Trademarks, and Technology Transfer under the Act No. 166 shall remain in force but shall no longer be
Department of Trade and Industry is hereby abolished. All subject to renewal.
unexpended funds and fees, fines, royalties and other 240.3. The provisions of this Act shall apply to works in
charges collected for the calendar year, properties, which copyright protection obtained prior to the
equipment and records of the Bureau of Patents, effectivity of this Act is subsisting: Provided, That the
Trademarks and Technology Transfer, and such personnel application of this Act shall not result in the diminution of
as may be necessary are hereby transferred to the Office. such protection. (n)
Personnel not absorbed or transferred to the Office shall
enjoy the retirement benefits granted under existing law, SECTION 241. Separability. — If any provision of this Act
otherwise, they shall be paid the equivalent of one month or the application of such provision to any circumstances
basic salary for every year of service, or the equivalent is held invalid, the remainder of the Act shall not be
nearest fractions thereof favorable to them on the basis affected thereby. (n)
of the highest salary received. (n) SECTION 242. Effectivity. — This Act shall take effect on 1
SECTION 236. Applications Pending on Effective Date of January 1998. (n)
Act. — 236.1. All applications for patents pending in the Approved: June 6, 1997
Bureau of Patents, Trademarks and Technology Transfer
shall be proceeded with and patents thereon granted in Published in the Manila Times on July 13, 1997. Published
accordance with the Acts under which said applications in the Official Gazette, Vol. 93 No. 42, 1 Supp., on October
were filed, and said Acts are hereby continued to be 20, 1997.
enforced, to this extent and for this purpose only, ||| (Intellectual Property Code of the Philippines, Republic
notwithstanding the foregoing general repeal thereof: Act No. 8293, [June 6, 1997])
Provided, That applications for utility models or industrial
designs pending at the effective date of this Act, shall be
proceeded with in accordance with the provisions of this
Act, unless the applicants elect to prosecute said
RA No 8799 | The Securities Regulations
applications in accordance with the Acts under which Code
they were filed.

236.2. All applications for registration of marks or trade
names pending in the Bureau of Patents, Trademarks July 19, 2000
and Technology Transfer at the effective date of this Act REPUBLIC ACT NO. 8799
may be amended, if practicable to bring them under the
provisions of this Act. The prosecution of such THE SECURITIES REGULATION CODE
applications so amended and the grant of registrations
thereon shall be proceeded with in accordance with the
provisions of this Act. If such amendments are not made, CHAPTER I Title and Definitions
the prosecution of said applications shall be proceeded SECTION 1. Title. — This shall be known as "The Securities
with and registrations thereon granted in accordance Regulation Code".
with the Acts under which said applications were filed,
SECTION 2. Declaration of State Policy. — The State shall
and said Acts are hereby continued in force to this extent
establish a socially conscious, free market that regulates
for this purpose only, notwithstanding the foregoing
itself, encourage the widest participation of ownership in
general repeal thereof. (n)
enterprises, enhance the democratization of wealth,
SECTION 237. Preservation of Existing Rights. — Nothing promote the development of the capital market, protect
herein shall adversely affect the rights on the investors, ensure full and fair disclosure about securities,
enforcement of rights in patents, utility models, industrial minimize if not totally eliminate insider trading and other
designs, marks and works, acquired in good faith prior to fraudulent or manipulative devices and practices which
the effective date of this Act. (n) create distortions in the free market.
SECTION 238. Notification on Berne Appendix. — The To achieve these ends, this Securities Regulation Code is
Philippines shall by proper compliance with the hereby enacted.
requirements set forth under the Appendix of the Berne
SECTION 3. Definition of Terms. — 3.1. "Securities" are
Convention (Paris Act, 1971) avail itself of the special
shares, participation or interests in a corporation or in a
provisions regarding developing countries, including
commercial enterprise or profit-making venture and
provisions for licenses grantable by competent authority
evidenced by a certificate, contract, instrument, whether
under the Appendix. (n)
written or electronic in character. It includes:
SECTION 239. Appropriations. — The funds needed to
(a) Shares of stock, bonds, debentures, notes, evidences of
carry out the provisions of this Act shall be charged to the
indebtedness, asset-backed securities;
appropriations of the Bureau of Patents, Trademarks, and
Technology Transfer under the current General (b) Investment contracts, certificates of interest or
Appropriations Act and the fees, fines, royalties and other participation in a profit sharing agreement, certificates of
charges collected by the Bureau for the calendar year deposit for a future subscription;
pursuant to Sections 14.1 and 235 of this Act. Thereafter (c) Fractional undivided interests in oil, gas or other
such sums as may be necessary for its continued mineral rights;
implementations shall be included in the annual General
Appropriations Act. (n) (d) Derivatives like option and warrants;
SECTION 240. Repeals. — 240.1. All Acts and parts of Acts (e) Certificates of assignments, certificates of
inconsistent herewith, more particularly Republic Act No. participation, trust certificates, voting trust certificates or
165, as amended; Republic Act No. 166, as amended; and similar instruments;
Articles 188 and 189 of the Revised Penal Code; (f) Proprietary or nonproprietary membership certificates
Presidential Decree No. 49, including Presidential Decree in corporations; and
No. 285, as amended, are hereby repealed.
(g) Other instruments as may in the future be determined
240.2. Marks registered under Republic Act No. 166 shall by the Commission.
remain in force but shall be deemed to have been
granted under this Act and shall be due for renewal 3.2. "Issuer" is the originator, maker, obligor, or creator of
within the period provided for under this Act and, upon the security.
renewal, shall be reclassified in accordance with the 3.3. "Broker" is a person engaged in the business of
International Classification. Trade names and marks buying and selling securities for the account of others.
registered in the Supplemental Register under Republic


3.4. "Dealer" means any person who buys and sells 4.2. The Commissioners must be natural-born citizens of
securities for his/her own account in the ordinary course the Philippines, at least forty (40) years of age for the
of business. Chairperson and at least thirty-five (35) years of age for
3.5. "Associated person of a broker or dealer" is an the Commissioners, of good moral character, of
employee thereof who, directly exercises control of unquestionable integrity, of known probity and
supervisory authority, but does not include a salesman, or patriotism, and with recognized competence in social
an agent or a person whose functions are solely clerical or and economic disciplines: Provided, That the majority of
ministerial. Commissioners, including the Chairperson, shall be
members of the Philippine Bar.
3.6. "Clearing agency" is any person who acts as
intermediary in making deliveries upon payment to effect 4.3. The Chairperson is chief executive officer of the
settlement in securities transactions. Commission. The Chairperson shall execute and
administer the policies, decisions, orders and resolutions
3.7. "Exchange" is an organized marketplace or facility that approved by the Commission and shall have the general
brings together buyers and sellers and executes trades of executive direction and supervision of the work and
securities and/or commodities. operation of the Commission and of its members, bodies,
3.8. "Insider" means: (a) the issuer; (b) a director or officer boards, offices, personnel and all its administrative
(or person performing similar functions) of, or a person business.
controlling the issuer; (c) a person whose relationship or 4.4. The salary of the Chairperson and the Commissioners
former relationship to the issuer gives or gave him access shall be fixed by the President of the Philippines based on
to material information about the issuer or the security an objective classification system, at a sum comparable
that is not generally available to the public; (d) a to the members of the Monetary Board and
government employee, or director, or officer of an commensurate to the importance and responsibilities
exchange, clearing agency and/or self-regulatory attached to the position.
organization who has access to material information
about an issuer or a security that is not generally available 4.5. The Commission shall hold meetings at least once a
to the public; or (e) a person who learns such information week for the conduct of business or as often as may be
by a communication from any of the foregoing insiders. necessary upon call of the Chairperson or upon the
request of three (3) Commissioners. The notice of the
3.9. "Pre-need plans" are contracts which provide for the meeting shall be given to all Commissioners and the
performance of future services or the payment of future presence of three (3) Commissioners shall constitute a
monetary considerations at the time of actual need, for quorum. In the absence of the Chairperson, the most
which planholders pay in cash or installment at stated senior Commissioner shall act as presiding officer of the
prices, with or without interest or insurance coverage and meeting.
includes life, pension, education, interment, and other
plans which the Commission may from time to time 4.6. The Commission may, for purposes of efficiency,
approve. delegate any of its functions to any department or office
of the Commission, an individual Commissioner or staff
3.10. "Promoter" is a person who, acting alone or with member of the Commission except its review or appellate
others, takes initiative in founding and organizing the authority and its power to adopt, alter and supplement
business or enterprise of the issuer and receives any rule or regulation.
consideration therefor.
The Commission may review upon its own initiative or
3.11. "Prospectus" is the document made by or on behalf upon the petition of any interested party any action of
of an issuer, underwriter or dealer to sell or offer securities any department or office, individual Commissioner, or
for sale to the public through a registration statement staff member of the Commission.
filed with the Commission.
SECTION 5. Powers and Functions of the Commission. —
3.12. "Registration statement" is the application for the 5.1. The Commission shall act with transparency and shall
registration of securities required to be filed with the have the powers and functions provided by this Code,
Commission. Presidential Decree No. 902-A, the Corporation Code, the
3.13. "Salesman" is a natural person, employed as such or Investment Houses Law, the Financing Company Act and
as an agent, by a dealer, issuer or broker to buy and sell other existing laws. Pursuant thereto the Commission
securities. shall have, among others, the following powers and
functions:
3.14. "Uncertificated security" is a security evidenced by
electronic or similar records. (a) Have jurisdiction and supervision over all corporations,
partnerships or associations who are the grantees of
3.15. "Underwriter" is a person who guarantees on a firm primary franchises and/or a license or permit issued by
commitment and/or declared best effort basis the the Government;
distribution and sale of securities of any kind by another
company. (b) Formulate policies and recommendations on issues
concerning the securities market, advise Congress and
other government agencies on all aspects of the
CHAPTER II Securities and Exchange securities market and propose legislation and
amendments thereto;
Commission
(c) Approve, reject, suspend, revoke or require
SECTION 4. Administrative Agency. — 4.1. This Code shall amendments to registration statements, and registration
be administered by the Securities and Exchange and licensing applications;
Commission (hereinafter referred to as the "Commission")
as a collegial body, composed of a Chairperson and four (d) Regulate, investigate or supervise the activities of
(4) Commissioners, appointed by the President for a term persons to ensure compliance;
of seven (7) years each and who shall serve as such until (e) Supervise, monitor, suspend or take over the activities
their successor shall have been appointed and qualified. of exchanges, clearing agencies and other SROs;
A Commissioner appointed to fill a vacancy occurring
(f) Impose sanctions for the violation of laws and the rules,
prior to the expiration of the term for which his/her
regulations and orders issued pursuant thereto;
predecessor was appointed, shall serve only for the
unexpired portion of such term. The incumbent (g) Prepare, approve, amend or repeal rules, regulations
Chairperson and Commissioners at the effectivity of this and orders, and issue opinions and provide guidance on
Code, shall serve the unexpired portion of their terms and supervise compliance with such rules, regulations
under Presidential Decree No. 902-A. Unless the context and orders;
indicates otherwise, the term "Commissioner" includes (h) Enlist the aid and support of and/or deputize any and
the Chairperson. all enforcement agencies of the Government, civil or



military as well as any private institution, corporation, result of such violation, negligence, abuse, malfeasance,
firm, association or person in the implementation of its or failure to exercise extraordinary diligence.
powers and functions under this Code; Similar responsibility shall apply to the Commissioners,
(i) Issue cease and desist orders to prevent fraud or injury officers and employees of the Commission for (1) the
to the investing public; disclosure of any information, discussion or resolution of
(j) Punish for contempt of the Commission, both direct the Commission of a confidential nature, or about the
and indirect, in accordance with the pertinent provisions confidential operations of the Commission, unless the
of and penalties prescribed by the Rules of Court; disclosure is in connection with the performance of
official functions with the Commission or with prior
(k) Compel the officers of any registered corporation or authorization of the Commissioners; or (2) the use of such
association to call meetings of stockholders or members information for personal gain or to the detriment of the
thereof under its supervision; government, the Commission or third parties: Provided,
(l) Issue subpoena duces tecum and summon witnesses however, That any data or information required to be
to appear in any proceedings of the Commission and in submitted to the President and/or Congress or its
appropriate cases, order the examination, search and appropriate committee, or to be published under the
seizure of all documents, papers, files and records, tax provisions of this Code shall not be considered
returns, and books of accounts of any entity or person confidential.
under investigation as may be necessary for the proper SECTION 7. Reorganization. — 7.1. To achieve the goals of
disposition of the cases before it, subject to the provisions this Code, consistent with Civil Service laws, the
of existing laws; Commission is hereby authorized to provide for its
(m) Suspend, or revoke, after proper notice and hearing reorganization, to streamline its structure and operations,
the franchise or certificate of registration of corporations, upgrade its human resource component and enable it to
partnerships or associations, upon any of the grounds more efficiently and effectively perform its functions and
provided by law; and exercise its powers under this Code.
(n) Exercise such other powers as may be provided by law 7.2. All positions of the Commission shall be governed by
as well as those which may be implied from, or which are a compensation and position classification systems and
necessary or incidental to the carrying out of, the express qualification standards approved by the Commission
powers granted the Commission to achieve the based on a comprehensive job analysis and audit of
objectives and purposes of these laws. actual duties and responsibilities. The compensation plan
shall be comparable with the prevailing compensation
5.2. The Commission's jurisdiction over all cases plan in the Bangko Sentral ng Pilipinas and other
enumerated under Section 5 of Presidential Decree No. government financial institutions and shall be subject to
902-A is hereby transferred to the Courts of general periodic review by the Commission no more than once
jurisdiction or the appropriate Regional Trial Court: every two (2) years without prejudice to yearly merit
Provided, That the Supreme Court in the exercise of its reviews or increases based on productivity and efficiency.
authority may designate the Regional Trial Court The Commission shall, therefore, be exempt from laws,
branches that shall exercise jurisdiction over these cases. rules, and regulations on compensation, position
The Commission shall retain jurisdiction over pending classification and qualification standards. The
cases involving intra-corporate disputes submitted for Commission shall, however, endeavor to make its system
final resolution which should be resolved within one (1) conform as closely as possible with the principles under
year from the enactment of this Code. The Commission the Compensation and Position Classification Act of 1989
shall retain jurisdiction over pending suspension of (Republic Act No. 6758, as amended).
payments/rehabilitation cases filed as of 30 June 2000
until finally disposed.
SECTION 6. Indemnification and Responsibilities of CHAPTER III Registration of Securities
Commissioners. — 6.1. The Commission shall indemnify SECTION 8. Requirement of Registration of Securities. —
each Commissioner and other officials of the 8.1. Securities shall not be sold or offered for sale or
Commission, including personnel performing supervision distribution within the Philippines, without a registration
and examination functions for all costs and expenses statement duly filed with and approved by the
reasonably incurred by such persons in connection with Commission. Prior to such sale, information on the
any civil or criminal actions, suits or proceedings to which securities, in such form and with such substance as the
they may be or made a party by reason of the Commission may prescribe, shall be made available to
performance of their functions or duties, unless they are each prospective purchaser.
finally adjudged in such actions or proceedings to be
liable for gross negligence or misconduct. 8.2. The Commission may conditionally approve the
registration statement under such terms as it may deem
In the event of settlement or compromise, necessary.
indemnification shall be provided only in connection with
such matters covered by the settlement as to which the 8.3. The Commission may specify the terms and
Commission is advised by external counsel that the conditions under which any written communication,
persons to be indemnified did not commit any gross including any summary prospectus, shall be deemed not
negligence or misconduct. to constitute an offer for sale under this Section.
The costs and expenses incurred in defending the 8.4. A record of the registration of securities shall be kept
aforementioned action, suit or proceeding may be paid in a Register of Securities in which shall be recorded
by the Commission in advance of the final disposition of orders entered by the Commission with respect to such
such action, suit or proceeding upon receipt of an securities. Such register and all documents or information
undertaking by or on behalf of the Commissioner, officer with respect to the securities registered therein shall be
or employee to repay the amount advanced should it open to public inspection at reasonable hours on
ultimately be determined by the Commission that he/she business days.
is not entitled to be indemnified as provided in this 8.5. The Commission may audit the financial statements,
subsection. assets and other information of a firm applying for
6.2. The Commissioners, officers and employees of the registration of its securities whenever it deems the same
Commission who willfully violate this Code or who are necessary to insure full disclosure or to protect the
guilty of negligence, abuse or acts of malfeasance or fail interest of the investors and the public in general.
to exercise extraordinary diligence in the performance of SECTION 9. Exempt Securities. — 9.1. The requirement of
their duties shall be held liable for any loss or injury registration under Subsection 8.1 shall not as a general
suffered by the Commission or other institutions as a rule apply to any of the following classes of securities:


(a) Any security issued or guaranteed by the Government (h) Broker's transactions, executed upon customer's
of the Philippines, or by any political subdivision or orders, on any registered Exchange or other trading
agency thereof, or by any person controlled or supervised market.
by, and acting as an instrumentality of said Government. (i) Subscriptions for shares of the capital stock of a
(b) Any security issued or guaranteed by the government corporation prior to the incorporation thereof or in
of any country with which the Philippines maintains pursuance of an increase in its authorized capital stock
diplomatic relations, or by any state, province or political under the Corporation Code, when no expense is
subdivision thereof on the basis of reciprocity: Provided, incurred, or no commission, compensation or
That the Commission may require compliance with the remuneration is paid or given in connection with the sale
form and content of disclosures the Commission may or disposition of such securities, and only when the
prescribe. purpose for soliciting, giving or taking of such
(c) Certificates issued by a receiver or by a trustee in subscriptions is to comply with the requirements of such
bankruptcy duly approved by the proper adjudicatory law as to the percentage of the capital stock of a
body. corporation which should be subscribed before it can be
registered and duly incorporated, or its authorized capital
(d) Any security or its derivatives the sale or transfer of increased.
which, by law, is under the supervision and regulation of
the Office of the Insurance Commission, Housing and (j) The exchange of securities by the issuer with its
Land Use Regulatory Board, or the Bureau of Internal existing security holders exclusively, where no
Revenue. commission or other remuneration is paid or given
directly or indirectly for soliciting such exchange.
(e) Any security issued by a bank except its own shares of
stock. (k) The sale of securities by an issuer to fewer than twenty
(20) persons in the Philippines during any twelve-month
9.2. The Commission may, by rule or regulation after period.
public hearing, add to the foregoing any class of
securities if it finds that the enforcement of this Codewith (l) The sale of securities to any number of the following
respect to such securities is not necessary in the public qualified buyers:
interest and for the protection of investors. (i) Bank;
SECTION 10. Exempt Transactions. — 10.1. The (ii) Registered investment house;
requirement of registration under Subsection 8.1 shall not (iii) Insurance company;
apply to the sale of any security in any of the following
transactions: (iv) Pension fund or retirement plan maintained by the
Government of the Philippines or any political subdivision
(a) At any judicial sale, or sale by an executor, thereof or managed by a bank or other persons
administrator, guardian or receiver or trustee in authorized by the Bangko Sentral to engage in trust
insolvency or bankruptcy. functions;
(b) By or for the account of a pledge holder, or mortgagee (v) Investment company; or
or any other similar lien holder selling or offering for sale
or delivery in the ordinary course of business and not for (vi) Such other person as the Commission may by rule
the purpose of avoiding the provisions of this Code, to determine as qualified buyers, on the basis of such factors
liquidate a bona fide debt, a security pledged in good as financial sophistication, net worth, knowledge, and
faith as security for such debt. experience in financial and business matters, or amount
of assets under management.
(c) An isolated transaction in which any security is sold,
offered for sale, subscription or delivery by the owner 10.2. The Commission may exempt other transactions, if it
thereof, or by his representative for the owner's account, finds that the requirements of registration under this
such sale or offer for sale, subscription or delivery not Code is not necessary in the public interest or for the
being made in the course of repeated and successive protection of the investors such as by reason of the small
transactions of a like character by such owner, or on his amount involved or the limited character of the public
account by such representative and such owner or offering.
representative not being the underwriter of such security. 10.3. Any person applying for an exemption under this
(d) The distribution by a corporation, actively engaged in Section, shall file with the Commission a notice
the business authorized by its articles of incorporation, of identifying the exemption relied upon on such form and
securities to its stockholders or other security holders as a at such time as the Commission by rule may prescribe
stock dividend or other distribution out of surplus. and with such notice shall pay to the Commission a fee
equivalent to one-tenth (1/10) of one percent (1%) of the
(e) The sale of capital stock of a corporation to its own maximum aggregate price or issued value of the
stockholders exclusively, where no commission or other securities.
remuneration is paid or given directly or indirectly in
connection with the sale of such capital stock. SECTION 11. Commodity Futures Contracts. — No person
shall offer, sell or enter into commodity futures contracts
(f) The issuance of bonds or notes secured by mortgage except in accordance with rules, regulations and orders
upon real estate or tangible personal property, where the the Commission may prescribe in the public interest. The
entire mortgage together with all the bonds or notes Commission shall promulgate rules and regulations
secured thereby are sold to a single purchaser at a single involving commodity futures contracts to protect
sale. investors to ensure the development of a fair and
(g) The issue and delivery of any security in exchange for transparent commodities market.
any other security of the same issuer pursuant to a right SECTION 12. Procedure for Registration of Securities. —
of conversion entitling the holder of the security 12.1. All securities required to be registered under
surrendered in exchange to make such conversion: Subsection 8.1 shall be registered through the filing by
Provided, That the security so surrendered has been the issuer in the main office of the Commission, of a
registered under this Code or was, when sold, exempt sworn registration statement with respect to such
from the provisions of this Code, and that the security securities, in such form and containing such information
issued and delivered in exchange, if sold at the conversion and documents as the Commission shall prescribe. The
price, would at the time of such conversion fall within the registration statement shall include any prospectus
class of securities entitled to registration under this Code. required or permitted to be delivered under Subsections
Upon such conversion the par value of the security 8.2, 8.3 and 8.4.
surrendered in such exchange shall be deemed the price
at which the securities issued and delivered in such 12.2. In promulgating rules governing the content of any
exchange are sold. registration statement (including any prospectus made a


part thereof or annexed thereto), the Commission may (a) The issuer:
require the registration statement to contain such (i) Has been judicially declared insolvent;
information or documents as it may, by rule, prescribe. It
may dispense with any such requirement, or may require (ii) Has violated any of the provisions of this Code, the
additional information or documents, including written rules promulgated pursuant thereto, or any order of the
information from an expert, depending on the necessity Commission of which the issuer has notice in connection
thereof or their applicability to the class of securities with the offering for which the registration statement has
sought to be registered. been filed;
12.3. The information required for the registration of any (iii) Has been or is engaged or is about to engage in
kind, and all securities, shall include, among others, the fraudulent transactions;
effect of the securities issue on ownership, on the mix of (iv) Has made any false or misleading representation of
ownership, especially foreign and local ownership. material facts in any prospectus concerning the issuer or
12.4. The registration statement shall be signed by the its securities;
issuer's executive officer, its principal operating officer, its (v) Has failed to comply with any requirement that the
principal financial officer, its comptroller, its principal Commission may impose as a condition for registration of
accounting officer, its corporate secretary or persons the security for which the registration statement has
performing similar functions accompanied by a duly been filed; or
verified resolution of the board of directors of the issuer
corporation. The written consent of the expert named as (b) The registration statement is on its face incomplete or
having certified any part of the registration statement or inaccurate in any material respect or includes any untrue
any document used in connection therewith shall also be statement of a material fact or omits to state a material
filed. Where the registration statement includes shares to fact required to be stated therein or necessary to make
be sold by selling shareholders, a written certification by the statements therein not misleading; or
such selling shareholders as to the accuracy of any part of (c) The issuer, any officer, director or controlling person of
the registration statement contributed to by such selling the issuer, or person performing similar functions, or any
shareholders shall also be filed. underwriter has been convicted, by a competent judicial
12.5. (a) Upon filing of the registration statement, the or administrative body, upon plea of guilty, or otherwise,
issuer shall pay to the Commission a fee of not more than of an offense involving moral turpitude and/or fraud or is
one-tenth (1/10) of one per centum (1%) of the maximum enjoined or restrained by the Commission or other
aggregate price at which such securities are proposed to competent judicial or administrative body for violations of
be offered. The Commission shall prescribe by rule securities, commodities, and other related laws.
diminishing fees in inverse proportion the value of the For purposes of this subsection, the term "competent
aggregate price of the offering. judicial or administrative body" shall include a foreign
(b) Notice of the filing of the registration statement shall court of competent jurisdiction as provided for under the
be immediately published by the issuer, at its own Rules of Court.
expense, in two (2) newspapers of general circulation in 13.2. The Commission may compel the production of all
the Philippines, once a week for two (2) consecutive the books and papers of such issuer, and may administer
weeks, or in such other manner as the Commission by oaths to, and examine the officers of such issuer or any
rule shall prescribe, reciting that a registration statement other person connected therewith as to its business and
for the sale of such security has been filed, and that the affairs.
aforesaid registration statement, as well as the papers
attached thereto are open to inspection at the 13.3. If any issuer shall refuse to permit an examination to
Commission during business hours, and copies thereof, be made by the Commission, its refusal shall be ground
photostatic or otherwise, shall be furnished to interested for the refusal or revocation of the registration of its
parties at such reasonable charge as the Commission securities.
may prescribe. 13.4. If the Commission deems it necessary, it may issue
12.6. Within forty-five (45) days after the date of filing of an order suspending the offer and sale of the securities
the registration statement, or by such later date to which pending any investigation. The order shall state the
the issuer has consented, the Commission shall declare grounds for taking such action, but such order of
the registration statement effective or rejected, unless suspension although binding upon the persons notified
the applicant is allowed to amend the registration thereof, shall be deemed confidential, and shall not be
statement as provided in Section 14 hereof. The published. Upon the issuance of the suspension order, no
Commission shall enter an order declaring the further offer or sale of such security shall be made until
registration statement to be effective if it finds that the the same is lifted or set aside by the Commission.
registration statement together with all the other papers Otherwise, such sale shall be void.
and documents attached thereto, is on its face complete 13.5. Notice of issuance of such order shall be given to the
and that the requirements have been complied with. The issuer and every dealer and broker who shall have
Commission may impose such terms and conditions as notified the Commission of an intention to sell such
may be necessary or appropriate for the protection of the security.
investors. 13.6. A registration statement may be withdrawn by the
12.7. Upon effectivity of the registration statement, the issuer only with the consent of the Commission.
issuer shall state under oath in every prospectus that all SECTION 14. Amendments to the Registration
registration requirements have been met and that all Statement. — 14.1. If a registration statement is on its face
information are true and correct as represented by the incomplete or inaccurate in any material respect, the
issuer or the one making the statement. Any untrue Commission shall issue an order directing the
statement of fact or omission to state a material fact amendment of the registration statement. Upon
required to be stated therein or necessary to make the compliance with such order, the amended registration
statement therein not misleading shall constitute fraud. statement shall become effective in accordance with the
SECTION 13. Rejection and Revocation of Registration of procedure mentioned in Subsection 12.6 hereof.
Securities. — 13.1. The Commission may reject a 14.2. An amendment filed prior to the effective date of the
registration statement and refuse registration of the registration statement shall recommence the forty-five
security thereunder, or revoke the effectivity of a (45) days period within which the Commission shall act
registration statement and the registration of the on a registration statement. An amendment filed after
security thereunder after due notice and hearing by the effective date of the registration statement shall
issuing an order to such effect, setting forth its findings in become effective only upon such date as determined by
respect thereto, if it finds that: 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. CHAPTER V Reportorial Requirements
14.4. If, at any time, the Commission finds that a SECTION 17. Periodic and Other Reports of Issuers. —
registration statement contains any false statement or 17.1. Every issuer satisfying the requirements in
omits to state any fact required to be stated therein or Subsection 17.2 hereof shall file with the Commission:
necessary to make the statements therein not (a) Within one hundred thirty-five (135) days, after the end
misleading, the Commission may conduct an of the issuer's fiscal year, or such other time as the
examination, and, after due notice and hearing, issue an Commission may prescribe, an annual report which shall
Order suspending the effectivity of the registration include, among others, a balance sheet, profit and loss
statement. If the statement is duly amended, the statement and statement of cash flows, for such last fiscal
suspension order may be lifted. year, certified by an independent certified public
14.5. In making such examination the Commission or any accountant, and a management discussion and analysis
officer or officers designated by it may administer oaths of results of operations; and
and affirmations and shall have access to, and may (b) Such other periodical reports for interim fiscal periods
demand the production of, any books, records or and current reports on significant developments of the
documents relevant to the examination. Failure of the issuer as the Commission may prescribe as necessary to
issuer, underwriter, or any other person to cooperate, or keep current information on the operation of the
his obstruction or refusal to undergo an examination, business and financial condition of the issuer.
shall be a ground for the issuance of a suspension order.
17.2. The reportorial requirements of Subsection 17.1 shall
SECTION 15. Suspension of Registration. — 15.1. If, at any apply to the following:
time, the information contained in the registration
(a) An issuer which has sold a class of its securities
statement filed is or has become misleading, incorrect,
pursuant to a registration under Section 12 hereof:
inadequate or incomplete in any material respect, or the
Provided, however, That the obligation of such issuer to
sale or offering for sale of the security registered
file reports shall be suspended for any fiscal year after the
thereunder may work or tend to work a fraud, the
year such registration became effective if such issuer, as
Commission may require from the issuer such further
of the first day of any such fiscal year, has less than one
information as may in its judgment be necessary to
hundred (100) holders of such class of securities or such
enable the Commission to ascertain whether the
other number as the Commission shall prescribe and it
registration of such security should be revoked on any
notifies the Commission of such;
ground specified in this Code. The Commission may also
suspend the right to sell and offer for sale such security (b) An issuer with a class of securities listed for trading on
pending further investigation, by entering an order an Exchange; and
specifying the grounds for such action, and by notifying (c) An issuer with assets of at least Fifty million pesos
the issuer, underwriter, dealer or broker known as (P50,000,000.00) or such other amount as the
participating in such offering. Commission shall prescribe, and having two hundred
15.2. The refusal to furnish information required by the (200) or more holders each holding at least one hundred
Commission may be a ground for the issuance of an order (100) shares of a class of its equity securities: Provided,
of suspension pursuant to Subsection 15.1. Upon the however, That the obligation of such issuer to file reports
issuance of any such order and notification to the issuer, shall be terminated ninety (90) days after notification to
underwriter, dealer or broker known as participating in the Commission by the issuer that the number of its
such offering, no further offer or sale of any such security holders holding at least one hundred (100) shares is
shall be made until the same is lifted or set aside by the reduced to less than one hundred (100).
Commission. Otherwise, such sale shall be void. 17.3. Every issuer of a security listed for trading on an
15.3. Upon issuance of an order of suspension, the Exchange shall file with the Exchange a copy of any
Commission shall conduct a hearing. If the Commission report filed with the Commission under Subsection 17.1
determines that the sale of any security should be hereof.
revoked, it shall issue an order prohibiting sale of such 17.4. All reports (including financial statements) required
security. to be filed with the Commission pursuant to Subsection
Until the issuance of a final order, the suspension of the 17.1 hereof shall be in such form, contain such information
right to sell, though binding upon the persons notified and be filed at such times as the Commission shall
thereof, shall be deemed confidential, and shall not be prescribe, and shall be in lieu of any periodical or current
published, unless it shall appear that the order of reports or financial statements otherwise required to be
suspension has been violated after notice. If, however, the filed under the Corporation Code.
Commission finds that the sale of the security will neither 17.5. Every issuer which has a class of equity securities
be fraudulent nor result in fraud, it shall forthwith issue satisfying any of the requirements in Subsection 17.2 shall
an order revoking the order of suspension, and such furnish to each holder of such equity security an annual
security shall be restored to its status as a registered report in such form and containing such information as
security as of the date of such order of suspension. the Commission shall prescribe.
17.6. Within such period as the Commission may prescribe
CHAPTER IV Regulation of Pre-Need Plans preceding the annual meeting of the holders of any
equity security of a class entitled to vote at such meeting,
SECTION 16. Pre-Need Plans. — No person shall sell or the issuer shall transmit to such holders an annual report
offer for sale to the public any pre-need plan except in in conformity with Subsection 17.5.
accordance with rules and regulations which the
Commission shall prescribe. Such rules shall regulate the SECTION 18. Reports by Five per centum (5%) Holders of
sale of pre-need plans by, among other things, requiring Equity Securities. — 18.1. In every case in which an issuer
the registration of pre-need plans, licensing persons satisfies the requirements of Subsection 17.2 hereof, any
involved in the sale of pre-need plans, requiring person who acquires directly or indirectly the beneficial
disclosures to prospective plan holders, prescribing ownership of more than five per centum (5%) of such
advertising guidelines, providing for uniform accounting class or in excess of such lesser per centum as the
system, reports and record keeping with respect to such Commission by rule may prescribe, shall, within ten (10)
plans, imposing capital, bonding and other financial days after such acquisition or such reasonable time as
responsibility, and establishing trust funds for the fixed by the Commission, submit to the issuer of the
payment of benefits under such plans. security, to the Exchange where the security is traded,
and to the Commission a sworn statement containing the
following information and such other information as the



Commission may require in the public interest or for the (c) Securities deposited pursuant to a tender offer or
protection of investors: request or invitation for tenders may be withdrawn by or
(a) The personal background, identity, residence, and on behalf of the depositor at any time throughout the
citizenship of, and the nature of such beneficial period that the tender offer remains open and if the
ownership by, such person and all other persons by securities deposited have not been previously accepted
whom or on whose behalf the purchases are effected; in for payment, and at any time after sixty (60) days from
the event the beneficial owner is a juridical person, the the date of the original tender offer or request or
lines of business of the beneficial owner shall also be invitation, except as the Commission may otherwise
reported; prescribe.
(b) If the purpose of the purchases or prospective (d) Where the securities offered exceed that which a
purchases is to acquire control of the business of the person or group of persons is bound or willing to take up
issuer of the securities, any plans or proposals which such and pay for, the securities that are subject of the tender
persons may have that will effect a major change in its offer shall be taken up as nearly as may be pro rata,
business or corporate structure; disregarding fractions, according to the number of
securities deposited by each depositor. The provisions of
(c) The number of shares of such security which are this subsection shall also apply to securities deposited
beneficially owned, and the number of shares concerning within ten (10) days after notice of an increase in the
which there is a right to acquire, directly or indirectly, by: consideration offered to security holders, as described in
(i) such person, and (ii) each associate of such person, paragraph (e) of this subsection, is first published or sent
giving the background, identity, residence, and or given to security holders.
citizenship of each such associate; and
(e) Where any person varies the terms of a tender offer or
(d) Information as to any contracts, arrangements, or request or invitation for tenders before the expiration
understanding with any person with respect to any thereof by increasing the consideration offered to holders
securities of the issuer including but not limited to of such securities, such person shall pay the increased
transfer, joint ventures, loan or option arrangements, puts consideration to each security holder whose securities are
or calls, guarantees or division of losses or profits, or taken up and paid for whether or not such securities have
proxies naming the persons with whom such contracts, been taken up by such person before the variation of the
arrangements, or understanding have been entered into, tender offer or request or invitation.
and giving the details thereof.
19.2. It shall be unlawful for any person to make any
18.2. If any change occurs in the facts set forth in the untrue statement of a material fact or omit to state any
statements, an amendment shall be transmitted to the material fact necessary in order to make the statements
issuer, the Exchange and the Commission. made, in the light of the circumstances under which they
18.3. The Commission, may permit any person to file in are made, not misleading, or to engage in any fraudulent,
lieu of the statement required by Subsection 17.1 hereof, a deceptive, or manipulative acts or practices, in
notice stating the name of such person, the shares of any connection with any tender offer or request or invitation
equity securities subject to Subsection 17.1 which are for tenders, or any solicitation of security holders in
owned by him, the date of their acquisition and such opposition to or in favor of any such offer, request, or
other information as the Commission may specify, if it invitation. The Commission shall, for the purposes of this
appears to the Commission that such securities were subsection, define and prescribe means reasonably
acquired by such person in the ordinary course of his designed to prevent, such acts and practices as are
business and were not acquired for the purpose of and do fraudulent, deceptive, or manipulative.
not have the effect of changing or influencing the control SECTION 20. Proxy Solicitations. — 20.1. Proxies must be
of the issuer nor in connection with any transaction issued and proxy solicitation must be made in
having such purpose or effect. accordance with rules and regulations to be issued by the
Commission.
CHAPTER VI Protection of Shareholder Interests 20.2. Proxies must be in writing, signed by the
stockholder or his duly authorized representative and
SECTION 19. Tender Offers. — 19.1. (a) Any person or group filed before the scheduled meeting with the corporate
of persons acting in concert who intends to acquire at secretary.
least fifteen percent (15%) of any class of any equity
20.3. Unless otherwise provided in the proxy, it shall be
security of a listed corporation or of any class of any
valid only for the meeting for which it is intended. No
equity security of a corporation with assets of at least Fifty
proxy shall be valid and effective for a period longer than
million pesos (P50,000,000.00) and having two hundred
five (5) years at one time.
(200) or more stockholders with at least one hundred
(100) shares each or who intends to acquire at least thirty 20.4. No broker or dealer shall give any proxy, consent or
percent (30%) of such equity over a period of twelve (12) authorization, in respect of any security carried for the
months shall make a tender offer to stockholders by filing account of a customer, to a person other than the
with the Commission a declaration to that effect; and customer, without the express written authorization of
furnish the issuer, a statement containing such of the such customer.
information required in Section 17 of this Code as the 20.5. A broker or dealer who holds or acquires the proxy
Commission may prescribe. Such person or group of for at least ten per centum (10%) or such percentage as
persons shall publish all requests or invitations for tender, the Commission may prescribe of the outstanding share
or materials making a tender offer or requesting or of the issuer, shall submit a report identifying the
inviting letters of such a security. Copies of any additional beneficial owner within ten (10) days after such
material soliciting or requesting such tender offers acquisition, for its own account or customer, to the issuer
subsequent to the initial solicitation or request shall of the security, to the Exchange where the security is
contain such information as the Commission may traded and to the Commission.
prescribe, and shall be filed with the Commission and
sent to the issuer not later than the time copies of such SECTION 21. Fees for Tender Offers and Certain Proxy
materials are first published or sent or given to security Solicitations. — At the time of filing with the Commission
holders. of any statement required under Section 19 for any tender
offer or Section 72.2 for issuer repurchases, or Section 20
(b) Any solicitation or recommendation to the holders of for proxy or consent solicitation, the Commission may
such a security to accept or reject a tender offer or require that the person making such filing pay a fee of
request or invitation for tenders shall be made in not more than one-tenth (1/10) of one percentum (1%) of:
accordance with such rules and regulations as the
Commission may prescribe. 21.1. The proposed aggregate purchase price in the case of
a transaction under Sections 20 or 72.2; or


21.2. The proposed payment in cash, and the value of any (5) days after such sale deposit it in the mails or other
securities or property to be transferred in the acquisition, usual channels of transportation; but no person shall be
merger or consolidation, or the cash and value of any deemed to have violated this subsection if he proves that
securities proposed to be received upon the sale or notwithstanding the exercise of good faith he was unable
disposition of such assets in the case of a solicitation to make such delivery or deposit within such time, or that
under Section 20. The Commission shall prescribe by rule to do so would cause undue inconvenience or expense.
diminishing fees in inverse proportion to the value of the 23.4. The provisions of Subsection 23.2 shall not apply to
aggregate price of the offering. any purchase and sale, or sale and purchase, and the
SECTION 22. Internal Record Keeping and Accounting provisions of Subsection 23.3 shall not apply to any sale, of
Controls. — Every issuer which has a class of securities an equity security not then or thereafter held by him in an
that satisfies the requirements of Subsection 17.2 shall: investment account, by a dealer in the ordinary course of
22.1. Make and keep books, records, and accounts which, his business and incident to the establishment or
in reasonable detail accurately and fairly reflect the maintenance by him of a primary or secondary market,
transactions and dispositions of assets of the issuer; otherwise than on an Exchange, for such security. The
Commission may, by such rules and regulations as it
22.2. Devise and maintain a system of internal accounting deems necessary or appropriate in the public interest,
controls sufficient to provide reasonable assurances that: define and prescribe terms and conditions with respect
(a) Transactions and access to assets are pursuant to to securities held in an investment account and
management authorization; (b) Financial statements are transactions made in the ordinary course of business and
prepared in conformity with generally accepted incident to the establishment or maintenance of a
accounting principles that are adopted by the primary or secondary market.
Accounting Standards Council and the rules
promulgated by the Commission with regard to the
preparation of financial statements; and (c) Recorded CHAPTER VII Prohibitions on Fraud, Manipulation
assets are compared with existing assets at reasonable
intervals and differences are reconciled.
and Insider Trading
SECTION 23. Transactions of Directors, Officers and SECTION 24. Manipulation of Security Prices; Devices
Principal Stockholders. — 23.1. Every person who is and Practices. — 24.1 It shall be unlawful for any person
directly or indirectly the beneficial owner of more than acting for himself or through a dealer or broker, directly
ten per centum (10%) of any class of any equity security or indirectly:
which satisfies the requirements of Subsection 17.2, or (a) To create a false or misleading appearance of active
who is a director or an officer of the issuer of such trading in any listed security traded in an Exchange or
security, shall file, at the time either such requirement is any other trading market (hereafter referred to purposes
first satisfied or within ten days after he becomes such a of this Chapter as "Exchange"):
beneficial owner, director, or officer, a statement with the
(i) By effecting any transaction in such security which
Commission and, if such security is listed for trading on
involves no change in the beneficial ownership thereof;
an Exchange, also with the Exchange, of the amount of all
equity securities of such issuer of which he is the (ii) By entering an order or orders for the purchase or sale
beneficial owner, and within ten (10) days after the close of such security with the knowledge that a simultaneous
of each calendar month thereafter, if there has been a order or orders of substantially the same size, time and
change in such ownership during such month, shall file price, for the sale or purchase of any such security, has or
with the Commission, and if such security is listed for will be entered by or for the same or different parties; or
trading on an Exchange, shall also file with the Exchange, (iii) By performing similar act where there is no change in
a statement indicating his ownership at the close of the beneficial ownership.
calendar month and such changes in his ownership as
have occurred during such calendar month. (b) To effect, alone or with others, a series of transactions
in securities that: (i) Raises their price to induce the
23.2. For the purpose of preventing the unfair use of purchase of a security, whether of the same or a different
information which may have been obtained by such class of the same issuer or of a controlling, controlled, or
beneficial owner, director, or officer by reason of his commonly controlled company by others; (ii) Depresses
relationship to the issuer, any profit realized by him from their price to induce the sale of a security, whether of the
any purchase and sale, or any sale and purchase, of any same or a different class, of the same issuer or of a
equity security of such issuer within any period of less controlling, controlled, or commonly controlled company
than six (6) months, unless such security was acquired in by others; or (iii) Creates active trading to induce such a
good faith in connection with a debt previously purchase or sale through manipulative devices such as
contracted, shall inure to and be recoverable by the marking the close, painting the tape, squeezing the float,
issuer, irrespective of any intention of holding the security hype and dump, boiler room operations and such other
purchased or of not repurchasing the security sold for a similar devices.
period exceeding six (6) months. Suit to recover such
profit may be instituted before the Regional Trial Court by (c) To circulate or disseminate information that the price
the issuer, or by the owner of any security of the issuer in of any security listed in an Exchange will or is likely to rise
the name and in behalf of the issuer if the issuer shall fail or fall because of manipulative market operations of any
or refuse to bring such suit within sixty (60) days after one or more persons conducted for the purpose of raising
request or shall fail diligently to prosecute the same or depressing the price of the security for the purpose of
thereafter, but no such suit shall be brought more than inducing the purchase or sale of such security.
two (2) years after the date such profit was realized. This (d) To make false or misleading statement with respect to
subsection shall not be construed to cover any any material fact, which he knew or had reasonable
transaction where such beneficial owner was not such ground to believe was so false or misleading, for the
both at the time of the purchase and sale, or the sale and purpose of inducing the purchase or sale of any security
purchase, of the security involved, or any transaction or listed or traded in an Exchange.
transactions which the Commission by rules and
regulations may exempt as not comprehended within (e) To effect, either alone or others, any series of
the purpose of this subsection. transactions for the purchase and/or sale of any security
traded in an Exchange for the purpose of pegging, fixing
23.3. It shall be unlawful for any such beneficial owner, or stabilizing the price of such security, unless otherwise
director, or officer, directly or indirectly, to sell any equity allowed by this Code or by rules of the Commission.
security of such issuer if the person selling the security or
his principal: (a) Does not own the security sold; or (b) If 24.2. No person shall use or employ, in connection with
owning the security, does not deliver it against such sale the purchase or sale of any security any manipulative or
within twenty (20) days thereafter, or does not within five deceptive device or contrivance. Neither shall any short


sale be effected nor any stop-loss order be executed in (i) Any person (other than the tender offeror) who is in
connection with the purchase or sale of any security possession of material nonpublic information relating to
except in accordance with such rules and regulations as such tender offer, to buy or sell the securities of the issuer
the Commission may prescribe as necessary or that are sought or to be sought by such tender offer if
appropriate in the public interest or for the protection of such person knows or has reason to believe that the
investors. information is nonpublic and has been acquired directly
24.3. The foregoing provisions notwithstanding, the or indirectly from the tender offeror, those acting on its
Commission, having due regard to the public interest and behalf, the issuer of the securities sought or to be sought
the protection of investors, may, by rules and regulations, by such tender offer, or any insider of such issuer; and
allow certain acts or transactions that may otherwise be (ii) Any tender offeror, those acting on its behalf, the
prohibited under this Section. issuer of the securities sought or to be sought by such
SECTION 25. Regulation of Option Trading. — No tender offer, and any insider of such issuer to
member of an Exchange shall, directly or indirectly communicate material nonpublic information relating to
endorse or guarantee the performance of any put, call, the tender offer to any other person where such
straddle, option or privilege in relation to any security communication is likely to result in a violation of
registered on a securities exchange. Subsection 27.4 (a)(i).
The terms "put", "call", "straddle", "option", or "privilege" (b) For purposes of this subsection the term "securities of
shall not include any registered warrant, right or the issuer sought or to be sought by such tender offer"
convertible security. shall include any securities convertible or exchangeable
into such securities or any options or rights in any of the
SECTION 26. Fraudulent Transactions. — It shall be foregoing securities.
unlawful for any person, directly or indirectly, in
connection with the purchase or sale of any securitiesto:
26.1. Employ any device, scheme, or artifice to defraud; CHAPTER VIII Regulation of Securities Market
26.2. Obtain money or property by means of any untrue Professionals
statement of a material fact of any omission to state a SECTION 28. Registration of Brokers, Dealers, Salesmen
material fact necessary in order to make the statements and Associated Persons. — 28.1. No person shall engage
made, in the light of the circumstances under which they in the business of buying or selling securities in the
were made, not misleading; or Philippines as a broker or dealer, or act as a salesman, or
26.3. Engage in any act, transaction, practice or course of an associated person of any broker or dealer unless
business which operates or would operate as a fraud or registered as such with the Commission.
deceit upon any person. 28.2. No registered broker or dealer shall employ any
SECTION 27. Insider's Duty to Disclose When Trading. — salesman or any associated person, and no issuer shall
27.1. It shall be unlawful for an insider to sell or buy a employ any salesman, who is not registered as such with
security of the issuer, while in possession of material the Commission.
information with respect to the issuer or the security that 28.3. The Commission, by rule or order, may conditionally
is not generally available to the public, unless: (a) The or unconditionally exempt from Subsections 28.1 and 28.2
insider proves that the information was not gained from any broker, dealer, salesman, associated person of any
such relationship; or (b) If the other party selling to or broker or dealer, or any class of the foregoing, as it deems
buying from the insider (or his agent) is identified, the consistent with the public interest and the protection of
insider proves: (i) that he disclosed the information to the investors.
other party, or (ii) that he had reason to believe that the
other party otherwise is also in possession of the 28.4. The Commission shall promulgate rules and
information. A purchase or sale of a security of the issuer regulations prescribing the qualifications for registration
made by an insider defined in Subsection 3.8, or such of each category of applicant, which shall, among other
insider's spouse or relatives by affinity or consanguinity things, require as a condition for registration that:
within the second degree, legitimate or common-law, (a) If a natural person, the applicant satisfactorily pass a
shall be presumed to have been effected while in written examination as to his proficiency and knowledge
possession of material nonpublic information if in the area of activity for which registration is sought;
transacted after such information came into existence
(b) In the case of a broker or dealer, the applicant satisfy a
but prior to dissemination of such information to the
minimum net capital as prescribed by the Commission,
public and the lapse of a reasonable time for the market
and provide a bond or other security as the Commission
to absorb such information: Provided,however, That this
may prescribe to secure compliance with the provisions
presumption shall be rebutted upon a showing by the
of this Code; and
purchaser or seller that he was not aware of the material
nonpublic information at the time of the purchase or sale. (c) If located outside of the Philippines, the applicant files
a written consent to service of process upon the
27.2. For purposes of this Section, information is "material
Commission pursuant to Section 65 hereof.
nonpublic" if: (a) It has not been generally disclosed to the
public and would likely affect the market price of the 28.5. A broker or dealer may apply for registration by filing
security after being disseminated to the public and the with the Commission a written application in such form
lapse of a reasonable time for the market to absorb the and containing such information and documents
information; or (b) would be considered by a reasonable concerning such broker or dealer as the Commission by
person important under the circumstances in rule shall prescribe.
determining his course of action whether to buy, sell or 28.6. Registration of a salesman or of an associated
hold a security. person of a registered broker or dealer may be made
27.3. It shall be unlawful for any insider to communicate upon written application filed with the Commission by
material nonpublic information about the issuer or the such salesman or associated person. The application shall
security to any person who, by virtue of the be separately signed and certified by the registered
communication, becomes an insider as defined in broker or dealer to which such salesman or associated
Subsection 3.8, where the insider communicating the person is to become affiliated, or by the issuer in the case
information knows or has reason to believe that such of a salesman employed, appointed or authorized solely
person will likely buy or sell a security of the issuer while by such issuer. The application shall be in such form and
in possession of such information. contain such information and documents concerning the
salesman or associated person as the Commission by rule
27.4. a) It shall be unlawful where a tender offer has
shall prescribe. For purposes of this Section, a salesman
commenced or is about to commence for:
shall not include any employee of an issuer whose


compensation is not determined directly or indirectly on (f) Is subject to an order of a competent judicial or
sales of securities of the issuer. administrative body refusing, revoking or suspending any
28.7. Applications filed pursuant to Subsections 28.5 and registration, license or other permit under this Code, the
28.6 shall be accompanied by a registration fee in such rules and regulations promulgated thereunder, any other
reasonable amount prescribed by the Commission. law administered by the Commission;
28.8. Within thirty (30) days after the filing of any (g) Is subject to an order of a self-regulatory organization
application under this Section, the Commission shall by suspending or expelling him from membership or
order: (a) Grant registration if it determines that the participation therein or from association with a member
requirements of this Section and the qualifications for or participant thereof;
registration set forth in its rules and regulations have (h) Has been found by a competent judicial or
been satisfied; or (b) Deny said registration. administrative body to have willfully violated any
28.9. The names and addresses of all persons approved for provisions of securities, commodities, banking, real estate
registration as brokers, dealers, associated persons or or insurance laws, or has willfully aided, abetted,
salesmen and all orders of the Commission with respect counseled, commanded, induced or procured such
thereto shall be recorded in a Register of Securities violation; or
Market Professionals kept in the office of the Commission (i) Has been judicially declared insolvent.
which shall be open to public inspection. For purposes of this subsection, the term "competent
28.10. Every person registered pursuant to this Section judicial or administrative body" shall include a foreign
shall file with the Commission, in such form as the court of competent jurisdiction and a foreign financial
Commission shall prescribe, information necessary to regulator.
keep the application for registration current and accurate, 29.2. (a) In cases of charges against a salesman or
including in the case of a broker or dealer changes in associated person, notice thereof shall also be given the
salesmen, associated persons and owners thereof. broker, dealer or issuer employing such salesman or
28.11. Every person registered pursuant to this Section associated person.
shall pay to the Commission an annual fee at such time (b) Pending the hearing, the Commission shall have the
and in such reasonable amount as the Commission shall power to order the suspension of such broker's, dealer's,
prescribe. Upon notice by the Commission that such associated person's or salesman's registration: Provided,
annual fee has not been paid as required, the registration That such order shall state the cause for such suspension.
of such person shall be suspended until payment has Until the entry of a final order, the suspension of such
been made. registration, though binding upon the persons notified
28.12. The registration of a salesman or associated person thereof, shall be deemed confidential, and shall not be
shall be automatically terminated upon the cessation of published, unless it shall appear that the order of
his affiliation with said registered broker or dealer, or with suspension has been violated after notice.
an issuer in the case of a salesman employed, appointed 29.3. The order of the Commission refusing, revoking,
or authorized by such issuer. Promptly following any such suspending or placing limitations on a registration as
cessation of affiliation, the registered broker or dealer, or herein above provided, together with its findings, shall be
issuer, as the case may be, shall file with the Commission entered in the Register of Securities Market Professionals.
a notice of separation of such salesman or associated The suspension or revocation of the registration of a
person. dealer or broker shall also automatically suspend the
SECTION 29. Revocation, Refusal or Suspension of registration of all salesmen and associated persons
Registration of Brokers, Dealers, Salesmen and affiliated with such broker or dealer.
Associated Persons. — 29.1. Registration under Section 28 29.4. It shall be sufficient cause for refusal, revocation or
of this Code may be refused, or any registration granted suspension of a broker's or dealer's registration, if any
thereunder may be revoked, suspended, or limitations associated person thereof or any juridical entity
placed thereon, by the Commission if, after due notice controlled by such associated person has committed any
and hearing, the Commission determines the applicant act or omission or is subject to any disability enumerated
or registrant: in paragraphs (a) through (i) of Subsection 29.1 hereof.
(a) Has willfully violated any provision of this Code, any SECTION 30. Transactions and Responsibility of Brokers
rule, regulation or order made hereunder, or any other and Dealers. — 30.1. No broker or dealer shall deal in or
law administered by the Commission, or in the case of a otherwise buy or sell, for its own account or for the
registered broker, dealer or associated person has failed account of customers, securities listed on an Exchange
to supervise, with a view to preventing such violation, issued by any corporation where any stockholder,
another person who commits such violation; director, associated person or salesman, or authorized
(b) Has willfully made or caused to be made a materially clerk of said broker or dealer and all the relatives of the
false or misleading statement in any application for foregoing within the fourth civil degree of consanguinity
registration or report filed with the Commission or a or affinity, is at the time holding office in said issuer
self-regulatory organization, or has willfully omitted to corporation as a director, president, vice-president,
state any material fact that is required to be stated manager, treasurer, comptroller, secretary or any office of
therein; trust and responsibility, or is a controlling person of the
(c) Has failed to satisfy the qualifications or requirements issuer.
for registration prescribed under Section 28 and the rules 30.2. No broker or dealer shall effect any transaction in
and regulations of the Commission promulgated securities or induce or attempt to induce the purchase or
thereunder; sale of any security except in compliance with such rules
(d) Has been convicted, by a competent judicial or and regulations as the Commission shall prescribe to
administrative body of an offense involving moral ensure fair and honest dealings in securities and provide
turpitude, fraud, embezzlement, counterfeiting, theft, financial safeguards and other standards for the
estafa, misappropriation, forgery, bribery, false oath, or operation of brokers and dealers, including the
perjury, or of a violation of securities, commodities, establishment of minimum net capital requirements, the
banking, real estate or insurance laws; acceptance of custody and use ofsecurities of customers,
and the carrying and use of deposits and credit balances
(e) Is enjoined or restrained by a competent judicial or of customers.
administrative body from engaging in securities,
commodities, banking, real estate or insurance activities SECTION 31. Development of Securities Market
or from willfully violating laws governing such activities; Professionals. — The Commission, in joint undertaking
with self regulatory organizations, organizations and
associations of finance professionals as well as private



educational and research institutions shall undertake or organized as a stock corporation and owned and
facilitate/organize continuing training, controlled by another juridical person from this
conferences/seminars, updating programs, research and restriction.
development as well as technology transfer at the latest (c) Where the Exchange is organized as a stock
and advanced trends in issuance and trading of corporation, that no person may beneficially own or
securities, derivatives, commodity trades and other control, directly or indirectly, more than five percent (5%)
financial instruments, as well as securities markets of of the voting rights of the Exchange and no industry or
other countries. 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
CHAPTER IX Exchanges and Other Securities the Commission may adopt rules, regulations or issue an
Trading Markets order, upon application, exempting an applicant from
this prohibition where it finds that such ownership or
SECTION 32. Prohibition on Use of Unregistered
control will not negatively impact on the exchange's
Exchange; Regulation of Over-the-Counter Markets. —
ability to effectively operate in the public interest.
32.1. No broker, dealer, salesman, associated person of a
broker or dealer, or Exchange, directly or indirectly, shall (d) The expulsion, suspension, or disciplining of a member
make use of any facility of an Exchange in the Philippines and persons associated with a member for conduct or
to effect any transaction in a security, or to report such proceeding inconsistent with just and equitable
transaction, unless such Exchange is registered as such principles of fair trade, and for violations of provisions of
under Section 33 of this Code. this Code, or any other Act administered by the
Commission, the rules, regulations and orders
32.2. (a) No broker, dealer, salesman or associated person
thereunder, or the rules of the Exchange;
of a broker or dealer, singly or in concert with any other
person, shall make, create or operate, or enable another (e) A fair procedure for the disciplining of members and
to make, create or operate, any trading market, otherwise persons associated with members, the denial of
than on a registered Exchange, for the buying and selling membership to any person seeking to be a member, the
of any security, except in accordance with rules and barring of any person from association with a member,
regulations the Commission may prescribe. and the prohibition or limitation of any person from
access to services offered by the Exchange;
(b) The Commission may promulgate rules and
regulations governing transactions by brokers, dealers, (f) That the brokers in the board of the Exchange shall
salesmen or associated persons of a broker or dealer, over comprise of not more than forty-nine percent (49%) of
any facilities of such trading market and may require such board and shall proportionately represent the
such market to be administered by a self-regulatory Exchange membership in terms of volume/value of trade
organization determined by the Commission as capable and paid up capital, and that any natural person
of insuring the protection of investors comparable to that associated with a juridical entity that is a member shall
provided in the case of a registered Exchange. Such himself be deemed to be a member for this purpose:
self-regulatory organization must provide a centralized Provided, That any registered Exchange existing prior to
marketplace for trading and must satisfy requirements the effectivity of this Code shall immediately comply with
comparable to those prescribed for registration of this requirement;
Exchanges in Section 33 of this Code. (g) For the board of the Exchange to include in its
SECTION 33. Registration of Exchanges. — 33.1. Any composition (i) the president of the Exchange, and (ii) no
Exchange may be registered as such with the less than fifty one percent (51%) of the remaining
Commission under the terms and conditions hereinafter members of the board to be comprised of three (3)
provided in this Section and Section 40 hereof, by filing independent directors and persons who represent the
an application for registration in such form and interests of issuers, investors, and other market
containing such information and supporting documents participants, who are not associated with any broker or
as the Commission by rule shall prescribe, including the dealer or member of the Exchange for a period of two (2)
following: years prior to his/her appointment. No officer or
employee of a member, its subsidiaries or affiliates or
(a) An undertaking to comply and enforce compliance by
related interests shall become an independent
its members with the provisions of this Code, its
director:Provided, however, That the Commission may by
implementing rules or regulations and the rules of the
rule, regulation, or order upon application, permit the
Exchange;
exchange organized as a stock corporation to use a
(b) The organizational charts of the Exchange, rules of different governance structure: Provided, further, That the
procedure, and a list of its officers and members; Commission is satisfied that the Exchange is acting in the
(c) Copies of the rules of the Exchange; and public interest and is able to effectively operate as a
self-regulatory organization under this Code: Provided,
(d) An undertaking that in the event a member firm finally, That any registered exchange existing prior to the
becomes insolvent or when the Exchange shall have effectivity of this Code shall immediately comply with this
found that the financial condition of its member firm has requirement.
so deteriorated that it cannot readily meet the demands
of its customers for the delivery of securities and/or (h) The president and other management of the
payment of sales proceeds, the Exchange shall, upon Exchange to consist only of persons who are not
order of the Commission, take over the operation of the members and are not associated in any capacity, directly
insolvent member firm and immediately proceed to or indirectly with any broker or dealer or member or listed
settle the member firm's liabilities to its customers. company of the Exchange: Provided, That the Exchange
may only appoint, and a person may only serve, as an
33.2. Registration of an Exchange shall be granted upon officer of the exchange if such person has not been a
compliance with the following provisions: member or affiliated with any broker, dealer, or member
(a) That the applicant is organized as a stock corporation: of the Exchange for a period of at least two (2) years prior
Provided, That any registered Exchange existing prior to to such appointment;
the effectivity of this Code shall within one (1) year (i) The transparency of transactions on the Exchange;
reorganize as a stock corporation pursuant to a
demutualization plan approved by the Commission; (j) The equitable allocation of reasonable dues, fees, and
other charges among members and issuers and other
(b) That the applicant is engaged solely in the business of persons using any facility or system which the Exchange
operating an exchange: Provided, however, That the operates or controls;
Commission may adopt rules, regulations or issue an
order, upon application, exempting an Exchange (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 SECTION 36. Powers with Respect to Exchanges and
public interest; and Other Trading Market. — 36.1. The Commission is
(l) The transparent, prompt and accurate clearance and authorized, if in its opinion such action is necessary or
settlement of transactions effected on the Exchange. appropriate for the protection of investors and the public
interest so requires, summarily to suspend trading in any
33.3. If the Commission finds that the applicant Exchange listed security on any Exchange or other trading market
is capable of complying and enforcing compliance by its for a period not exceeding thirty (30) days or, with the
members, and persons associated with such members, approval of the President of the Philippines, summarily to
with the provisions of this Code, its rules and regulations, suspend all trading on any securities Exchange or other
and the rules of the Exchange, and that the rules of the trading market for a period of more than thirty (30) but
Exchange are fair, just and adequate, the Commission not exceeding ninety (90) days: Provided, however, That
shall cause such Exchange to be registered. If, after notice the Commission, promptly following the issuance of the
due and hearing, the Commission finds otherwise, the order of suspension, shall notify the affected issuer of the
application shall be denied. reasons for such suspension and provide such issuer with
33.4. Within ninety (90) days after the filing of the an opportunity for hearing to determine whether the
application the Commission may issue an order either suspension should be lifted.
granting or denying registration as an Exchange, unless 36.2. Wherever two (2) or more Exchanges or other
the Exchange applying for registration shall withdraw its trading markets exist, the Commission may require and
application or shall consent to the Commission's enforce uniformity of trading regulations in and/or
deferring action on its application for a stated longer between or among said Exchanges or other trading
period after the date of filing. The filing with the markets.
Commission of an application for registration by an
Exchange shall be deemed to have taken place upon the 36.3. In addition to the existing Philippine Stock
receipt thereof. Amendments to an application may be Exchange, the Commission shall have the authority to
made upon such terms as the Commission may determine the number, size and location of stock
prescribe. Exchanges, other trading markets and commodity
Exchanges and other similar organizations in the light of
33.5. Upon the registration of an Exchange, it shall pay a national or regional requirements for such activities with
fee in such amount and within such period as the the view to promote, enhance, protect, conserve or
Commission may fix. rationalize investment.
33.6. Upon appropriate application in accordance with the 36.4. The Commission, having due regard to the public
rules and regulations of the Commission and upon such interest, the protection of investors, the safeguarding of
terms as the Commission may deem necessary for the securities and funds, and maintenance of fair competition
protection of investors, an Exchange may withdraw its among brokers, dealers, clearing agencies, and transfer
registration or suspend its operations or resume the agents, shall promulgate rules and regulations for the
same. prompt and accurate clearance and settlement of
SECTION 34. Segregation and Limitation of Functions securities transactions.
of Members, Brokers and Dealers. — 34.1. It shall be 36.5. (a) The Commission may establish or facilitate the
unlawful for any member-broker of an Exchange to establishment of trust funds which shall be contributed
effect any transaction on such Exchange for its own by Exchanges, brokers, dealers, underwriters, transfer
account, the account of an associated person, or an agents, salesmen and other persons transacting in
account with respect to which it or an associated securities, as the Commission may require, for the
person thereof exercises investment discretion: purpose of compensating investors for the extraordinary
Provided, however, That this Section shall not make losses or damage they may suffer due to business failure
unlawful — or fraud or mismanagement of the persons with whom
(a) Any transaction by a member-broker acting in the they transact, under such rules and regulations as the
capacity of a market maker; Commission may from time to time prescribe or approve
in the public interest.
(b) Any transaction reasonably necessary to carry on an
odd-lot transactions; (b) The Commission may, having due regard to the public
interest or the protection of investors, regulate, supervise,
(c) Any transaction to offset a transaction made in error; examine, suspend or otherwise discontinue such and
and other similar funds under such rules and regulations
(d) Any other transaction of a similar nature as may be which the Commission may promulgate, and which may
defined by the Commission. include taking custody and management of the fund
itself as well as investments in and disbursements from
34.2. In all instances where the member-broker effects a the funds under such forms of control and supervision by
transaction on an Exchange for its own account or the the Commission as it may from time to time require. The
account of an associated person or an account with authority granted to the Commission under this
respect to which it exercises investment discretion, it shall subsection shall also apply to all funds established for the
disclose to such customer at or before the completion of protection of investors, whether established by the
the transaction it is acting for its own account: Provided, Commission or otherwise.
further, That this fact shall be reflected in the order ticket
and the confirmation slip. SECTION 37. Registration of Innovative and Other
Trading Markets. — The Commission, having due regard
34.3. Any member-broker who violates the provisions of for national economic development, shall encourage
this Section shall be subject to the administrative competitiveness in the market by promulgating within
sanctions provided in Section 54 of this Code. six (6) months upon the enactment of this Code, rules for
SECTION 35. Additional Fees of Exchanges. — In the registration and licensing of innovative and other
addition to the registration fee prescribed in Section 33 of trading markets or Exchanges covering, but not limited
this Code, every Exchange shall pay to the Commission, to, the issuance and trading of innovative securities,
on a semestral basis on or before the tenth day of the end securities of small, medium, growth and venture
of every semester of the calendar year, a fee in such an enterprises, and technology-based ventures pursuant to
amount as the Commission shall prescribe, but not more Section 33 of this Code.
than one-hundredth of one per centum (1%) of the SECTION 38. Independent Directors. — Any corporation
aggregate amount of the sales of securities transacted on with a class of equity securities listed for trading on an
such Exchange during the preceding calendar year, for Exchange or with assets in excess of Fifty million pesos
the privilege of doing business, during the preceding (P50,000,000.00) and having two hundred (200) or more
calendar year or any part thereof. 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 (iii) The Board of Directors of the association includes in
securities to the public pursuant to an effective its composition: (a) The president of the association and
registration statement in compliance with Section 12 (b) Persons who represent the interests of issuers and
hereof shall have at least two (2) independent directors or public investors and are not associated with any broker or
such independent directors shall constitute at least dealer or member of the association; that the president
twenty percent (20%) of the members of such board, and other management of the association not be a
whichever is the lesser. For this purpose, an "independent member or associated with any broker, dealer or member
director" shall mean a person other than an officer or of the association;
employee of the corporation, its parent or subsidiaries, or (iv) For the equitable allocation of reasonable dues, fees,
any other individual having a relationship with the and other charges among members and issuers and
corporation, which would interfere with the exercise of other persons using any facility or system which the
independent judgment in carrying out the association operates or controls;
responsibilities of a director.
(v) For the prevention of fraudulent and manipulative
acts and practices, the promotion of just and equitable
CHAPTER X Registration, Responsibilities and principles of trade, and, in general, the protection of
investors and the public interest;
Oversight of Self-Regulatory Organizations
(vi) That its members and persons associated with its
SECTION 39. Associations of Securities Brokers, and members shall be appropriately disciplined for violation
Dealers, and Other Securities Related Organizations. — of any provision of this Code, the rules or regulations
39.1. The Commission shall have the power to register as a thereunder, or the rules of the association;
self-regulatory organization, or otherwise grant licenses,
and to regulate, supervise, examine, suspend or otherwise (vii) That a fair procedure for the disciplining of members
discontinue, as a condition for the operation of and persons associated with members, the denial of
organizations whose operations are related to or membership to any person seeking membership therein,
connected with the securities market such as but not the barring of any person from becoming associated with
limited to associations of brokers and dealers, transfer a member thereof, and the prohibition or limitation by
agents, custodians, fiscal and paying agents, computer the association of any person with respect to access to
services, news disseminating services, proxy solicitors, services offered by the association or a member thereof.
statistical agencies, securities rating agencies, and 39.4. (a) A registered securities association shall deny
securities information processors which are engaged in membership to any person who is not a registered broker
the business of: (a) Collecting, processing, or preparing for or dealer.
distribution or publication, or assisting, participating in, or
coordinating the distribution or publication of, (b) A registered securities association may deny
information with respect to transactions in or quotations membership to, or condition the membership of, a
for any security; or (b) Distributing or publishing, whether registered broker or dealer if such broker or dealer:
by means of a ticker tape, a communications network, a (i) Does not meet the standards of financial responsibility,
terminal display device, or otherwise, on a current and operational capability, training, experience, or
continuing basis, information with respect to such competence that are prescribed by the rules of the
transactions or quotations. The Commission may association; or
prescribe rules and regulations which are necessary or
(ii) Has engaged, and there is a reasonable likelihood it
appropriate in the public interest or for the protection of
will again engage, in acts or practices inconsistent with
investors to govern self-regulatory organizations and
just and equitable principles of fair trade.
other organizations licensed or regulated pursuant to the
authority granted in Subsection 39.1 including the (c) A registered securities association may deny
requirement of cooperation within and among, and membership to a registered broker or dealer not engaged
electronic integration of the records of, all participants in in a type of business in which the rules of the association
the securities market to ensure transparency and require members to be engaged: Provided, however, That
facilitate exchange of information. no registered securities association may deny
membership to a registered broker or dealer by reason of
39.2. An association of brokers and dealers may be
the amount of business done by the broker or dealer.
registered as a securities association pursuant to
Subsection 39.3 by filing with the Commission an A registered securities association may examine and
application for registration in such form as the verify the qualifications of an applicant to become a
Commission, by rule, may prescribe containing the rules member in accordance with procedures established by
of the association and such other information and the rules of the association.
documents as the Commission, by rule, may prescribe as (d) A registered securities association may bar a salesman
necessary or appropriate in the public interest or for the or person associated with a broker or dealer from being
protection of investors. employed by a member or set conditions for the
39.3. An association of brokers and dealers shall not be employment of a salesman or associated if such person:
registered as a securities association unless the (i) Does not meet the standards of training, experience, or
Commission determines that: competence that are prescribed by the rules of the
(a) The association is so organized and has the capacity to association; or
be able to carry out the purposes of this Code and to (ii) Has engaged, and there is a reasonable likelihood he
comply with, and to enforce compliance by its members will again engage, in acts or practices inconsistent with
and persons associated with its members, with the just and equitable principles of fair trade.
provisions of this Code, the rules and regulations
thereunder, and the rules of the association. A registered securities association may examine and
verify the qualifications of an applicant to become a
(b) The rules of the association, notwithstanding anything salesman or associated person employed by a member in
in the Corporation Code to the contrary, provide that: accordance with procedures established by the rules of
(i) Any registered broker or dealer may become a the association. A registered association also may require
member of the association; a salesman or associated person employed by a member
to be registered with the association in accordance with
(ii) There exist a fair representation of its members to
procedures prescribed in the rules of the association.
serve on the Board of Directors of the association and in
the administration of its affairs, and that any natural 39.5. In any proceeding by a registered securities
person associated with a juridical entity that is a member association to determine whether a person shall be
shall himself be deemed to be a member for this purpose; denied membership, or barred from association with a
member, the association shall provide notice to the


person under review of the specific grounds being (a) To suspend for a period not exceeding twelve (12)
considered for denial, afford him an opportunity to months or to revoke the registration of a self-regulatory
defend against the allegations, and keep a record of the organization, or to censure or impose limitations on the
proceedings. A determination by the association to deny activities, functions, and operations of such
membership shall be supported by a statement setting self-regulatory organization, if the Commission finds that
forth the specific grounds on which the denial is based. such a self-regulatory organization has willfully violated or
SECTION 40. Powers with Respect to Self-Regulatory is unable to comply with any provision of this Code or of
Organizations. — 40.1. Upon the filing of an application the rules and regulations thereunder, or its own rules, or
for registration as an Exchange under Section 33, a has failed to enforce compliance therewith by a member
registered securities association under Section 39, a of, person associated with a member, or a participant in
registered clearing agency under Section 42, or other such self-regulatory organization;
self-regulatory organization under this Section, the (b) To expel from a self-regulatory organization any
Commission shall have ninety (90) days within which to member thereof or any participant therein who is subject
either grant registration or institute a proceeding to to an order of the Commission under Section 29 of this
determine whether registration should be denied. In the Code or is found to have willfully violated any provision of
event proceedings are instituted, the Commission shall this Code or suspend for a period not exceeding twelve
have two hundred seventy (270) days within which to (12) months for violation of any provision of this Code or
conclude such proceedings at which time it shall, by any other laws administered by the Commission, or the
order, grant or deny such registration. rules and regulations thereunder, or effected, directly or
40.2. Every self-regulatory organization shall comply with indirectly, any transaction for any person who, such
the provisions of this Code, the rules and regulations member or participant had reason to believe, was
thereunder, and its own rules, and enforce compliance violating in respect of such transaction any of such
therewith, notwithstanding any provision of the provisions; and
Corporation Code to the contrary, by its members, (c) To remove from office or censure any officer or
persons associated with its members or its participants. director of a self-regulatory organization if it finds that
40.3. (a) Each self-regulatory organization shall submit to such officer or director has violated any provision of this
the Commission for prior approval any proposed rule or Code, any other law administered by the Commission, the
amendment thereto, together with a concise statement rules or regulations thereunder, or the rules of such
of the reason and effect of the proposed amendment. self-regulatory organization, abused his authority, or
without reasonable justification or excuse has failed to
(b) Within sixty (60) days after submission of a proposed enforce compliance with any of such provisions.
amendment, the Commission shall, by order, approve the
proposed amendment. Otherwise, the same may be 40.6. (a) A self-regulatory organization is authorized to
made effective by the self-regulatory organization. discipline a member of or participant in such
self-regulatory organization, or any person associated
(c) In the event of an emergency requiring action for the with a member, including the suspension or expulsion of
protection of investors, the maintenance of fair and such member or participant, and the suspension or bar
orderly markets, or the safeguarding of securities and from being associated with a member, if such person has
funds, a self-regulatory organization may put a proposed engaged in acts or practices inconsistent with just and
amendment into effect summarily: Provided, however, equitable principles of fair trade or in willful violation of
That a copy of the same shall be immediately submitted any provision of the Code, any other law administered by
to the Commission. the Commission, the rules or regulations thereunder, or
40.4. The Commission is further authorized, if after the rules of the self-regulatory organization. In any
making appropriate request in writing to a self-regulatory disciplinary proceeding by a self-regulatory organization
organization that such organization effect on its own (other than a summary proceeding pursuant to
behalf specified changes in its rules and practices and, paragraph (b) of this subsection) the self-regulatory
after due notice and hearing it determines that such organization shall bring specific charges, provide notice
changes have not been effected, and that such changes to the person charged, afford the person charged with an
are necessary, by rule or regulation or by order, may alter, opportunity to defend against the charges, and keep a
abrogate or supplement the rules of such self-regulatory record of the proceedings. A determination to impose a
organization in so far as necessary or appropriate to effect disciplinary sanction shall be supported by a written
such changes in respect of such matters as: statement of the offense, a summary of the evidence
presented and a statement of the sanction imposed.
(a) Safeguards in respect of the financial responsibility of
members and adequate provision against the evasion of (b) A self-regulatory organization may summarily: (i)
financial responsibility through the use of corporate Suspend a member, participant or person associated with
forms or special partnerships; a member who has been or is expelled or suspended
from any other self-regulatory organization; or (ii)
(b) The supervision of trading practices; Suspend a member who the self-regulatory organization
(c) The listing or striking from listing of any security; finds to be in such financial or operating difficulty that
the member or participant cannot be permitted to
(d) Hours of trading; continue to do business as a member with safety to
(e) The manner, method, and place of soliciting business; investors, creditors, other members, participants or the
(f) Fictitious accounts; self-regulatory organization: Provided, That the
self-regulatory organization immediately notifies the
(g) The time and method of making settlements, Commission of the action taken. Any person aggrieved by
payments, and deliveries, and of closing accounts; a summary action pursuant to this paragraph shall be
(h) The transparency of securities transactions and prices; promptly afforded an opportunity for a hearing by the
association in accordance with the provisions of
(i) The fixing of reasonable rates of fees, interest, listing paragraph (a) of this subsection. The Commission, by
and other charges, but not rates of commission; order, may stay a summary action on its own motion or
(j) Minimum units of trading; upon application by any person aggrieved thereby, if the
Commission determines summarily or after due notice
(k) Odd-lot purchases and sales; and hearing (which hearing may consist solely of the
(l) Minimum deposits on margin accounts; and submission of affidavits or presentation of oral
(m) The supervision, auditing and disciplining of arguments) that a stay is consistent with the public
members or participants. interest and the protection of investors.
40.5. The Commission, after due notice and hearing, is 40.7. A self-regulatory organization shall promptly notify
authorized, in the public interest and to protect investors: the Commission of any disciplinary sanction on any
member thereof or participant therein, any denial of



membership or participation in such organization, or the administered by the Commission, the rules, regulations,
imposition of any disciplinary sanction on a person and orders thereunder, or the clearing agency's rules;
associated with a member or a bar of such person from (b) A fair procedure for the disciplining of participants, the
becoming so associated. Within thirty (30) days after such denial of participation rights to any person seeking to be
notice, any aggrieved person may appeal to the a participant, and the prohibition or limitation of any
Commission from, or the Commission on its own motion person from access to services offered by the clearing
within such period, may institute review of, the decision agency;
of the self-regulatory organization, at the conclusion of
which, after due notice and hearing (which may consist (c) The equitable allocation of reasonable dues, fees, and
solely of review of the record before the self-regulatory other charges among participants;
organization), the Commission shall affirm, modify or set (d) Prevention of fraudulent and manipulative acts and
aside the sanction. In such proceeding the Commission practices, promotion of just and equitable principles of
shall determine whether the aggrieved person has trade, and, in general, protection of investors and the
engaged or omitted to engage in the acts and practices public interest;
as found by the self-regulatory organization, whether
such acts and practices constitute willful violations of this (e) The transparent, prompt and accurate clearance and
Code, any other law administered by the Commission, the settlement of transactions in securities handled by the
rules or regulations thereunder, or the rules of the clearing agency; and
self-regulatory organization as specified by such (f) The establishment and oversight of a fund to
organization, whether such provisions were applied in a guarantee the prompt and accurate clearance and
manner consistent with the purposes of this Code, and settlement of transactions executed on an exchange,
whether, with due regard for the public interest and the including a requirement that members each contribute
protection of investors the sanction is excessive or an amount based on their volume and a relevant
oppressive. percentage of the daily exposure of the four (4) largest
40.8. The powers of the Commission under this section trading brokers which adequately reflects trading risks
shall apply to organized exchanges and registered undertaken or pursuant to another formula set forth in
clearing agencies. Commission rules or regulations or order, upon
application: Provided, however, That a clearing agency
engaged in the business of a securities depository shall
CHAPTER XI Acquisition and Transfer of be exempt from this requirement.
Securities and Settlement of Transactions in 42.3. In the case of an application filed pursuant to this
Section, the Commission shall grant registration if it finds
Securities that the requirements of this Code and the rules and
SECTION 41. Prohibition on Use of Unregistered Clearing regulations thereunder with respect to the applicant have
Agency. — It shall be unlawful for any broker, dealer, been satisfied, and shall deny registration if it does not
salesman, associated person of a broker or dealer, or make such finding.
clearing agency, directly or indirectly, to make use of any 42.4. Upon appropriate application in accordance with
facility of a clearing agency in the Philippines to make the rules and regulations of the Commission and upon
deliveries in connection with transactions insecurities or such terms as the Commission may deem necessary for
to reduce the number of settlements of securities the protection of investors, a clearing agency may
transactions or to allocate securities settlement withdraw its registration or suspend its operation or
responsibilities or to provide for the central handling of resume the same.
securities so that transfers, loans and pledges and similar
transactions can be made by bookkeeping entry or 42.5. Section 32 of this Code shall apply to every registered
otherwise to facilitate the settlement of securities clearing agency.
transactions without physical delivery of securities SECTION 43. Uncertificated Securities. —
certificates, unless such clearing agency is registered as Notwithstanding Section 63 of the Corporation Code of
such under Section 42 of this Code or is exempted from the Philippines: 43.1. A corporation whose securities are
such registration upon application by the clearing agency registered pursuant to this Code or listed on a securities
because, in the opinion of the Commission, by reason of Exchange may:
the limited volume of transactions which are settled
using the clearing agency, it is not practicable and not (a) If so resolved by its Board of Directors and agreed by a
necessary or appropriate in the public interest or for the shareholder, investor or securities intermediary, issue
protection of investors to require such registration. shares to, or record the transfer of some or all of its shares
into the name of said shareholders, investors or, securities
SECTION 42. Registration of Clearing Agencies. — 42.1. intermediary in the form of uncertificated securities. The
Any clearing agency may be registered as such with the use of uncertificated securities in these circumstances
Commission under the terms and conditions hereinafter shall be without prejudice to the rights of the securities
provided in this Section, by filing an application for intermediary subsequently to require the corporation to
registration in such form and containing such issue a certificate in respect of any shares recorded in its
information and supporting documents as the name; and
Commission by rule shall prescribe, including the
following: (b) If so provided in its articles of incorporation and
by-laws, issue all of the shares of a particular class in the
(a) An undertaking to comply and enforce compliance by form of uncertificated securities and subject to a
its participants with the provisions of this Code, and any condition that investors may not require the corporation
amendment thereto, and the implementing rules or to issue a certificate in respect of any shares recorded in
regulations made or to be made thereunder, and the their name.
clearing agency's rules;
43.2. The Commission by rule may allow other
(b) The organizational charts of the Exchange, its rules of corporations to provide in their articles of incorporation
procedure, and a list of its officers and participants; and by-laws for the use of uncertificated securities.
(c) Copies of the clearing agency's rules. 43.3. Transfers of securities, including an uncertificated
42.2. No registration of a clearing agency shall be granted securities, may be validly made and consummated by
unless the rules of the clearing agency include provision appropriate book-entries in the securities accounts
for: maintained by securities intermediaries, or in the stock
and transfer book held by the corporation or the stock
(a) The expulsion, suspension, or disciplining of a transfer agent and such bookkeeping entries shall be
participant for violations of this Code, or any other Act 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 47.6. Give first priority to any claims of a registered
quantity or amount of security or right transferred, clearing agency against a participant arising from a
including the unrestricted negotiability of that security by failure by the participant to meet its obligations under
reason of such delivery. However, transfer of the clearing agency's rules in respect of the clearing and
uncertificated shares shall only be valid, so far as the settlement of transactions in securities, in a dissolution of
corporation is concerned, when a transfer is recorded in the participant, and any such rules and regulations shall
the books of the corporation so as to show the names of bind the issuers of the securities, investors in the
the parties to the transfer and the number of shares securities, any third parties with interests in the securities,
transferred. and the creditors of a participant of a registered clearing
However, nothing in this Code shall preclude compliance agency.
by banking and other institutions under the supervision
of the Bangko Sentral ng Pilipinas and their stockholders
with the applicable ceilings on shareholdings prescribed CHAPTER XII Margin and Credit
under pertinent banking laws and regulations. SECTION 48. Margin Requirements. — 48.1. For the
SECTION 44. Evidentiary Value of Clearing Agency purpose of preventing the excessive use of credit for the
Record. — The official records and book entries of a purchase or carrying of securities, the Commission, in
clearing agency shall constitute the best evidence of such accordance with the credit and monetary policies that
transactions between clearing agency and its participants may be promulgated from time to time by the Monetary
and members, without prejudice to the right of Board of the Bangko Sentral ng Pilipinas, shall prescribe
participants' or members' clients to prove their rights, title rules and regulations with respect to the amount of credit
and entitlement with respect to the book-entry security that may be extended on any security. For the extension
holdings of the participants or members held on behalf of of credit, such rules and regulations shall be based upon
the clients. However, the corporation shall not be bound the following standard:
by the foregoing transactions unless the corporate An amount not greater than whichever is the higher of —
secretary is duly notified in such manner as the
(a) Sixty-five per centum (65%) of the current market price
Commission may provide.
of the security, or
SECTION 45. Pledging a Security or Interest Therein. —
(b) One hundred per centum (100%) of the lowest market
In addition to other methods recognized by law, a pledge
price of the security during the preceding thirty-six (36)
of, or release of a pledge of, a security, including an
calendar months, but not more than seventy-five per
uncertificated security, is properly constituted and the
centum (75%) of the current market price.
instrument proving the right pledged shall be considered
delivered to the creditor under Articles 2093 and 2095 of However, the Monetary Board may increase or decrease
the Civil Code if a securities intermediary indicates by the above percentages, in order to achieve the objectives
book-entry that such security has been credited to a of the Government with due regard for promotion of the
specially designated pledge account in favor of the economy and prevention of the use of excessive credit.
pledgee. A pledge under this subsection has the effect of Such rules and regulations may make appropriate
the delivery of a security in bearer form or duly indorsed provision with respect to the carrying of undermargined
in blank representing the quantity or amount of such accounts for limited periods and under specified
security or right pledged. In the case of a registered conditions; the withdrawal of funds or securities; the
clearing agency, the procedures by which, and the exact transfer of accounts from one lender to another; special
time at which, such book-entries are created shall be or different margin requirements for delayed deliveries,
governed by the registered clearing agency's rules. short sales, arbitrage transactions, and securities to which
However, the corporation shall not be bound by the letter (b) of the second paragraph of this subsection does
foregoing transactions unless the corporate secretary is not apply; the bases and the methods to be used in
duly notified in such manner as the Commission may calculating loans, and margins and market prices; and
provide. similar administrative adjustments and details.
SECTION 46. Issuer's Responsibility for Wrongful 48.2. No member of an Exchange or broker or dealer shall,
Transfer to Registered Clearing Agency. — The directly or indirectly, extend or maintain credit or arrange
registration of a transfer of a security into the name of for the extension or maintenance of credit to or for any
and by a registered clearing agency or its nominee shall customer:
be final and conclusive unless the clearing agency had
notice of an adverse claim before the registration was (a) On any security unless such credit is extended and
made. The above provision shall be without prejudice to maintained in accordance with the rules and regulations
any rights which the claimant may have against the which the Commission shall prescribe under this Section
issuer for wrongful registration in such circumstances. including rules setting credit in relation to net capital of
such member, broker or dealer; and
SECTION 47. Power of the Commission With Respect to
Securities Ownership. — The Commission is authorized, (b) Without collateral or on any collateral other than
having due regard to the public interest and the securities, except (i) to maintain a credit initially extended
protection of investors, to promulgate rules and in conformity with the rules and regulations of the
regulations which: Commission and (ii) in cases where the extension or
maintenance of credit is not for the purpose of
47.1. Validate the transfer of securities by book-entries purchasing or carryingsecurities or of evading or
rather than the delivery of physical certificates; circumventing the provisions of paragraph (a) of this
47.2. Establish when a person acquires a security or an subsection.
interest therein and when delivery of a security to a 48.3. Any person not subject to Subsection 48.2 hereof
purchaser occurs; shall extend or maintain credit or arrange for the
47.3. Establish which records constitute the best evidence extension or maintenance of credit for the purpose of
of a person's interests in a security and the effect of any purchasing or carrying any security, only in accordance
errors in electronic records of ownership; with such rules and regulations as the Commission shall
prescribe to prevent the excessive use of credit for the
47.4. Codify the rights of investors who choose to hold
purchasing or carrying of or trading in securities in
their securities indirectly through a registered clearing
circumvention of the other provisions of this Section.
agency and/or other securities intermediaries;
Such rules and regulations may impose upon all loans
47.5. Codify the duties of securities intermediaries made for the purpose of purchasing or carrying securities
(including clearing agencies) who hold securities on limitations similar to those imposed upon members,
behalf of investors; and brokers, or dealers by Subsection 48.2 and the rules and


regulations thereunder. This subsection and the rules and any person liable under this Code or the rules or
regulations thereunder shall not apply: regulations of the Commission thereunder, shall also be
(a) To a credit extension made by a person not in the liable jointly and severally with and to the same extent as
ordinary course of business; such controlled persons to any person to whom such
controlled person is liable, unless the controlling person
(b) To a loan to a dealer to aid in the financing of the proves that, despite the exercise of due diligence on his
distribution of securities to customers not through the part, he has no knowledge of the existence of the facts by
medium of an Exchange; or reason of which the liability of the controlled person is
(c) To such other credit extension as the Commission shall alleged to exist.
exempt from the operation of this subsection and the 51.2. It shall be unlawful for any person, directly or
rules and regulations thereunder upon specified terms indirectly, to do any act or thing which it would be
and conditions or for stated period. unlawful for such person to do under the provisions of
SECTION 49. Restrictions on Borrowings by Members, this Code or any rule or regulation thereunder.
Brokers, and Dealers. — It shall be unlawful for any 51.3. It shall be unlawful for any director or officer of, or
registered broker or dealer, or member of an Exchange, any owner of any securities issued by, any issuer required
directly or indirectly: to file any document, report or other information under
49.1. To permit in the ordinary course of business as a this Code or any rule or regulation of the Commission
broker or dealer his aggregate indebtedness including thereunder, without just cause, to hinder, delay or
customers' credit balances, to exceed such percentage of obstruct the making or filing of any such document,
the net capital (exclusive of fixed assets and value of report, or information.
Exchange membership) employed in the business, but 51.4. It shall be unlawful for any person to aid, abet,
not exceeding in any case two thousand percentum counsel, command, induce or procure any violation of this
(2,000%), as the Commission may by rules and Code, or any rule, regulation or order of the Commission
regulations prescribe as necessary or appropriate in the thereunder.
public interest or for the protection of investors.
51.5. Every person who substantially assists the act or
49.2. To pledge, mortgage, or otherwise encumber or omission of any person primarily liable under Sections 57,
arrange for the pledge, mortgage or encumbrance of any 58, 59 and 60 of this Code, with knowledge or in reckless
security carried for the account of any customer under disregard that such act or omission is wrongful, shall be
circumstances: (a) That will permit the commingling of jointly and severally liable as an aider and abettor for
his securities, without his written consent, with the damages resulting from the conduct of the person
securities of any customer; (b) That will permit such primarily liable: Provided, however, That an aider and
securities to be commingled with the securities of any abettor shall be liable only to the extent of his relative
person other than a bona fide customer; or (c) That will contribution in causing such damages in comparison to
permit such securities to be pledged, mortgaged or that of the person primarily liable, or the extent to which
encumbered, or subjected to any lien or claim of the the aider and abettor was unjustly enriched thereby,
pledgee, for a sum in excess of the aggregate whichever is greater.
indebtedness of such customers in respect of such
securities. However, the Commission, having due regard SECTION 52. Accounts and Records, Reports,
to the protection of investors, may, by rules and Examination of Exchanges, Members, and Others. —
regulations, allow certain transactions that may 52.1. Every registered Exchange, broker or dealer, transfer
otherwise be prohibited under this subsection. agent, clearing agency, securities association, and other
self-regulatory organization, and every other person
49.3. To lend or arrange for the lending of any security required to register under this Code, shall make, keep and
carried for the account of any customer without the preserve for such periods, records, furnish such copies
written consent of such customer or in contravention of thereof, and make such reports, as the Commission by its
such rules and regulations as the Commission shall rules and regulations may prescribe. Such accounts,
prescribe. correspondence, memoranda, papers, books, and other
SECTION 50. Enforcement of Margin Requirements and records shall be subject at any time to such reasonable
Restrictions on Borrowing. — To prevent indirect periodic, special or other examinations by representatives
violations of the margin requirements under Section 48, of the Commission as the Commission may deem
the broker or dealer shall require the customer in necessary or appropriate in the public interest or for the
non-margin transactions to pay the price of the security protection of investors.
purchased for his account within such period as the 52.2. Any broker, dealer or other person extending credit,
Commission may prescribe, which shall in no case exceed who is subject to the rules and regulations prescribed by
the prescribed settlement date. Otherwise, the broker the Commission pursuant to this Code, shall make such
shall sell the security purchased starting on the next reports to the Commission as may be necessary or
trading day but not beyond ten (10) trading days appropriate to enable it to perform the functions
following the last day for the customer to pay such conferred upon it by this Code.
purchase price, unless such sale cannot be effected
within said period for justifiable reasons. The sale shall be 52.3. For purposes of this Section, the term "records" refers
without prejudice to the right of the broker or dealer to to accounts, correspondence, memoranda, tapes, discs,
recover any deficiency from the customer. To prevent papers, books and other documents or transcribed
indirect violation of the restrictions on borrowings under information of any type, whether written or electronic in
Section 49, the broker shall, unless otherwise directed by character.
the customer, pay the net sales price of the securities sold SECTION 53. Investigations, Injunctions and
for a customer within the same period as above Prosecution of Offenses. — 53.1. The Commission may, in
prescribed by the Commission: Provided, That the its discretion, make such investigations as it deems
customer shall be required to deliver the instruments necessary to determine whether any person has violated
evidencing the securities as a condition for such payment or is about to violate any provision of this Code, any rule,
upon demand by the broker. regulation or order thereunder, or any rule of an
Exchange, registered securities association, clearing
agency, other self-regulatory organization, and may
CHAPTER XIII General Provisions require or permit any person to file with it a statement in
writing, under oath or otherwise, as the Commission shall
SECTION 51. Liabilities of Controlling Persons, Aider and
determine, as to all facts and circumstances concerning
Abettor and Other Secondary Liability. — 51.1. Every
the matter to be investigated. The Commission may
person who, by or through stock ownership, agency, or
publish information concerning any such violations, and
otherwise, or in connection with an agreement or
to investigate any fact, condition, practice or matter
understanding with one or more other persons, controls



which it may deem necessary or proper to aid in the stated therein or necessary to make the statements
enforcement of the provisions of this Code, in the therein not misleading; or, in the case of an underwriter,
prescribing of rules and regulations thereunder, or in has failed to conduct an inquiry with reasonable diligence
securing information to serve as a basis for to insure that a registration statement is accurate and
recommending further legislation concerning the complete in all material respects; or (d) Any person has
matters to which this Code relates: Provided, however, refused to permit any lawful examinations into its affairs,
That any person requested or subpoenaed to produce it shall, in its discretion, and subject only to the limitations
documents or testify in any investigation shall hereinafter prescribed, impose any or all of the following
simultaneously be notified in writing of the purpose of sanctions as may be appropriate in light of the facts and
such investigation: Provided, further, That all criminal circumstances:
complaints for violations of this Code, and the (i) Suspension, or revocation of any registration for the
implementing rules and regulations enforced or offering of securities;
administered by the Commission shall be referred to the
Department of Justice for preliminary investigation and (ii) A fine of no less than Ten thousand pesos (P10,000.00)
prosecution before the proper court: Provided, nor more than One million pesos (P1,000,000.00) plus not
furthermore, That in instances where the law allows more than Two thousand pesos (P2,000.00) for each day
independent civil or criminal proceedings of violations of continuing violation;
arising from the same act, the Commission shall take (iii) In the case of a violation of Sections 19.2, 20, 24, 26 and
appropriate action to implement the same: Provided, 27, disqualification from being an officer, member of the
finally, That the investigation, prosecution, and trial of Board of Directors, or person performing similar
such cases shall be given priority. functions, of an issuer required to file reports under
53.2. For the purpose of any such investigation, or any Section 17 of this Code or any other act, rule or regulation
other proceeding under this Code, the Commission or administered by the Commission;
any officer designated by it is empowered to administer (iv) In the case of a violation of Section 34, a fine of no
oaths and affirmations, subpoena witnesses, compel more than three (3) times the profit gained or loss
attendance, take evidence, require the production of any avoided as a result of the purchase, sale or
book, paper, correspondence, memorandum, or other communication proscribed by such Section; and
record which the Commission deems relevant or material
to the inquiry, and to perform such other acts necessary (v) Other penalties within the power of the Commission
in the conduct of such investigation or proceedings. to impose.
53.3. Whenever it shall appear to the Commission that 54.2. The imposition of the foregoing administrative
any person has engaged or is about to engage in any act sanctions shall be without prejudice to the filing of
or practice constituting a violation of any provision of this criminal charges against the individuals responsible for
Code, any rule, regulation or order thereunder, or any rule the violation.
of an Exchange, registered securities association, clearing 54.3. The Commission shall have the power to issue writs
agency or other self-regulatory organization, it may issue of execution to enforce the provisions of this Section and
an order to such person to desist from committing such to enforce payment of the fees and other dues collectible
act or practice: Provided, however, That the Commission under this Code.
shall not charge any person with violation of the rules of
an Exchange or other self-regulatory organization unless SECTION 55. Settlement Offers. — 55.1. At any time,
it appears to the Commission that such Exchange or during an investigation or proceeding under this Code,
other self-regulatory organization is unable or unwilling parties being investigated and/or charged may propose
to take action against such person. After finding that in writing an offer of settlement with the Commission.
such person has engaged in any such act or practice and 55.2. Upon receipt of such offer of settlement, the
that there is a reasonable likelihood of continuing, further Commission may consider the offer based on timing, the
or future violations by such person, the Commission may nature of the investigation or proceeding, and the public
issue ex-parte a cease and desist order for a maximum interest.
period of ten (10) days, enjoining the violation and 55.3. The Commission may only agree to a settlement
compelling compliance with such provision. The offer based on its findings that such settlement is in the
Commission may transmit such evidence as may be public interest. Any agreement to settle shall have no
available concerning any violation of any provision of this legal effect until publicly disclosed. Such decision may be
Code, or any rule, regulation or order thereunder, to the made without a determination of guilt on the part of the
Department of Justice, which may institute the person making the offer.
appropriate criminal proceedings under this Code.
55.4. The Commission shall adopt rules and procedures
53.4. Any person who, within his power but without cause, governing the filing, review, withdrawal, form of rejection
fails or refuses to comply with any lawful order, decision and acceptance of such offers.
or subpoena issued by the Commission under Subsection
53.2 or Subsection 53.3 or Section 64 of this Code, shall SECTION 56. Civil Liabilities on Account of False
after due notice and hearing, be guilty of contempt of the Registration Statement. — 56.1. Any person acquiring a
Commission. Such person shall be fined in such security, the registration statement of which or any part
reasonable amount as the Commission may determine, thereof contains on its effectivity an untrue statement of
or when such failure or refusal is a clear and open a material fact or omits to state a material fact required to
defiance of the Commission's order, decision or be stated therein or necessary to make such statements
subpoena, shall be detained under an arrest order issued not misleading, and who suffers damage, may sue and
by the Commission, until such order, decision or recover damages from the following enumerated
subpoena is complied with. persons, unless it is proved that at the time of such
acquisition he knew of such untrue statement or
SECTION 54. Administrative Sanctions. — 54.1. If, after omission:
due notice and hearing, the Commission finds that: (a)
There is a violation of this Code, its rules, or its orders; (b) (a) The issuer and every person who signed the
Any registered broker or dealer, associated person thereof registration statement;
has failed reasonably to supervise, with a view to (b) Every person who was a director of, or any other
preventing violations, another person subject to person performing similar functions, or a partner in, the
supervision who commits any such violation; (c) Any issuer at the time of the filing of the registration
registrant or other person has, in a registration statement statement or any part, supplement or amendment
or in other reports, applications, accounts, records or thereof with respect to which his liability is asserted;
documents required by law or rules to be filed with the
Commission, made any untrue statement of a material (c) Every person who is named in the registration
fact, or omitted to state any material fact required to be statement as being or about to become a director of, or a


person performing similar functions, or a partner in, the an invitation for tender of a security, as the case may be,
issuer and whose written consent thereto is filed with the for the damages sustained by such other person as a
registration statement; result of such act or transaction.
(d) Every auditor or auditing firm named as having SECTION 59. Civil Liability for Manipulation of Security
certified any financial statements used in connection Prices. — Any person who willfully participates in any act
with the registration statement or prospectus. or transaction in violation of Section 24 shall be liable to
(e) Every person who, with his written consent, which any person who shall purchase or sell any security at a
shall be filed with the registration statement, has been price which was affected by such act or transaction, and
named as having prepared or certified any part of the the person so injured may sue to recover the damages
registration statement, or as having prepared or certified sustained as a result of such act or transaction.
any report or valuation which is used in connection with SECTION 60. Civil Liability with Respect to Commodity
the registration statement, with respect to the statement, Futures Contracts and Pre-need Plans. — 60.1. Any
report, or valuation, which purports to have been person who engages in any act or transaction in willful
prepared or certified by him. violation of any rule or regulation promulgated by the
(f) Every selling shareholder who contributed to and Commission under Section 11 or 16, which the
certified as to the accuracy of a portion of the registration Commission denominates at the time of issuance as
statement, with respect to that portion of the registration intended to prohibit fraud in the offer and sale of
statement which purports to have been contributed by pre-need plans or to prohibit fraud, manipulation,
him. fictitious transactions, undue speculation, or other unfair
or abusive practices with respect to commodity future
(g) Every underwriter with respect to such security. contracts, shall be liable to any other person sustaining
56.2. If the person who acquired the security did so after damage as a result of such act or transaction.
the issuer has made generally available to its security 60.2. As to each such rule or regulation so denominated,
holders an income statement covering a period of at least the Commission by rule shall prescribe the elements of
twelve (12) months beginning from the effective date of proof required for recovery and any limitations on the
the registration statement, then the right of recovery amount of damages that may be imposed.
under this subsection shall be conditioned on proof that
such person acquired the security relying upon such SECTION 61. Civil Liability on Account of Insider Trading.
untrue statement in the registration statement or relying — 61.1. Any insider who violates Subsection 27.1 and any
upon the registration statement and not knowing of such person in the case of a tender offer who violates
income statement, but such reliance may be established Subsection 27.4 (a)(i), or any rule or regulation thereunder,
without proof of the reading of the registration statement by purchasing or selling a security while in possession of
by such person. material information not generally available to the public,
shall be liable in a suit brought by any investor who,
SECTION 57. Civil Liabilities Arising in Connection with contemporaneously with the purchase or sale of
Prospectus, Communications and Reports. — 57.1. Any securities that is the subject of the violation, purchased or
person who: sold securities of the same class unless such insider, or
(a) Offers to sell or sells a security in violation of Chapter such person in the case of a tender offer, proves that such
III, or investor knew the information or would have purchased
or sold at the same price regardless of disclosure of the
(b) Offers to sell or sells a security, whether or not information to him.
exempted by the provisions of this Code, by the use of any
means or instruments of transportation or 61.2. An insider who violates Subsection 27.3 or any person
communication, by means of a prospectus or other in the case of a tender offer who violates Subsection 27.4
written or oral communication, which includes an untrue (a), or any rule or regulation thereunder, by
statement of a material fact or omits to state a material communicating material nonpublic information, shall be
fact necessary in order to make the statements, in the jointly and severally liable under Subsection 61.1 with, and
light of the circumstances under which they were made, to the same extent as, the insider, or person in the case of
not misleading (the purchaser not knowing of such a tender offer, to whom the communication was directed
untruth or omission), and who shall fail in the burden of and who is liable under Subsection 61.1 by reason of his
proof that he did not know, and in the exercise of purchase or sale of a security.
reasonable care could not have known, of such untruth or SECTION 62. Limitation of Actions. — 62.1. No action shall
omission, shall be liable to the person purchasing such be maintained to enforce any liability created under
security from him, who may sue to recover the Section 56 or 57 of this Code unless brought within two
consideration paid for such security with interest thereon, (2) years after the discovery of the untrue statement or
less the amount of any income received thereon, upon the omission, or, if the action is to enforce a liability
the tender of such security, or for damages if he no longer created under Subsection 57.1 (a), unless brought within
owns the security. two (2) years after the violation upon which it is based. In
57.2. Any person who shall make or cause to be made any no event shall any such action be brought to enforce a
statement in any report, or document filed pursuant to liability created under Section 56 or Subsection 57.1 (a)
this Code or any rule or regulation thereunder, which more than five (5) years after the security was bona fide
statement was at the time and in the light of the offered to the public, or under Subsection 57.1 (b) more
circumstances under which it was made false or than five (5) years after the sale.
misleading with respect to any material fact, shall be 62.2. No action shall be maintained to enforce any liability
liable to any person who, not knowing that such created under any other provision of this Code unless
statement was false or misleading, and relying upon such brought within two (2) years after the discovery of the
statements shall have purchased or sold a security at a facts constituting the cause of action and within five (5)
price which was affected by such statement, for damages years after such cause of action accrued.
caused by such reliance, unless the person sued shall
prove that he acted in good faith and had no knowledge SECTION 63. Amount of Damages to be Awarded. —
that such statement was false or misleading. 63.1. All suits to recover damages pursuant to Sections 56,
57, 58, 59, 60 and 61 shall be brought before the Regional
SECTION 58. Civil Liability for Fraud in Connection with Trial Court, which shall have exclusive jurisdiction to hear
Securities Transactions. — Any person who engages in and decide such suits. The Court is hereby authorized to
any act or transaction in violation of Sections 19.2, 20 or award damages in an amount not exceeding triple the
26, or any rule or regulation of the Commission amount of the transaction plus actual damages.
thereunder, shall be liable to any other person who
purchases or sells any security, grants or refuses to grant Exemplary damages may also be awarded in cases of bad
any proxy, consent or authorization, or accepts or declines faith, fraud, malevolence or wantonness in the violation of


this Code or the rules and regulations promulgated hear objections as it deems necessary. The Commission
thereunder. may, in such cases, make available to the public the
The Court is also authorized to award attorney's fees not information contained in any such application, report, or
exceeding thirty percentum (30%) of the award. document only when a disclosure of such information is
required in the public interest or for the protection of
63.2. The persons specified in Sections 56, 57, 58, 59, 60 investors; and copies of information so made available
and 61 hereof shall be jointly and severally liable for the may be furnished to any person having a legitimate
payment of damages. However, any person who becomes interest therein at such reasonable charge and under
liable for the payment of such damages may recover such reasonable limitations as the Commission may
contribution from any other person who, if sued prescribe.
separately, would have been liable to make the same
payment, unless the former was guilty of fraudulent 66.4. It shall be unlawful for any member, officer, or
representation and the latter was not. employee of the Commission to disclose to any person
other than a member, officer or employee of the
63.3. Notwithstanding any provision of law to the contrary, Commission or to use for personal benefit, any
all persons, including the issuer, held liable under the information contained in any application, report, or
provisions of Sections 56, 57, 58, 59, 60 and 61 shall document filed with the Commission which is not made
contribute equally to the total liability adjudged herein. In available to the public pursuant to Subsection 66.3.
no case shall the principal stockholders, directors and
other officers of the issuer or persons occupying similar 66.5. Notwithstanding anything in Subsection 66.4 to the
positions therein, recover their contribution to the liability contrary, on request from a foreign enforcement
from the issuer. However, the right of the issuer to recover authority of any country whose laws grant reciprocal
from the guilty parties the amount it has contributed assistance as herein provided, the Commission may
under this Section shall not be prejudiced. provide assistance in accordance with this subsection,
including the disclosure of any information filed with or
SECTION 64. Cease and Desist Order. — 64.1. The transmitted to the Commission, if the requesting
Commission, after proper investigation or verification, authority states that it is conducting an investigation
motu proprio, or upon verified complaint by any which it deems necessary to determine whether any
aggrieved party, may issue a cease and desist order person has violated, is violating, or is about to violate any
without the necessity of a prior hearing if in its judgment laws relating to securities or commodities matters that
the act or practice, unless restrained, will operate as a the requesting authority administers or enforces. Such
fraud on investors or is otherwise likely to cause grave or assistance may be provided without regard to whether
irreparable injury or prejudice to the investing public. the facts stated in the request would also constitute a
64.2. Until the Commission issues a cease and desist violation of law of the Philippines.
order, the fact that an investigation has been initiated or SECTION 67. Effect of Action of Commission and
that a complaint has been filed, including the contents of Unlawful Representations with Respect Thereto. — 67.1.
the complaint, shall be confidential. Upon issuance of a No action or failure to act by the Commission in the
cease and desist order, the Commission shall make public administration of this Code shall be construed to mean
such order and a copy thereof shall be immediately that the Commission has in any way passed upon the
furnished to each person subject to the order. merits of or given approval to any security or any
64.3. Any person against whom a cease and desist order transaction or transactions therein, nor shall such action
was issued may, within five (5) days from receipt of the or failure to act with regard to any statement or report
order, file a formal request for a lifting thereof. Said filed with or examined by the Commission pursuant to
request shall be set for hearing by the Commission not this Code or the rules and regulations thereunder to be
later than fifteen (15) days from its filing and the deemed a finding by the Commission that such
resolution thereof shall be made not later than ten (10) statements or report is true and accurate on its face or
days from the termination of the hearing. If the that it is not false or misleading. It shall be unlawful to
Commission fails to resolve the request within the time make, or cause to be made, to any prospective purchaser
herein prescribed, the cease and desist order shall or seller of a security any representation that any such
automatically be lifted. action or failure to act by the Commission is to be so
construed or has such effect.
SECTION 65. Substituted Service Upon the Commission.
— Service of summons or other process shall be made 67.2. Nothing contained in Subsection 67.1 shall, however,
upon the Commission in actions or legal proceedings be construed as an exemption from liability of an
against an issuer or any person liable under this Code employee or officer of the Commission for any
who is not domiciled in the Philippines. Upon receipt by nonfeasance, misfeasance or malfeasance in the
the Commission of such summons, the Commission shall discharge of his official duties.
within ten (10) days thereafter, transmit by registered mail SECTION 68. Special Accounting Rules. — The
a copy of such summons and the complaint or other legal Commission shall have the authority to make, amend,
process to such issuer or person at his last known address and rescind such accounting rules and regulations as
or principal office. The sending thereof by the may be necessary to carry out the provisions of this Code,
Commission, the expenses for which shall be advanced including rules and regulations governing registration
by the party at whose instance it is made, shall complete statements and prospectuses for various classes of
such service. securities and issuers, and defining accounting, technical
SECTION 66. Revelation of Information Filed with the and trade terms used in this Code. Among other things,
Commission. — 66.1. All information filed with the the Commission may prescribe the form or forms in
Commission in compliance with the requirements of this which required information shall be set forth, the items or
Code shall be made available to any member of the details to be shown in the balance sheet and income
general public, upon request, in the premises and during statement, and the methods to be followed in the
regular office hours of the Commission, except as set preparation of accounts, appraisal or valuation of assets
forth in this Section. and liabilities, determination of depreciation and
depletion, differentiation of recurring and non-recurring
66.2. Nothing in this Code shall be construed to require, or income, differentiation of investment and operating
to authorize the Commission to require, the revealing of income, and in the preparation, where the Commission
trade secrets or processes in any application, report, or deems it necessary or desirable, of consolidated balance
document filed with the Commission. sheets or income accounts of any person directly or
66.3. Any person filing any such application, report or indirectly controlling or controlled by the issuer, or any
document may make written objection to the public person under direct or indirect common control with, the
disclosure of information contained therein, stating the issuer.
grounds for such objection, and the Commission may


SECTION 69. Effect on Existing Law. — The rights and Failure on the part of the Commission to issue rules and
remedies provided by this Code shall be in addition to any regulations shall not in any manner affect the
and all other rights and remedies that may now exist. self-executory nature of this Code.
However, except as provided in Sections 56 and 63 hereof, 72.2. The Commission shall promulgate rules and
no person permitted to maintain a suit for damages regulations providing for reporting, disclosure and the
under the provisions of this Code shall recover, through prevention of fraudulent, deceptive or manipulative
satisfaction of judgment in one or more actions, a total practices in connection with the purchase by an issuer, by
amount in excess of his actual damages on account of tender offer or otherwise, of and equity security of a class
the act complained of: Provided, That exemplary issued by it that satisfies the requirements of Subsection
damages may be awarded in cases of bad faith, fraud, 17.2. Such rules and regulations may require such issuer to
malevolence or wantonness in the violation of this Code provide holders of equity securities of such dates with
or the rules and regulations promulgated thereunder. such information relating to the reasons for such
SECTION 70. Judicial Review of Commission Orders. — purchase, the source of funds, the number of shares to be
Any person aggrieved by an order of the Commission purchased, the price to be paid for such securities, the
may appeal the order to the Court of Appeals by petition method of purchase and such additional information as
for review in accordance with the pertinent provisions of the Commission deems necessary or appropriate in the
the Rules of Court. public interest or for the protection of investors, or which
SECTION 71. Validity of Contracts. — 71.1. Any condition, the Commission deems to be material to a determination
stipulation, provision binding any person to waive by holders whether such security should be sold.
compliance with any provision of this Code or of any rule 72.3. For the purpose of Subsection 72.2, a purchase by or
or regulation thereunder, or of any rule of an Exchange for the issuer or any person controlling, controlled by, or
required thereby, as well as the waiver itself, shall be void. under common control with the issuer, or a purchase
71.2. Every contract made in violation of any provision of subject to the control of the issuer or any such person,
this Code or of any rule or regulation thereunder, and shall be deemed to be a purchased by the issuer. The
every contract, including any contract for listing a security Commission shall have the power to make rules and
on an Exchange heretofore or hereafter made, the regulations implementing this subsection, including
performance of which involves the violation of, or the exemptive rules and regulations covering situations in
continuance of any relationship or practice in violation of, which the Commission deems it unnecessary or
any provision of this Code, or any rule or regulation inappropriate that a purchase of the type described in
thereunder, shall be void: this subsection shall be deemed to be a purchase by the
issuer for the purpose of some or all of the provisions of
(a) As regards the rights of any person who, in violation of Subsection 72.2.
any such provision, rule or regulation, shall have made or
engaged in the performance of any such contract, and 72.4. The rules and regulations promulgated by the
Commission shall be published in two (2) newspapers of
(b) As regards the rights of any person who, not being a general circulation in the Philippines, and unless
party to such contract, shall have acquired any right otherwise prescribed by the Commission, the same shall
thereunder with actual knowledge of the facts by reason be effective fifteen (15) days after the date of the last
of which the making or performance of such contract publication.
was in violation of any such provision, rule or regulation.
SECTION 73. Penalties. — Any person who violates any of
71.3. Nothing in this Code shall be construed: the provisions of this Code, or the rules and regulations
(a) To affect the validity of any loan or extension of credit promulgated by the Commission under authority thereof,
made or of any lien created prior or subsequent to the or any person who, in a registration statement filed under
effectivity of this Code, unless at the time of the making this Code, makes any untrue statement of a material fact
of such loan or extension of credit or the creating of such or omits to state any material fact required to be stated
lien, the person making such loan or extension of credit therein or necessary to make the statements therein not
or acquiring such lien shall have actual knowledge of the misleading, shall, upon conviction, suffer a fine of not less
facts by reason of which the making of such loan or than Fifty thousand pesos (P50,000.00) nor more than
extension of credit or the acquisition of such lien is a Five million pesos (P5,000,000.00) or imprisonment of not
violation of the provisions of this Code or any rules or less than seven (7) years nor more than twenty-one (21)
regulations thereunder; or years, or both in the discretion of the court. If the offender
is a corporation, partnership or association or other
(b) To afford a defense to the collection of any debt, juridical entity, the penalty may in the discretion of the
obligation or the enforcement of any lien by any person court be imposed upon such juridical entity and upon the
who shall have acquired such debt, obligation or lien in officer or officers of the corporation, partnership,
good faith, for value and without actual knowledge of the association or entity responsible for the violation, and if
violation of any provision of this Code or any rule or such officer is an alien, he shall in addition to the
regulation thereunder affecting the legality of such debt, penalties prescribed, be deported without further
obligation or lien. proceedings after service of sentence.
SECTION 72. Rules and Regulations; Effectivity. — 72.1. SECTION 74. Transitory Provisions. — The Commission,
This Code shall be self-executory. To effect the provisions as organized under existing laws, shall continue to exist
and purposes of this Code, the Commission may issue, and exercise its powers, functions and duties under such
amend, and rescind such rules and regulations and laws and this Code: Provided, That until otherwise
orders necessary or appropriate, including rules and mandated by a subsequent law, the Commission shall
regulations defining accounting, technical, and trade continue to regulate and supervise commodity futures
terms used in this Code, and prescribing the form or contracts as provided in Section 11 and pre-need plans
forms in which information required in registration and the pre-need industry as provided in Section 16 of
statements, applications, and reports to the Commission this Code.
shall be set forth. For purposes of its rules or regulations,
the Commission may classify persons, securities, and All further requirements herein shall be complied with
other matters within its jurisdiction, prescribe different upon approval of this Code: Provided, however, That
requirements for different classes of persons, securities, or compliance may be deferred for such reasonable time as
matters, and by rule or order, conditionally or the Commission may determine but not to exceed one (1)
unconditionally exempt any person, security, or year from approval of this Code: Provided, further, That
transaction, or class or classes of persons, securities or securities which are being offered at the time of
transactions, from any or all provisions of this Code. 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 remittance and transfer companies and other similar
this Code. entities and all other persons and their subsidiaries and
All unexpended funds for the calendar year, properties, affiliates supervised or regulated by the Bangko Sentral
equipment and records of the Securities and Exchange ng Pilipinas (BSP);
Commission are hereby retained by the Commission as (2) insurance companies, pre-need companies and all
reorganized under this Code and the amount of Two other persons supervised or regulated by the Insurance
hundred million pesos (P200,000,000.00) or such amount Commission (IC);
necessary to carry out the reorganization provided in this (3) (i) securities dealers, brokers, salesmen, investment
Code is hereby appropriated. houses and other similar persons managing securities or
All employees of the Commission who voluntarily retire or rendering services as investment agent, advisor, or
are separated from the service with the Commission and consultant, (ii) mutual funds, close-end investment
whose retirement or separation has been approved by companies, common trust funds, and other similar
the Commission, shall be paid retirement or separation persons, and (iii) other entities administering or otherwise
benefits and other entitlements granted under existing dealing in currency, commodities or financial derivatives
laws. based thereon, valuable objects, cash substitutes and
SECTION 75. Partial Use of Income. — To carry out the other similar monetary instruments or property
purposes of this Code, the Commission is hereby supervised or regulated by the Securities and Exchange
authorized, in addition to its annual budget, to retain and Commission (SEC);
utilize an amount equal to One hundred million pesos (4) jewelry dealers in precious metals, who, as a business,
(P100,000,000.00) from its income. trade in precious metals, for transactions in excess of One
The use of such additional amount shall be subject to the million pesos (P1,000,000.00);
auditing requirements, standards and procedures under (5) jewelry dealers in precious stones, who, as a business,
existing laws. trade in precious stones, for transactions in excess of One
SECTION 76. Repealing Clause. — The Revised Securities million pesos (P1,000,000.00);
Act (Batas Pambansa Blg. 178), as amended, in its entirety, (6) company service providers which, as a business,
and Sections 2, 4 and 8 of Presidential Decree 902-A, as provide any of the following services to third parties: (i)
amended, are hereby repealed. All other laws, orders, acting as a formation agent of juridical persons; (ii) acting
rules and regulations, or parts thereof, inconsistent with as (or arranging for another person to act as) a director or
any provision of this Code are hereby repealed or corporate secretary of a company, a partner of a
modified accordingly. partnership, or a similar position in relation to other
SECTION 77. Separability Clause. — If any portion or juridical persons; (iii) providing a registered office,
provision of this Code is declared unconstitutional or business address or accommodation, correspondence or
invalid, the other portions or provisions hereof, which are administrative address for a company, a partnership or
not affected thereby shall continue in full force and effect. any other legal person or arrangement; and (iv) acting as
(or arranging for another person to act as) a nominee
SECTION 78. Effectivity. — This Code shall take effect shareholder for another person; and
fifteen (15) days after its publication in the Official Gazette
or in two (2) newspapers of general circulation. (7) persons who provide any of the following services:
Approved: July 19, 2000 (i) managing of client money, securities or other assets;
Published in The Daily Tribune and Today on July 24, (ii) management of bank, savings or securities accounts;
2000. Published in the Official Gazette, Vol. 97 No. 1, 182 (iii) organization of contributions for the creation,
Supp., on January 1, 2001. (The Securities Regulation operation or management of companies; and
Code, Republic Act No. 8799, [July 19, 2000]) (iv) creation, operation or management of juridical
persons or arrangements, and buying and selling
business entities.
RA No 9160 | Anti-Money Laundering Notwithstanding the foregoing, the term 'covered
Act of 2001 persons' shall exclude lawyers and accountants acting as
As amended by RA No 9194, 10167, 10365 independent legal professionals in relation to information
concerning their clients or where disclosure of
information would compromise client confidences or the
September 29, 2001 attorney-client relationship: Provided, That these lawyers
and accountants are authorized to practice in the
REPUBLIC ACT NO. 9160 Philippines and shall continue to be subject to the
As amended by RA No 9194, 10167, 10365 provisions of their respective codes of conduct and/or
AN ACT DEFINING THE CRIME OF MONEY professional responsibility or any of its amendments.
LAUNDERING, PROVIDING PENALTIES THEREFOR AND (as amended by RA No 10365)
FOR OTHER PURPOSES (b) 'Covered transaction' is a transaction in cash or other
SECTION 1. Short Title. — This Act shall be known as the equivalent monetary instrument involving a total amount
"Anti-Money Laundering Act of 2001." in excess of Five hundred thousand pesos (P500,000.00)
SECTION 2. Declaration of Policy. — It is hereby declared within one (1) banking day. (as amended by RA No 9194)
the policy of the State to protect and preserve the (b-1) 'Suspicious transaction' are transactions with
integrity and confidentiality of bank accounts and to covered institutions, regardless of the amounts involved,
ensure that the Philippines shall not be used as a money where any of the following circumstances exist:
laundering site for the proceeds of any unlawful activity. 1. there is no underlying legal or trade obligation, purpose
Consistent with its foreign policy, the State shall extend or economic justification;
cooperation in transnational investigations and
prosecutions of persons involved in money laundering 2. the client is not properly identified;
activities wherever committed. 3. the amount involved is not commensurate with the
SECTION 3. Definitions. — For purposes of this Act, the business or financial capacity of the client;
following terms are hereby defined as follows: 4. taking into account all known circumstances, it may be
(a) "Covered persons", natural or juridical, refers to: perceived that the client's transaction is structured in
order to avoid being the subject of reporting
(1) banks, non-banks, quasi-banks, trust entities, foreign requirements under the Act;
exchange dealers, pawnshops, money changers,


5. any circumstance relating to the transaction which is (14) Financing of terrorism under Section 4 and offenses
observed to deviate from the profile of the client and/or punishable under Sections 5, 6, 7 and 8 of Republic Act
the client's past transactions with the covered institution; No. 10168, otherwise known as the Terrorism Financing
6. the transaction is in any way related to an unlawful Prevention and Suppression Act of 2012;
activity or offense under this Act that is about to be, is (15) Bribery under Articles 210, 211 and 211-A of the Revised
being or has been committed; or Penal Code, as amended, and Corruption of Public
7. any transaction that is similar or analogous to any of Officers under Article 212 of the Revised Penal Code, as
the foregoing. amended;
(as amended by RA No 9194) (16) Frauds and Illegal Exactions and Transactions under
Articles 213, 214, 215 and 216 of the Revised Penal Code, as
(c) "Monetary instrument" refers to: amended;
(1) coins or currency of legal tender of the Philippines, or (17) Malversation of Public Funds and Property under
of any other country; Articles 217 and 222 of the Revised Penal Code, as
(2) drafts, checks and notes; amended;
(3) securities or negotiable instruments, bonds, (18) Forgeries and Counterfeiting under Articles 163, 166,
commercial papers, deposit certificates, trust certificates, l67, 168, 169 and 176 of the Revised Penal Code, as
custodial receipts or deposit substitute instruments, amended;
trading orders, transaction tickets and confirmations of (19) Violations of Sections 4 to 6 of Republic Act No. 9208,
sale or investments and money market instruments; and otherwise known as the Anti-Trafficking in Persons Act of
(4) other similar instruments where title thereto passes to 2003;
another by endorsement, assignment or delivery. (20) Violations of Sections 78 to 79 of Chapter IV, of
(d) "Offender" refers to any person who commits a money Presidential Decree No. 705, otherwise known as the
laundering offense. Revised Forestry Code of the Philippines, as amended;
(e) "Person" refers to any natural or juridical person. (21) Violations of Sections 86 to 106 of Chapter VI, of
Republic Act No. 8550, otherwise known as the Philippine
(f) "Proceeds" refers to an amount derived or realized Fisheries Code of 1998;
from an unlawful activity.
(22) Violations of Sections 101 to 107, and 110 of Republic
(g) "Supervising Authority" refers to the appropriate Act No. 7942, otherwise known as the Philippine Mining
supervisory or regulatory agency, department or office Act of 1995;
supervising or regulating the covered institutions
enumerated in Section 3(a). (23) Violations of Section 27(c), (e), (f), (g) and (i), of
Republic Act No. 9147, otherwise known as the Wildlife
(h) "Transaction" refers to any act establishing any right Resources Conservation and Protection Act;
or obligation or giving rise to any contractual or legal
relationship between the parties thereto. It also includes (24) Violation of Section 7(b) of Republic Act No. 9072,
any movement of funds by any means with a covered otherwise known as the National Caves and Cave
institution. Resources Management Protection Act;
(i) 'Unlawful activity' refers to any act or omission or series (25) Violation of Republic Act No. 6539, otherwise known
or combination thereof involving or having direct relation as the Anti-Carnapping Act of 2002, as amended;
to the following: (26) Violations of Sections 1, 3 and 5 of Presidential Decree
(1) Kidnapping for ransom under Article 267 of Act No. No. 1866, as amended, otherwise known as the decree
3815, otherwise known as the Revised Penal Code, as Codifying the Laws on Illegal/Unlawful Possession,
amended; Manufacture, Dealing in, Acquisition or Disposition of
Firearms, Ammunition or Explosives;
(2) Sections 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15 and 16 of Republic
Act No. 9165, otherwise known as the Comprehensive (27) Violation of Presidential Decree No. 1612, otherwise
Dangerous Drugs Act of 2002; known as the Anti-Fencing Law;
(3) Section 3 paragraphs B, C, E, G, H and I of Republic Act (28) Violation of Section 6 of Republic Act No. 8042,
No. 3019, as amended, otherwise known as the Anti-Graft otherwise known as the Migrant Workers and Overseas
and Corrupt Practices Act; Filipinos Act of 1995, as amended by Republic Act No.
10022;
(4) Plunder under Republic Act No. 7080, as amended;
(29) Violation of Republic Act No. 8293, otherwise known
(5) Robbery and extortion under Articles 294, 295, 296, as the Intellectual Property Code of the Philippines;
299, 300, 301 and 302 of the Revised Penal Code, as
amended; (30) Violation of Section 4 of Republic Act No. 9995,
otherwise known as the Anti-Photo and Video Voyeurism
(6) Jueteng and Masiao punished as illegal gambling Act of 2009;
under Presidential Decree No. 1602;
(31) Violation of Section 4 of Republic Act No. 9775,
(7) Piracy on the high seas under the Revised Penal Code, otherwise known as the Anti-Child Pornography Act of
as amended and Presidential Decree No. 532; 2009;
(8) Qualified theft under Article 310 of the Revised Penal (32) Violations of Sections 5, 7, 8, 9, 10(c), (d) and (e), 11, 12
Code, as amended; and 14 of Republic Act No. 7610, otherwise known as the
(9) Swindling under Article 315 and Other Forms of Special Protection of Children Against Abuse, Exploitation
Swindling under Article 316 of the Revised Penal Code, as and Discrimination;
amended; (33) Fraudulent practices and other violations under
(10) Smuggling under Republic Act Nos. 455 and 1937; Republic Act No. 8799, otherwise known as the Securities
Regulation Code of 2000; and
(11) Violations of Republic Act No. 8792, otherwise known
as the Electronic Commerce Act of 2000; (34)Felonies or offenses of a similar nature that are
punishable under the penal laws of other countries.
(12) Hijacking and other violations under Republic Act No.
6235; destructive arson and murder, as defined under the (as amended by RA No 9194, 10365)
Revised Penal Code, as amended; (j) 'Precious metals' shall mean gold, silver, platinum,
(13) Terrorism and conspiracy to commit terrorism as palladium, rhodium, ruthenium, iridium and osmium.
defined and penalized under Sections 3 and 4 of Republic These include alloys of precious metals, solders and
Act No. 9372; plating chemicals such as rhodium and palladium plating


solutions and potassium gold cyanide and potassium (4) to cause the filing of complaints with the Department
silver cyanide and silver cyanide in salt solution. of Justice or the Ombudsman for the prosecution of
(k) 'Precious stones' shall mean diamond, ruby, emerald, money laundering offenses;
sapphire, opal, amethyst, beryl, topaz, and garnet that are (5) to investigate suspicious transactions and covered
used in jewelry making, including those formerly transactions deemed suspicious after an investigation by
classified as semi-precious stones. AMLC, money laundering activities, and other violations
(as amended by RA No 10365) of this Act;
SECTION 4. Money Laundering Offense. — Money (6) to apply before the Court of Appeals, ex parte, for the
laundering is committed by any person who, knowing freezing of any monetary instrument or property alleged
that any monetary instrument or property represents, to be laundered, proceeds from, or instrumentalities used
involves, or relates to the proceeds of any unlawful in or intended for use in any unlawful activity as defined
activity: in Section 3(i) hereof; (as amended by RA No 10365)
(a) transacts said monetary instrument or property; (7) to implement such measures as may be necessary and

justified under this Act to counteract money laundering;
(b) converts, transfers, disposes of, moves, acquires,
possesses or uses said monetary instrument or property; (8) to receive and take action in respect of, any request
from foreign states for assistance in their own anti-money
(c) conceals or disguises the true nature, source, location, laundering operations provided in this Act;
disposition, movement or ownership of or rights with
respect to said monetary instrument or property; (9) to develop educational programs on the pernicious
effects of money laundering, the methods and
(d) attempts or conspires to commit money laundering techniques used in money laundering, the viable means
offenses referred to in paragraphs (a), (b) or (c); of preventing money laundering and the effective ways of
(e) aids, abets, assists in or counsels the commission of prosecuting and punishing offenders;
the money laundering offenses referred to in paragraphs (10) to enlist the assistance of any branch, department,
(a), (b) or (c) above; and bureau, office, agency or instrumentality of the
(f) performs or fails to perform any act as a result of which government, including government-owned and
he facilitates the offense of money laundering referred to -controlled corporations, in undertaking any and all
in paragraphs (a), (b) or (c) above. anti-money laundering operations, which may include
the use of its personnel, facilities and resources for the
Money laundering is also committed by any covered more resolute prevention, detection and investigation of
person who, knowing that a covered or suspicious money laundering offenses and prosecution of offenders;
transaction is required under this Act to be reported to and
the Anti-Money Laundering Council (AMLC), fails to do so.
(11) to impose administrative sanctions for the violation of
(as amended by RA No 9194, 10365) laws, rules, regulations and orders and resolutions issued
SECTION 5. Jurisdiction of Money Laundering Cases. — pursuant thereto.
The regional trial courts shall have jurisdiction to try all (as amended by RA No 9194)
cases on money laundering. Those committed by public
officers and private persons who are in conspiracy with (12) to require the Land Registration Authority and all its
such public officers shall be under the jurisdiction of the Registries of Deeds to submit to the AMLC, reports on all
Sandiganbayan. real estate transactions involving an amount in excess of
Five hundred thousand pesos (P500,000.00) within
SECTION 6. Prosecution of Money Laundering. — fifteen (15) days from the date of registration of the
(a) Any person may be charged with and convicted of transaction, in a form to be prescribed by the AMLC. The
both the offense of money laundering and the unlawful AMLC may also require the Land Registration Authority
activity as herein defined. and all its Registries of Deeds to submit copies of relevant
documents of all real estate transactions. (as amended by
(b) The prosecution of any offense or violation under this RA No 10365)
Act shall proceed independently of any proceeding
relating to the unlawful activity. SECTION 8. Creation of a Secretariat. — The AMLC is
hereby authorized to establish a secretariat to be headed
(as amended by RA No 10365) by an Executive Director who shall be appointed by the
SECTION 7. Creation of Anti-Money Laundering Council Council for a term of five (5) years. He must be a member
(AMLC). — The Anti-Money Laundering Council is hereby of the Philippine Bar, at least thirty-five (35) years of age
created and shall be composed of the Governor of the and of good moral character, unquestionable integrity
Bangko Sentral ng Pilipinas as Chairman, the and known probity. All members of the Secretariat must
Commissioner of the Insurance Commission and the have served for at least five (5) years either in the
Chairman of the Securities and Exchange Commission, as Insurance Commission, the Securities and Exchange
members. The AMLC shall act unanimously in the Commission or the Bangko Sentral ng Pilipinas (BSP) and
discharge of its functions as defined hereunder: (as shall hold full-time permanent positions within the BSP.
amended by RA No 10365) SECTION 9. Prevention of Money Laundering; Customer
(1) to require and receive covered or suspicious Identification Requirements and Record Keeping. — (a)
transaction reports from covered institutions; Customer Identification. — Covered institutions shall
(2) to issue orders addressed to the appropriate establish and record the true identity of its clients based
Supervising Authority or the covered institution to on official documents. They shall maintain a system of
determine the true identity of the owner of any monetary verifying the true identity of their clients and, in case of
instrument or property subject of a covered transaction corporate clients, require a system of verifying their legal
or suspicious transaction report or request for assistance existence and organizational structure, as well as the
from a foreign State, or believed by the Council, on the authority and identification of all persons purporting to
basis of substantial evidence, to be, in whole or in part, act on their behalf.
wherever located, representing, involving, or related to, The provisions of existing laws to the contrary
directly or indirectly, in any manner or by any means, the notwithstanding, anonymous accounts, accounts under
proceeds of an unlawful activity. fictitious names, and all other similar accounts shall be
(3) to institute civil forfeiture proceedings and all other absolutely prohibited. Peso and foreign currency
remedial proceedings through the Office of the Solicitor non-checking numbered accounts shall be allowed. The
General; BSP may conduct annual testing solely limited to the
determination of the existence and true identity of the
owners of such accounts.


(b) Record Keeping. — All records of all transactions of A person whose account has been frozen may file a
covered institutions shall be maintained and safely stored motion to lift the freeze order and the court must resolve
for five (5) years from the dates of transactions. With this motion before the expiration of the freeze order.
respect to closed accounts, the records on customer No court shall issue a temporary restraining order or a
identification, account files and business writ of injunction against any freeze order, except the
correspondence, shall be preserved and safely stored for Supreme Court. (as amended by RA No 9194, 10167, 10365)
at least five (5) years from the dates when they were
closed. SECTION 11. Authority to Inquire into Bank Deposits. —
Notwithstanding the provisions of Republic Act No. 1405,
(c) Reporting of Covered and Suspicious Transactions. — as amended; Republic Act No. 6426, as amended;
Covered persons shall report to the AMLC all covered Republic Act No. 8791; and other laws, the AMLC may
transactions and suspicious transactions within five (5) inquire into or examine any particular deposit or
working days from occurrence thereof, unless the AMLC investment, including related accounts, with any banking
prescribes a different period not exceeding fifteen (15) institution or non-bank financial institution upon order of
working days. any competent court based on an ex parte application in
Lawyers and accountants acting as independent legal cases of violations of this Act, when it has been
professionals are not required to report covered and established that there is probable cause that the deposits
suspicious transactions if the relevant information was or investments, including related accounts involved, are
obtained in circumstances where they are subject to related to an unlawful activity as defined in Section 3(i)
professional secrecy or legal professional privilege. hereof or a money laundering offense under Section 4
(as amended by RA No 10365) hereof; except that no court order shall be required in
cases involving activities defined in Section 3(i)(1), (2), and
Should a transaction be determined to be both a covered (12) hereof, and felonies or offenses of a nature similar to
transaction and a suspicious transaction, the covered those mentioned in Section 3(i)(1), (2), and (12), which are
institution shall be required to report the same as a Punishable under the penal laws of other countries, and
suspicious transaction. terrorism and conspiracy to commit terrorism as defined
When reporting covered or suspicious transactions to the and penalized under Republic Act No. 9372.
AMLC, covered institutions and their officers and The Court of Appeals shall act on the application to
employees shall not be deemed to have violated Republic inquire into or examine any depositor or investment with
Act No. 1405, as amended, Republic Act No. 6426, as any banking institution or non-bank financial institution
amended, Republic Act No. 8791 and other similar laws, within twenty-four (24) hours from filing of the
but are prohibited from communicating, directly or application.
indirectly, in any manner or by any means, to any person,
the fact that a covered or suspicious transaction report To ensure compliance with this Act, the Bangko Sentral
was made, the contents thereof, or any other information ng Pilipinas may, in the course of a periodic or special
in relation thereto. In case of violation thereof, the examination, check the compliance of a Covered
concerned officer and employee of the covered institution with the requirements of the AMLA and its
institution shall be criminally liable. However, no implementing rules and regulations.
administrative, criminal or civil proceedings, shall lie For purposes of this section, 'related accounts' shall refer
against any person for having made a covered or to accounts, the funds and sources of which originated
suspicious transaction report in the regular performance from and/or are materially linked to the monetary
of his duties in good faith, whether or not such reporting instrument(s) or property(ies) subject of the freeze
results in any criminal prosecution under this Act or any order(s).
other law. A court order ex parte must first be obtained before the
When reporting covered or suspicious transactions to the AMLC can inquire into these related Accounts: Provided,
AMLC, covered persons and their officers and employees That the procedure for the ex parte application of the ex
are prohibited from communicating, directly or indirectly, parte court order for the principal account shall be the
in any manner or by any means, to any person or entity, same with that of the related accounts.
the media, the fact that a covered or suspicious The authority to inquire into or examine the main
transaction has been reported or is about to be reported, account and the related accounts shall comply with the
the contents of the report, or any other information in requirements of Article III, Sections 2 and 3 of the 1987
relation thereto. Neither may such reporting be published Constitution, which are hereby incorporated by reference.
or aired in any manner or form by the mass media, (as amended by RA No 9194, 10167)
electronic mail, or other similar devices. In case of
violation thereof, the concerned officer and employee of SECTION 12. Forfeiture Provisions. —
the covered person and media shall be held criminally (a) Civil Forfeiture. — Upon determination by the AMLC
liable. that probable cause exists that any monetary instrument
(as amended by RA No 9194, 10365) or property is in any way related to an unlawful activity as
defined in Section 3(i) or a money laundering offense
SECTION 10. Freezing of Monetary Instrument or under Section 4 hereof, the AMLC shall file with the
Property. —Upon a verified ex parte petition by the AMLC appropriate court through the Office of the Solicitor
and after determination that probable cause exists that General, a verified ex parte petition for forfeiture, and the
any monetary instrument or property is in any way Rules of Court on Civil Forfeiture shall apply.
related to an unlawful activity as defined in Section 3(i)
hereof, the Court of Appeals may issue a freeze order The forfeiture shall include those other monetary
which shall be effective immediately, and which shall not instrument or property having an equivalent value to that
exceed six (6) months depending upon the of the monetary instrument or property found to be
circumstances of the case: Provided, That if there is no related in any way to an unlawful activity or a money
case filed against a person whose account has been laundering offense, when with due diligence, the former
frozen within the period determined by the court, the cannot be located, or it has been substantially altered,
freeze order shall be deemed ipso facto lifted: Provided, destroyed, diminished in value or otherwise rendered
further, That this new rule shall not apply to pending worthless by any act or omission, or it has been
cases in the courts. In any case, the court should act on concealed, removed, converted, or otherwise transferred,
the petition to freeze within twenty-four (24) hours from or it is located outside the Philippines or has been placed
filing of the petition. If the application is filed a day before or brought outside the jurisdiction of the court, or it has
a non-working day, the computation of the twenty-four been commingled with other monetary instrument or
(24)-hour period shall exclude the non-working days. property belonging to either the offender himself or a
third person or entity, thereby rendering the same


difficult to identify or be segregated for purposes of to the extent allowed by the law of the foreign State,
forfeiture. applying with the proper court therein for an order to
(b) Claim on Forfeited Assets. — Where the court has enter any premises belonging to or in the possession or
issued an order of forfeiture of the monetary instrument control of, any or all of the persons named in said request,
or property in a criminal prosecution for any money and/or search any or all such persons named therein
laundering offense defined under Section 4 of this Act, and/or remove any document, material or object named
the offender or any other person claiming an interest in said request: Provided, That the documents
therein may apply, by verified petition, for a declaration accompanying the request in support of the application
that the same legitimately belongs to him and for have been duly authenticated in accordance with the
segregation or exclusion of the monetary instrument or applicable law or regulation of the foreign State; and (4)
property corresponding thereto. The verified petition shall applying for an order of forfeiture of any monetary
be filed with the court which rendered the judgment of instrument or property in the proper court in the foreign
forfeiture, within fifteen (15) days from the date of the State: Provided, That the request is accompanied by an
finality of the order of forfeiture, in default of which the authenticated copy of the order of the regional trial court
said order shall become final and executory. This ordering the forfeiture of said monetary instrument or
provision shall apply in both civil and criminal forfeiture. property of a convicted offender and an affidavit of the
clerk of court stating that the conviction and the order of
(c) Payment in Lieu of Forfeiture. — Where the court has forfeiture are final and that no further appeal lies in
issued an order of forfeiture of the monetary instrument respect of either.
or property subject of a money laundering offense
defined under Section 4, and said order cannot be (d) Limitations on Request for Mutual Assistance. — The
enforced because any particular monetary instrument or AMLC may refuse to comply with any request for
property cannot, with due diligence, be located, or it has assistance where the action sought by the request
been substantially altered, destroyed, diminished in value contravenes any provision of the Constitution or the
or otherwise rendered worthless by any act or omission, execution of a request is likely to prejudice the national
directly or indirectly, attributable to the offender, or it has interest of the Philippines unless there is a treaty between
been concealed, removed, converted, or otherwise the Philippines and the requesting State relating to the
transferred to prevent the same from being found or to provision of assistance in relation to money laundering
avoid forfeiture thereof, or it is located outside the offenses.
Philippines or has been placed or brought outside the (e) Requirements for Requests for Mutual Assistance
jurisdiction of the court, or it has been commingled with from Foreign States. — A request for mutual assistance
other monetary instruments or property belonging to from a foreign State must (1) confirm that an
either the offender himself or a third person or entity, investigation or prosecution is being conducted in
thereby rendering the same difficult to identify or be respect of a money launderer named therein or that he
segregated for purposes of forfeiture, the court may, has been convicted of any money laundering offense; (2)
instead of enforcing the order of forfeiture of the state the grounds on which any person is being
monetary instrument or property or part thereof or investigated or prosecuted for money laundering or the
interest therein, accordingly order the convicted offender details of his conviction; (3) give sufficient particulars as to
to pay an amount equal to the value of said monetary the identity of said person; (4) give particulars sufficient to
instrument or property. This provision shall apply in both identify any covered institution believed to have any
civil and criminal forfeiture. information, document, material or object which may be
(as amended by RA No 10365) of assistance to the investigation or prosecution; (5) ask
from the covered institution concerned any information,
SECTION 13. Mutual Assistance among States. — document, material or object which may be of assistance
(a) Request for Assistance from a Foreign State. — Where to the investigation or prosecution; (6) specify the manner
a foreign State makes a request for assistance in the in which and to whom said information, document,
investigation or prosecution of a money laundering material or object obtained pursuant to said request, is to
offense, the AMLC may execute the request or refuse to be produced; (7) give all the particulars necessary for the
execute the same and inform the foreign State of any issuance by the court in the requested State of the writs,
valid reason for not executing the request or for delaying orders or processes needed by the requesting State; and
the execution thereof. The principles of mutuality and (8) contain such other information as may assist in the
reciprocity shall, for this purpose, be at all times execution of the request.
recognized. (f) Authentication of Documents. — For purposes of this
(b) Powers of the AMLC to Act on a Request for Section, a document is authenticated if the same is
Assistance from a Foreign State. — The AMLC may signed or certified by a judge, magistrate or equivalent
execute a request for assistance from a foreign State by: officer in or of, the requesting State, and authenticated by
(1) tracking down, freezing, restraining and seizing assets the oath or affirmation of a witness or sealed with an
alleged to be proceeds of any unlawful activity under the official or public seal of a minister, secretary of State, or
procedures laid down in this Act; (2) giving information officer in or of, the government of the requesting State, or
needed by the foreign State within the procedures laid of the person administering the government or a
down in this Act; and (3) applying for an order of forfeiture department of the requesting territory, protectorate or
of any monetary instrument or property in the court: colony. The certificate of authentication may also be
Provided, That the court shall not issue such an order made by a secretary of the embassy or legation, consul
unless the application is accompanied by an general, consul, vice consul, consular agent or any officer
authenticated copy of the order of a court in the in the foreign service of the Philippines stationed in the
requesting State ordering the forfeiture of said monetary foreign State in which the record is kept, and
instrument or property of a person who has been authenticated by the seal of his office.
convicted of a money laundering offense in the (g) Extradition. — The Philippines shall negotiate for the
requesting State, and a certification or an affidavit of a inclusion of money laundering offenses as herein defined
competent officer of the requesting State stating that the among extraditable offenses in all future treaties.
conviction and the order of forfeiture are final and that no
further appeal lies in respect of either. SECTION 14. Penal Provisions. — (a) Penalties for the
Crime of Money Laundering. The penalty of
(c) Obtaining Assistance from Foreign States. — The imprisonment ranging from seven (7) to fourteen (14)
AMLC may make a request to any foreign State for years and a fine not less than Three million Philippine
assistance in (1) tracking down, freezing, restraining and pesos (Php3,000,000.00) but not more than twice the
seizing assets alleged to be proceeds of any unlawful value of the monetary instrument or property involved in
activity; (2) obtaining information that it needs relating to the offense, shall be imposed upon a person convicted
any covered transaction, money laundering offense or under Section 4(a), (b), (c) and (d) of this Act.
any other matter directly or indirectly related thereto; (3)



The penalty of imprisonment from four (4) to seven (7) AMLC orders, resolutions and other issuances. Such
years and a fine of not less than One million five hundred monetary penalties shall be in amounts as may be
thousand Philippine pesos (Php1,500,000.00) but not determined by the AMLC to be appropriate, which shall
more than Three million Philippine pesos not be more than Five hundred thousand Philippine
(Php3,000,000.00), shall be imposed upon a person pesos (P500,000.00) per violation.
convicted under Section 4(e) and (f) of this Act. The AMLC may promulgate rules on fines and penalties
The penalty of imprisonment from six (6) months to four taking into consideration the attendant circumstances,
(4) years or a fine of not less than One hundred thousand such as the nature and gravity of the violation or
Philippine pesos (Php100,000.00) but not more than Five irregularity.
hundred thousand Philippine pesos (Php500,000.00), or (g) The provision of this law shall not be construed or
both, shall be imposed on a person convicted under the implemented in a manner that will discriminate against
last paragraph of Section 4 of this Act. certain customer types, such as politically-exposed
(as amended by RA No 10365) persons, as well as their relatives, or against a certain
(b) Penalties for Failure to Keep Records. The penalty of religion, race or ethnic origin, or such other attributes or
imprisonment from six (6) months to one (1) year or a fine profiles when used as the only basis to deny these
of not less than One hundred thousand Philippine pesos persons access to the services provided by the covered
(Php100,000.00) but not more than Five hundred persons. Whenever a bank, or quasi-bank, financial
thousand Philippine pesos (Php500,000.00), or both, shall institution or whenever any person or entity commits said
be imposed on a person convicted under Section 9(b) of discriminatory act, the person or persons responsible for
this Act. such violation shall be subject to sanctions as may be
deemed appropriate by their respective regulators.
(c) Malicious Reporting. Any person who, with malice, or
in bad faith, reports or files a completely unwarranted or (as amended by RA No 10365)
false information relative to money laundering SECTION 15. System of Incentives and Rewards. — (as
transaction against any person shall be subject to a amended by RA No 9194)
penalty of six (6) months to four (4) years imprisonment SECTION 16. Prohibitions Against Political Harassment.
and a fine of not less than One hundred thousand — This Act shall not be used for political persecution or
Philippine pesos (Php 100,000.00) but not more than Five harassment or as an instrument to hamper competition
hundred thousand Philippine pesos (Php 500,000.00), at in trade and commerce.
the discretion of the court: Provided, That the offender is
not entitled to avail the benefits of the Probation Law. No case for money laundering may be filed against and
no assets shall be frozen, attached or forfeited to the
If the offender is a corporation, association, partnership or prejudice of a candidate for an electoral office during an
any juridical person, the penalty shall be imposed upon election period.
the responsible officers, as the case may be, who
participated in, or allowed by their gross negligence, the SECTION 17. Restitution. — Restitution for any aggrieved
commission of the crime. If the offender is a juridical party shall be governed by the provisions of the New Civil
person, the court may suspend or revoke its license. If the Code.
offender is an alien, he shall, in addition to the penalties SECTION 18. Implementing Rules and Regulations. —
herein prescribed, be deported without further Within thirty (30) days from the effectivity of this Act, the
proceedings after serving the penalties herein prescribed. Bangko Sentral ng Pilipinas, the Insurance Commission
If the offender is a public official or employee, he shall, in and the Securities and Exchange Commission shall
addition to the penalties prescribed herein, suffer promulgate the rules and regulations to implement
perpetual or temporary absolute disqualification from effectively the provisions of this Act. Said rules and
office, as the case may be. regulations shall be submitted to the Congressional
Any public official or employee who is called upon to Oversight Committee for approval.
testify and refuses to do the same or purposely fails to Covered institutions shall formulate their respective
testify shall suffer the same penalties prescribed herein. money laundering prevention programs in accordance
(as amended by RA No 9194) with this Act including, but not limited to, information
dissemination on money laundering activities and its
(d) Breach of Confidentiality. The punishment of prevention, detection and reporting, and the training of
imprisonment ranging from three (3) to eight (8) years responsible officers and personnel of covered institutions.
and a fine of not less than Five hundred thousand
Philippine pesos (Php 500,000.00) but not more than SECTION 19. Congressional Oversight Committee. —
One million Philippine pesos (Php 1,000,000.00) shall be There is hereby created a Congressional Oversight
imposed on a person convicted for a violation under Committee composed of seven (7) members from the
Section 9(c). In the case of a breach of confidentiality that Senate and seven (7) members from the House of
is published or reported by media, the responsible Representatives. The members from the Senate shall be
reporter, writer, president, publisher, manager and appointed by the Senate President based on the
editor-in-chief shall be liable under this Act. (as amended proportional representation of the parties or coalitions
by RA No 9194) therein with at least two (2) Senators representing the
minority. The members from the House of
(e) The penalty of imprisonment ranging from four (4) to Representatives shall be appointed by the Speaker also
seven (7) years and a fine corresponding to not more than based on proportional representation of the parties or
two hundred percent (200%) of the value of the monetary coalitions therein with at least two (2) members
instrument or property laundered shall be imposed upon representing the minority.
the covered person, its directors, officers or personnel
who knowingly participated in the commission of the The Oversight Committee shall have the power to
crime of money laundering. promulgate its own rules, to oversee the implementation
of this Act, and to review or revise the implementing rules
(f) Imposition of Administrative Sanctions. The imposition issued by the Anti-Money Laundering Council within
of the administrative sanctions shall be without prejudice thirty (30) days from the promulgation of the said rules.
to the filing of criminal charges against the persons
responsible for the violation. SECTION 20. Non-intervention in the Bureau of Internal
Revenue (BIR) Operations. — Nothing contained in this
After due notice and hearing, the AMLC shall, at its Act nor in related antecedent laws or existing
discretion, impose sanctions, including monetary agreements shall be construed to allow the AMLC to
penalties, warning or reprimand, upon any covered participate in any manner in the operations of the BIR.
person, its directors, officers, employees or any other
person for the violation of this Act, its implementing rules (as amended by RA No 10365)
and regulations, or for failure or refusal to comply with



SECTION 21. The authority to inquire into or examine the
main account and the related accounts shall comply with
the requirements of Article III, Sections 2 and 3 of the 1987
Constitution, which are hereby incorporated by reference.
Likewise, the constitutional injunction against ex post
facto laws and bills of attainder shall be respected in the
implementation of this Act.
SECTION 22. Appropriations Clause. — The AMLC shall
be provided with an initial appropriation of Twenty-five
million Philippine pesos (Php25,000,000.00) to be drawn
from the national government. Appropriations for the
succeeding years shall be included in the General
Appropriations Act.
SECTION 23. Separability Clause. — If any provision or
section of this Act or the application thereof to any
person or circumstance is held to be invalid, the other
provisions or sections of this Act, and the application of
such provision or section to other persons or
circumstances, shall not be affected thereby.
SECTION 24. Repealing Clause. — All laws, decrees,
executive orders, rules and regulations or parts thereof,
including the relevant provisions of Republic Act No. 1405,
as amended; Republic Act No. 6426, as amended;
Republic Act No. 8791, as amended and other similar laws,
as are inconsistent with this Act, are hereby repealed,
amended or modified accordingly.
SECTION 25. Effectivity. — This Act shall take effect
fifteen (15) days after its complete publication in the
Official Gazette or in at least two (2) national newspapers
of general circulation. (as amended by RA No 9194)
Approved: September 29, 2001
Published in the Philippine Star and Manila Times on
October 2, 2001. Also published in the Official Gazette, Vol.
97 No. 48, page 7001 on November 26, 2001 and in Vol. 98
No. 46, page 6654 on November 18, 2002.
(Anti-Money Laundering Act of 2001, Republic Act No.
9160, [September 29, 2001])

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COMMERCIAL LAWS Instruments

Negotiable Instruments BP Blg 80 | The Corporation Code of the Philippines 17

Intellectual Property RA No 10607 | The Insurance Code 38

© Compiled by Rehne Gibb Larena | JD-2 | University of San Carlos

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

SUB-TITLE 1-G Loss 44

© Compiled by RGL 2 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

SECTION IV Shipwrecks 125 ARTICLE I Privileges 143

© Compiled by RGL 3 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

CHAPTER XIV Broadcasting Organizations 180

RA No 8799 | The Securities Regulations Code 184

RA No 9160 | Anti-Money Laundering Act of 2001 205

© Compiled by RGL 4 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

© Compiled by RGL 5 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

© Compiled by RGL 6 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

(d)Must be payable to order or to bearer; and But nothing in this section shall alter or repeal any statute

(a)With interest; or (b)In which no time for payment is expressed.

© Compiled by RGL 7 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

© Compiled by RGL 8 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

© Compiled by RGL 9 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

© Compiled by RGL 10 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

© Compiled by RGL 11 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

© Compiled by RGL 12 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

or negligence. When the cause of delay ceases to operate, the party secondarily liable, or unless the right of recourse

© Compiled by RGL 13 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

© Compiled by RGL 14 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

© Compiled by RGL 15 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

CHAPTER XIV Payment for Honor

CHAPTER XV Bills in a Set CHAPTER XVII

© Compiled by RGL 16 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

© Compiled by RGL 17 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

© Compiled by RGL 18 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

_______________ _______________ _______________ Name of Amount Total Paid-In

_______________ _______________ _______________ _______________ _______________ _______________

_______________ _______________ _______________ _______________ _______________ _______________

_______________ _______________ _______________ _______________ _______________ _______________

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© Compiled by RGL 19 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

© Compiled by RGL 20 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

SECTION 20. De facto Corporations. — The due shares shall equal, or he may distribute them on the same

© Compiled by RGL 21 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

© Compiled by RGL 22 of 211

COMMERCIAL LAWS NEGOTIABLE INSTRUMENTS, CORPORATION, INSURANCE, TRANSPORTATION, BANKING

© Compiled by RGL 23 of 211

_______ _ _________ Name of Amount Total Paid-In

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