mercantile law codal

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

TITLE I GENERAL PROVISIONS

Definitions and Classifications

Section 1. Title of the Code. - This Code shall be known as "The Corporation

Code of the Philippines".

Sec. 2. Corporation defined. - A corporation is an artificial being created by

operation of law, having the right of succession and the powers, attributes

and properties expressly authorized by law or incident to its existence.

Sec. 3. Classes of corporations. - Corporations formed or organized under

this Code may be stock or non-stock corporations. Corporations which have

capital stock divided into shares and are authorized to distribute to the

holders of such shares dividends or allotments of the surplus profits on thebasis of the shares held are stock corporations. All other corporations are

non-stock corporations.

Sec. 4. Corporations created by special laws or charters. - Corporations

created by special laws or charters shall be governed primarily by the

provisions of the special law or charter creating them or applicable to

them, supplemented by the provisions of this Code, insofar as they are

applicable.

Sec. 5. Corporators and incorporators, stockholders and members. -

Corporators are those who compose a corporation, whether as

stockholders or as members. Incorporators are those stockholders or

members mentioned in the articles of incorporation as originally forming

and composing the corporation and who are signatories thereof.

Corporators in a stock corporation are called stockholders or shareholders.

Corporators in a non-stock corporation are called members.

Sec. 6. Classification of shares. - The shares of stock of stock corporations

may be divided into classes or series of shares, or both, any of which

classes or series of shares may have such rights, privileges or restrictions as

may be stated in the articles of incorporation: Provided, That no share may

be deprived of voting rights except those classified and issued as

"preferred" or "redeemable" shares, unless otherwise provided in this

Code: Provided, further, That there shall always be a class or series of

shares which have complete voting rights. Any or all of the shares or series

of shares may have a par value or have no par value as may be provided for

in the articles of incorporation: Provided, however, That banks, trust

companies, insurance companies, public utilities, and building and loan

associations shall not be permitted to issue no-par value shares of stock.

Preferred shares of stock issued by any corporation may be given

preference in the distribution of the assets of the corporation in case of

liquidation and in the distribution of dividends, or such other preferences

as may be stated in the articles of incorporation which are not violative of

the provisions of this Code: Provided, That preferred shares of stock may

be issued only with a stated par value. The board of directors, where

authorized in the articles of incorporation, may fix the terms and conditions

of preferred shares of stock or any series thereof: Provided, That such

terms and conditions shall be effective upon the filing of a certificate

thereof with the Securities and Exchange Commission.

Shares of capital stock issued without par value shall be deemed fully paid

and non-assessable and the holder of such shares shall not be liable to the

corporation or to its creditors in respect thereto: Provided; That shares

without par value may not be issued for a consideration less than the value

of five (P5.00) pesos per share: Provided, further, That the entire

consideration received by the corporation for its no-par value shares shall

be treated as capital and shall not be available for distribution as dividends.

A corporation may, furthermore, classify its shares for the purpose of

insuring compliance with constitutional or legal requirements.

Except as otherwise provided in the articles of incorporation and stated in

the certificate of stock, each share shall be equal in all respects to every

other share.

Where the articles of incorporation provide for non-voting shares in the

cases allowed by this Code, the holders of such shares shall nevertheless be

entitled to vote on the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;



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3. Sale, lease, exchange, mortgage, pledge or other disposition of all or

substantially all of the corporate property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or

other corporations;

7. Investment of corporate funds in another corporation or business in

accordance with this Code; and

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote

necessary to approve a particular corporate act as provided in this Code

shall be deemed to refer only to stocks with voting rights.Sec. 7. Founders' shares. - Founders' shares classified as such in the articles

of incorporation may be given certain rights and privileges not enjoyed by

the owners of other stocks, provided that where the exclusive right to vote

and be voted for in the election of directors is granted, it must be for a

limited period not to exceed five (5) years subject to the approval of the

Securities and Exchange Commission. The five-year period shall commence

from the date of the aforesaid approval by the Securities and Exchange

Commission.

Sec. 8. Redeemable shares. - Redeemable shares may be issued by the

corporation when expressly so provided in the articles of incorporation.

They may be purchased or taken up by the corporation upon the expiration

of a fixed period, regardless of the existence of unrestricted retained

earnings in the books of the corporation, and upon such other terms and

conditions as may be stated in the articles of incorporation, which terms

and conditions must also be stated in the certificate of stock representing

said shares.

Sec. 9. Treasury shares. - Treasury shares are shares of stock which have

been issued and fully paid for, but subsequently reacquired by the issuing

corporation by purchase, redemption, donation or through some other

lawful means. Such shares may again be disposed of for a reasonable price

fixed by the board of directors.

TITLE II INCORPORATION AND ORGANIZATION OF PRIVATE

CORPORATIONS

Sec. 10. Number and qualifications of incorporators. - Any number of

natural persons not less than five (5) but not more than fifteen (15), all of

legal age and a majority of whom are residents of the Philippines, may form

a private corporation for any lawful purpose or purposes. Each of theincorporators of s stock corporation must own or be a subscriber to at least

one (1) share of the capital stock of the corporation.

Sec. 11. Corporate term. - A corporation shall exist for a period not

exceeding fifty (50) years from the date of incorporation unless sooner

dissolved or unless said period is extended. The corporate term as originally

stated in the articles of incorporation may be extended for periods not

exceeding fifty (50) years in any single instance by an amendment of the

articles of incorporation, in accordance with this Code; Provided, That no

extension can be made earlier than five (5) years prior to the original or

subsequent expiry date(s) unless there are justifiable reasons for an earlierextension as may be determined by the Securities and Exchange

Commission.

Sec. 12. Minimum capital stock required of stock corporations. - Stock

corporations incorporated under this Code shall not be required to have

any minimum authorized capital stock except as otherwise specifically

provided for by special law, and subject to the provisions of the following

section.

Sec. 13. Amount of capital stock to be subscribed and paid for the purposes

of incorporation. - At least twenty-five percent (25%) of the authorized

capital stock as stated in the articles of incorporation must be subscribed at

the time of incorporation, and at least twenty-five (25%) per cent of the

total subscription must be paid upon subscription, the balance to be

payable on a date or dates fixed in the contract of subscription without

need of call, or in the absence of a fixed date or dates, upon call for

payment by the board of directors: Provided, however, That in no case shall

the paid-up capital be less than five Thousand (P5,000.00) pesos.

Sec. 14. Contents of the articles of incorporation. - All corporations

organized under this code shall file with the Securities and Exchange

Commission articles of incorporation in any of the official languages duly

signed and acknowledged by all of the incorporators, containing



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substantially the following matters, except as otherwise prescribed by this

Code or by special law:

1. The name of the corporation;

2. The specific purpose or purposes for which the corporation is being

incorporated. Where a corporation has more than one stated purpose, the

articles of incorporation shall state which is the primary purpose and whichis/are he secondary purpose or purposes: Provided, That a non-stock

corporation may not include a purpose which would change or contradict

its nature as such;

3. The place where the principal office of the corporation is to be located,

which must be within the Philippines;

4. The term for which the corporation is to exist;

5. The names, nationalities and residences of the incorporators;

6. The number of directors or trustees, which shall not be less than five (5)

nor more than fifteen (15);

7. The names, nationalities and residences of persons who shall act as

directors or trustees until the first regular directors or trustees are duly

elected and qualified in accordance with this Code;

8. If it be a stock corporation, the amount of its authorized capital stock in

lawful money of the Philippines, the number of shares into which it is

divided, and in case the share are par value shares, the par value of each,

the names, nationalities and residences of the original subscribers, and the

amount subscribed and paid by each on his subscription, and if some or all

of the shares are without par value, such fact must be stated;

9. If it be a non-stock corporation, the amount of its capital, the names,

nationalities and residences of the contributors and the amount

contributed by each; and

10. Such other matters as are not inconsistent with law and which the

incorporators may deem necessary and convenient.

The Securities and Exchange Commission shall not accept the articles of

incorporation of any stock corporation unless accompanied by a sworn

statement of the Treasurer elected by the subscribers showing that at least

twenty-five (25%) percent of the authorized capital stock of the

corporation has been subscribed, and at least twenty-five (25%) of the total

subscription has been fully paid to him in actual cash and/or in property

the fair valuation of which is equal to at least twenty-five (25%) percent of

the said subscription, such paid-up capital being not less than five thousand

(P5,000.00) pesos.Sec. 15. Forms of Articles of Incorporation. - Unless otherwise prescribed by

special law, articles of incorporation of all domestic corporations shall

comply substantially with the following form:

ARTICLES OF INCORPORATION

OF

__________________________

(Name of Corporation)

KNOW ALL MEN BY THESE PRESENTS:

The undersigned incorporators, all of legal age and a majority of whom are

residents of the Philippines, have this day voluntarily agreed to form a

(stock) (non-stock) corporation under the laws of the Republic of the

Philippines;

AND WE HEREBY CERTIFY:

FIRST: That the name of said corporation shall be

".............................................., INC. or CORPORATION";

SECOND: That the purpose or purposes for which such corporation is

incorporated are: (If there is more than one purpose, indicate primary and

secondary purposes);

THIRD: That the principal office of the corporation is located in the

City/Municipality of ............................................., Province of

.................................................., Philippines;

FOURTH: That the term for which said corporation is to exist is ................

years from and after the date of issuance of the certificate of

incorporation;



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FIFTH: That the names, nationalities and residences of the incorporators of

the corporation are as follows:

NAME NATIONALITY RESIDENCE

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

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

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

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

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

SIXTH: That the number of directors or trustees of the corporation shall be

.............; and the names, nationalities and residences of the first directors

or trustees of the corporation are as follows:

NAME NATIONALITY RESIDENCE

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

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

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

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

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

SEVENTH: That the authorized capital stock of the corporation is

................................................. (P......................) PESOS in lawful money of

the Philippines, divided into ............... shares with the par value of

................................... (P.......................) Pesos per share.

(In case all the share are without par value):

That the capital stock of the corporation is ........................... shares without

par value. (In case some shares have par value and some are without par

value): That the capital stock of said corporation consists of ........................

shares of which ....................... shares are of the par value of

.............................. (P.....................) PESOS each, and of which

................................ shares are without par value.

EIGHTH: That at least twenty five (25%) per cent of the authorized capital

stock above stated has been subscribed as follows:

Name of Subscriber Nationality No of Shares Amount

Subscribed Subscribed

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

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

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

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

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

NINTH: That the above-named subscribers have paid at least twenty-five

(25%) percent of the total subscription as follows:

Name of Subscriber Amount Subscribed Total Paid-In

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

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

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

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

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

(Modify Nos. 8 and 9 if shares are with no par value. In case the

corporation is non-stock, Nos. 7, 8 and 9 of the above articles may be

modified accordingly, and it is sufficient if the articles state the amount of

capital or money contributed or donated by specified persons, stating the



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names, nationalities and residences of the contributors or donors and the

respective amount given by each.)

TENTH: That ....................................... has been elected by the subscribers

as Treasurer of the Corporation to act as such until his successor is duly

elected and qualified in accordance with the by-laws, and that as such

Treasurer, he has been authorized to receive for and in the name and forthe benefit of the corporation, all subscription (or fees) or contributions or

donations paid or given by the subscribers or members.

ELEVENTH: (Corporations which will engage in any business or activity

reserved for Filipino citizens shall provide the following):

"No transfer of stock or interest which shall reduce the ownership of

Filipino citizens to less than the required percentage of the capital stock as

provided by existing laws shall be allowed or permitted to recorded in the

proper books of the corporation and this restriction shall be indicated in all

stock certificates issued by the corporation."

IN WITNESS WHEREOF, we have hereunto signed these Articles of

Incorporation, this ................... day of .............................., 19 ........... in the

City/Municipality of ........................................, Province of

................................................., Republic of the Philippines.

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

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

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

(Names and signatures of the incorporators)

SIGNED IN THE PRESENCE OF:

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

(Notarial Acknowledgment)

TREASURER'S AFFIDAVIT

REPUBLIC OF THE PHILIPPINES )

CITY/MUNICIPALITY OF ) S.S.

PROVINCE OF )

I, ...................................., being duly sworn, depose and say:

That I have been elected by the subscribers of the corporation as Treasurer

thereof, to act as such until my successor has been duly elected and

qualified in accordance with the by-laws of the corporation, and that as

such Treasurer, I hereby certify under oath that at least 25% of the

authorized capital stock of the corporation has been subscribed and at

least 25% of the total subscription has been paid, and received by me, in

cash or property, in the amount of not less than P5,000.00, in accordance

with the Corporation Code.

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

(Signature of Treasurer)

SUBSCRIBED AND SWORN to before me, a Notary Public, for and in the

City/Municipality of .................................. Province of

.........................................., this ............. day of ........................., 19 ........; by

............................................ with Res. Cert. No. ..................... issued at

................. on ......................, 19 ..........

NOTARY PUBLIC

My commission expires on ..........................., 19 ........

Doc. No. ...............;

Page No. ...............;

Book No. ..............;

Series of 19..... (7a)

Sec. 16. Amendment of Articles of Incorporation. - Unless otherwise

prescribed by this Code or by special law, and for legitimate purposes, any



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provision or matter stated in the articles of incorporation may be amended

by a majority vote of the board of directors or trustees and the vote or

written assent of the stockholders representing at least two-thirds (2/3) of

the outstanding capital stock, without prejudice to the appraisal right of

dissenting stockholders in accordance with the provisions of this Code, or

the vote or written assent of at least two-thirds (2/3) of the members if it

be a non-stock corporation.

The original and amended articles together shall contain all provisions

required by law to be set out in the articles of incorporation. Such articles,

as amended shall be indicated by underscoring the change or changes

made, and a copy thereof duly certified under oath by the corporate

secretary and a majority of the directors or trustees stating the fact that

said amendment or amendments have been duly approved by the required

vote of the stockholders or members, shall be submitted to the Securities

and Exchange Commission.

The amendments shall take effect upon their approval by the Securities andExchange Commission or from the date of filing with the said Commission if

not acted upon within six (6) months from the date of filing for a cause not

attributable to the corporation.

Sec. 17. Grounds when articles of incorporation or amendment may be

rejected or disapproved. - The Securities and Exchange Commission may

reject the articles of incorporation or disapprove any amendment thereto if

the same is not in compliance with the requirements of this Code:

Provided, That the Commission shall give the incorporators a reasonable

time within which to correct or modify the objectionable portions of the

articles or amendment. The following are grounds for such rejection or

disapproval:

1. That the articles of incorporation or any amendment thereto is not

substantially in accordance with the form prescribed herein;

2. That the purpose or purposes of the corporation are patently

unconstitutional, illegal, immoral, or contrary to government rules and

regulations;

3. That the Treasurer's Affidavit concerning the amount of capital stock

subscribed and/or paid if false;

4. That the percentage of ownership of the capital stock to be owned by

citizens of the Philippines has not been complied with as required by

existing laws or the Constitution.

No articles of incorporation or amendment to articles of incorporation of

banks, banking and quasi-banking institutions, building and loan

associations, trust companies and other financial intermediaries, insurancecompanies, public utilities, educational institutions, and other corporations

governed by special laws shall be accepted or approved by the Commission

unless accompanied by a favorable recommendation of the appropriate

government agency to the effect that such articles or amendment is in

accordance with law.

Sec. 18. Corporate name. - No corporate name may be allowed by the

Securities and Exchange Commission if the proposed name is identical or

deceptively or confusingly similar to that of any existing corporation or to

any other name already protected by law or is patently deceptive,

confusing or contrary to existing laws. When a change in the corporate

name is approved, the Commission shall issue an amended certificate ofincorporation under the amended name.

Sec. 19. Commencement of corporate existence. - A private corporation

formed or organized under this Code commences to have corporate

existence and juridical personality and is deemed incorporated from the

date the Securities and Exchange Commission issues a certificate of

incorporation under its official seal; and thereupon the incorporators,

stockholders/members and their successors shall constitute a body politic

and corporate under the name stated in the articles of incorporation for

the period of time mentioned therein, unless said period is extended or the

corporation is sooner dissolved in accordance with law.

Sec. 20. De facto corporations. - The due incorporation of any corporation

claiming in good faith to be a corporation under this Code, and its right to

exercise corporate powers, shall not be inquired into collaterally in any

private suit to which such corporation may be a party. Such inquiry may be

made by the Solicitor General in a quo warranto proceeding.

Sec. 21. Corporation by estoppel. - All persons who assume to act as a

corporation knowing it to be without authority to do so shall be liable as

general partners for all debts, liabilities and damages incurred or arising as

a result thereof: Provided, however, That when any such ostensible

corporation is sued on any transaction entered by it as a corporation or on



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any tort committed by it as such, it shall not be allowed to use as a defense

its lack of corporate personality.

On who assumes an obligation to an ostensible corporation as such, cannot

resist performance thereof on the ground that there was in fact no

corporation.

Sec. 22. Effects on non-use of corporate charter and continuous

inoperation of a corporation. - If a corporation does not formally organize

and commence the transaction of its business or the construction of its

works within two (2) years from the date of its incorporation, its corporate

powers cease and the corporation shall be deemed dissolved. However, if a

corporation has commenced the transaction of its business but

subsequently becomes continuously inoperative for a period of at least five

(5) years, the same shall be a ground for the suspension or revocation of its

corporate franchise or certificate of incorporation.

This provision shall not apply if the failure to organize, commence thetransaction of its businesses or the construction of its works, or to

continuously operate is due to causes beyond the control of the

corporation as may be determined by the Securities and Exchange

Commission.

TITLE III BOARD OF DIRECTORS/TRUSTEES/OFFICERS

Sec. 23. The board of directors or trustees. - Unless otherwise provided in

this Code, the corporate powers of all corporations formed under this Code

shall be exercised, all business conducted and all property of such

corporations controlled and held by the board of directors or trustees to be

elected from among the holders of stocks, or where there is no stock, from

among the members of the corporation, who shall hold office for one (1)

year until their successors are elected and qualified.

Every director must own at least one (1) share of the capital stock of the

corporation of which he is a director, which share shall stand in his name

on the books of the corporation. Any director who ceases to be the owner

of at least one (1) share of the capital stock of the corporation of which he

is a director shall thereby cease to be a director. Trustees of non-stock

corporations must be members thereof. a majority of the directors or

trustees of all corporations organized under this Code must be residents of

the Philippines.

Sec. 24. Election of directors or trustees. - At all elections of directors or

trustees, there must be present, either in person or by representative

authorized to act by written proxy, the owners of a majority of the

outstanding capital stock, or if there be no capital stock, a majority of themembers entitled to vote. The election must be by ballot if requested by

any voting stockholder or member. In stock corporations, every

stockholder entitled to vote shall have the right to vote in person or by

proxy the number of shares of stock standing, at the time fixed in the by-

laws, in his own name on the stock books of the corporation, or where the

by-laws are silent, at the time of the election; and said stockholder may

vote such number of shares for as many persons as there are directors to

be elected or he may cumulate said shares and give one candidate as many

votes as the number of directors to be elected multiplied by the number of

his shares shall equal, or he may distribute them on the same principle

among as many candidates as he shall see fit: Provided, That the totalnumber of votes cast by him shall not exceed the number of shares owned

by him as shown in the books of the corporation multiplied by the whole

number of directors to be elected: Provided, however, That no delinquent

stock shall be voted. Unless otherwise provided in the articles of

incorporation or in the by-laws, members of corporations which have no

capital stock may cast as many votes as there are trustees to be elected but

may not cast more than one vote for one candidate. Candidates receiving

the highest number of votes shall be declared elected. Any meeting of the

stockholders or members called for an election may adjourn from day to

day or from time to time but not sine die or indefinitely if, for any reason,

no election is held, or if there not present or represented by proxy, at the

meeting, the owners of a majority of the outstanding capital stock, or if

there be no capital stock, a majority of the member entitled to vote.

Sec. 25. Corporate officers, quorum. - Immediately after their election, the

directors of a corporation must formally organize by the election of a

president, who shall be a director, a treasurer who may or may not be a

director, a secretary who shall be a resident and citizen of the Philippines,

and such other officers as may be provided for in the by-laws. Any two (2)

or more positions may be held concurrently by the same person, except

that no one shall act as president and secretary or as president and

treasurer at the same time.



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The directors or trustees and officers to be elected shall perform the duties

enjoined on them by law and the by-laws of the corporation. Unless the

articles of incorporation or the by-laws provide for a greater majority, a

majority of the number of directors or trustees as fixed in the articles of

incorporation shall constitute a quorum for the transaction of corporate

business, and every decision of at least a majority of the directors or

trustees present at a meeting at which there is a quorum shall be valid as acorporate act, except for the election of officers which shall require the

vote of a majority of all the members of the board.

Directors or trustees cannot attend or vote by proxy at board meetings.

Sec. 26. Report of election of directors, trustees and officers. - Within thirty

(30) days after the election of the directors, trustees and officers of the

corporation, the secretary, or any other officer of the corporation, shall

submit to the Securities and Exchange Commission, the names,

nationalities and residences of the directors, trustees, and officers elected.

Should a director, trustee or officer die, resign or in any manner cease tohold office, his heirs in case of his death, the secretary, or any other officer

of the corporation, or the director, trustee or officer himself, shall

immediately report such fact to the Securities and Exchange Commission.

Sec. 27. Disqualification of directors, trustees or officers. - No person

convicted by final judgment of an offense punishable by imprisonment for

a period exceeding six (6) years, or a violation of this Code committed

within five (5) years prior to the date of his election or appointment, shall

qualify as a director, trustee or officer of any corporation.

Sec. 28. Removal of directors or trustees. - Any director or trustee of a

corporation may be removed from office by a vote of the stockholders

holding or representing at least two-thirds (2/3) of the outstanding capital

stock, or if the corporation be a non-stock corporation, by a vote of at least

two-thirds (2/3) of the members entitled to vote: Provided, That such

removal shall take place either at a regular meeting of the corporation or at

a special meeting called for the purpose, and in either case, after previous

notice to stockholders or members of the corporation of the intention to

propose such removal at the meeting. A special meeting of the

stockholders or members of a corporation for the purpose of removal of

directors or trustees, or any of them, must be called by the secretary on

order of the president or on the written demand of the stockholders

representing or holding at least a majority of the outstanding capital stock,

or, if it be a non-stock corporation, on the written demand of a majority of

the members entitled to vote. Should the secretary fail or refuse to call the

special meeting upon such demand or fail or refuse to give the notice, or if

there is no secretary, the call for the meeting may be addressed directly to

the stockholders or members by any stockholder or member of the

corporation signing the demand. Notice of the time and place of such

meeting, as well as of the intention to propose such removal, must be givenby publication or by written notice prescribed in this Code. Removal may

be with or without cause: Provided, That removal without cause may not

be used to deprive minority stockholders or members of the right of

representation to which they may be entitled under Section 24 of this

Code.

Sec. 29. Vacancies in the office of director or trustee. - Any vacancy

occurring in the board of directors or trustees other than by removal by the

stockholders or members or by expiration of term, may be filled by the

vote of at least a majority of the remaining directors or trustees, if still

constituting a quorum; otherwise, said vacancies must be filled by thestockholders in a regular or special meeting called for that purpose. A

director or trustee so elected to fill a vacancy shall be elected only or the

unexpired term of his predecessor in office.

A directorship or trusteeship to be filled by reason of an increase in the

number of directors or trustees shall be filled only by an election at a

regular or at a special meeting of stockholders or members duly called for

the purpose, or in the same meeting authorizing the increase of directors

or trustees if so stated in the notice of the meeting.

Sec. 30. Compensation of directors. - In the absence of any provision in the

by-laws fixing their compensation, the directors shall not receive any

compensation, as such directors, except for reasonable pre diems:

Provided, however, That any such compensation other than per diems may

be granted to directors by the vote of the stockholders representing at

least a majority of the outstanding capital stock at a regular or special

stockholders' meeting. In no case shall the total yearly compensation of

directors, as such directors, exceed ten (10%) percent of the net income

before income tax of the corporation during the preceding year.

Sec. 31. Liability of directors, trustees or officers. - Directors or trustees

who willfully and knowingly vote for or assent to patently unlawful acts of

the corporation or who are guilty of gross negligence or bad faith in



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directing the affairs of the corporation or acquire any personal or pecuniary

interest in conflict with their duty as such directors or trustees shall be

liable jointly and severally for all damages resulting therefrom suffered by

the corporation, its stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in

violation of his duty, any interest adverse to the corporation in respect ofany matter which has been reposed in him in confidence, as to which

equity imposes a disability upon him to deal in his own behalf, he shall be

liable as a trustee for the corporation and must account for the profits

which otherwise would have accrued to the corporation.

Sec. 32. Dealings of directors, trustees or officers with the corporation. - A

contract of the corporation with one or more of its directors or trustees or

officers is voidable, at the option of such corporation, unless all the

following conditions are present:

1. That the presence of such director or trustee in the board meeting inwhich the contract was approved was not necessary to constitute a

quorum for such meeting;

2. That the vote of such director or trustee was nor necessary for the

approval of the contract;

3. That the contract is fair and reasonable under the circumstances; and

4. That in case of an officer, the contract has been previously authorized by

the board of directors.

Where any of the first two conditions set forth in the preceding paragraph

is absent, in the case of a contract with a director or trustee, such contract

may be ratified by the vote of the stockholders representing at least two-

thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of

the members in a meeting called for the purpose: Provided, That full

disclosure of the adverse interest of the directors or trustees involved is

made at such meeting: Provided, however, That the contract is fair and

reasonable under the circumstances.

Sec. 33. Contracts between corporations with interlocking directors. -

Except in cases of fraud, and provided the contract is fair and reasonable

under the circumstances, a contract between two or more corporations

having interlocking directors shall not be invalidated on that ground alone:

Provided, That if the interest of the interlocking director in one corporation

is substantial and his interest in the other corporation or corporations is

merely nominal, he shall be subject to the provisions of the preceding

section insofar as the latter corporation or corporations are concerned.

Stockholdings exceeding twenty (20%) percent of the outstanding capital

stock shall be considered substantial for purposes of interlocking directors.

Sec. 34. Disloyalty of a director. - Where a director, by virtue of his office,

acquires for himself a business opportunity which should belong to the

corporation, thereby obtaining profits to the prejudice of such corporation,

he must account to the latter for all such profits by refunding the same,

unless his act has been ratified by a vote of the stockholders owning or

representing at least two-thirds (2/3) of the outstanding capital stock. This

provision shall be applicable, notwithstanding the fact that the director

risked his own funds in the venture.

Sec. 35. Executive committee. - The by-laws of a corporation may create an

executive committee, composed of not less than three members of theboard, to be appointed by the board. Said committee may act, by majority

vote of all its members, on such specific matters within the competence of

the board, as may be delegated to it in the by-laws or on a majority vote of

the board, except with respect to: (1) approval of any action for which

shareholders' approval is also required; (2) the filing of vacancies in the

board; (3) the amendment or repeal of by-laws or the adoption of new by-

laws; (4) the amendment or repeal of any resolution of the board which by

its express terms is not so amendable or repealable; and (5) a distribution

of cash dividends to the shareholders.

TITLE IV POWERS OF CORPORATIONS

Sec. 36. Corporate powers and capacity. - Every corporation incorporated

under this Code has the power and capacity:

1. To sue and be sued in its corporate name;

2. Of succession by its corporate name for the period of time stated in the

articles of incorporation and the certificate of incorporation;

3. To adopt and use a corporate seal;



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4. To amend its articles of incorporation in accordance with the provisions

of this Code;

5. To adopt by-laws, not contrary to law, morals, or public policy, and to

amend or repeal the same in accordance with this Code;

6. In case of stock corporations, to issue or sell stocks to subscribers and tosell stocks to subscribers and to sell treasury stocks in accordance with the

provisions of this Code; and to admit members to the corporation if it be a

non-stock corporation;

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge,

mortgage and otherwise deal with such real and personal property,

including securities and bonds of other corporations, as the transaction of

the lawful business of the corporation may reasonably and necessarily

require, subject to the limitations prescribed by law and the Constitution;

8. To enter into merger or consolidation with other corporations asprovided in this Code;

9. To make reasonable donations, including those for the public welfare or

for hospital, charitable, cultural, scientific, civic, or similar purposes:

Provided, That no corporation, domestic or foreign, shall give donations in

aid of any political party or candidate or for purposes of partisan political

activity;

10. To establish pension, retirement, and other plans for the benefit of its

directors, trustees, officers and employees; and

11. To exercise such other powers as may be essential or necessary to carry

out its purpose or purposes as stated in the articles of incorporation.

Sec. 37. Power to extend or shorten corporate term. - A private corporation

may extend or shorten its term as stated in the articles of incorporation

when approved by a majority vote of the board of directors or trustees and

ratified at a meeting by the stockholders representing at least two-thirds

(2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the

members in case of non-stock corporations. Written notice of the proposed

action and of the time and place of the meeting shall be addressed to each

stockholder or member at his place of residence as shown on the books of

the corporation and deposited to the addressee in the post office with

postage prepaid, or served personally: Provided, That in case of extension

of corporate term, any dissenting stockholder may exercise his appraisal

right under the conditions provided in this code. (n)

Sec. 38. Power to increase or decrease capital stock; incur, create or

increase bonded indebtedness. - No corporation shall increase or decrease

its capital stock or incur, create or increase any bonded indebtedness

unless approved by a majority vote of the board of directors and, at astockholder's meeting duly called for the purpose, two-thirds (2/3) of the

outstanding capital stock shall favor the increase or diminution of the

capital stock, or the incurring, creating or increasing of any bonded

indebtedness. Written notice of the proposed increase or diminution of the

capital stock or of the incurring, creating, or increasing of any bonded

indebtedness and of the time and place of the stockholder's meeting at

which the proposed increase or diminution of the capital stock or the

incurring or increasing of any bonded indebtedness is to be considered,

must be addressed to each stockholder at his place of residence as shown

on the books of the corporation and deposited to the addressee in the post

office with postage prepaid, or served personally.

A certificate in duplicate must be signed by a majority of the directors of

the corporation and countersigned by the chairman and the secretary of

the stockholders' meeting, setting forth:

(1) That the requirements of this section have been complied with;

(2) The amount of the increase or diminution of the capital stock;

(3) If an increase of the capital stock, the amount of capital stock or

number of shares of no-par stock thereof actually subscribed, the names,

nationalities and residences of the persons subscribing, the amount of

capital stock or number of no-par stock subscribed by each, and the

amount paid by each on his subscription in cash or property, or the amount

of capital stock or number of shares of no-par stock allotted to each stock-

holder if such increase is for the purpose of making effective stock dividend

therefor authorized;

(4) Any bonded indebtedness to be incurred, created or increased;

(5) The actual indebtedness of the corporation on the day of the meeting;

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



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(7) The vote authorizing the increase or diminution of the capital stock, or

the incurring, creating or increasing of any bonded indebtedness.

Any increase or decrease in the capital stock or the incurring, creating or

increasing of any bonded indebtedness shall require prior approval of the

Securities and Exchange Commission.

One of the duplicate certificates shall be kept on file in the office of thecorporation and the other shall be filed with the Securities and Exchange

Commission and attached to the original articles of incorporation. From

and after approval by the Securities and Exchange Commission and the

issuance by the Commission of its certificate of filing, the capital stock shall

stand increased or decreased and the incurring, creating or increasing of

any bonded indebtedness authorized, as the certificate of filing may

declare: Provided, That the Securities and Exchange Commission shall not

accept for filing any certificate of increase of capital stock unless

accompanied by the sworn statement of the treasurer of the corporation

lawfully holding office at the time of the filing of the certificate, showing

that at least twenty-five (25%) percent of such increased capital stock hasbeen subscribed and that at least twenty-five (25%) percent of the amount

subscribed has been paid either in actual cash to the corporation or that

there has been transferred to the corporation property the valuation of

which is equal to twenty-five (25%) percent of the subscription: Provided,

further, That no decrease of the capital stock shall be approved by the

Commission if its effect shall prejudice the rights of corporate creditors.

Non-stock corporations may incur or create bonded indebtedness, or

increase the same, with the approval by a majority vote of the board of

trustees and of at least two-thirds (2/3) of the members in a meeting duly

called for the purpose.

Bonds issued by a corporation shall be registered with the Securities and

Exchange Commission, which shall have the authority to determine the

sufficiency of the terms thereof. (17a)

Sec. 39. Power to deny pre-emptive right. - All stockholders of a stock

corporation shall enjoy pre-emptive right to subscribe to all issues or

disposition of shares of any class, in proportion to their respective

shareholdings, unless such right is denied by the articles of incorporation or

an amendment thereto: Provided, That such pre-emptive right shall not

extend to shares to be issued in compliance with laws requiring stock

offerings or minimum stock ownership by the public; or to shares to be

issued in good faith with the approval of the stockholders representing

two-thirds (2/3) of the outstanding capital stock, in exchange for property

needed for corporate purposes or in payment of a previously contracted

debt.

Sec. 40. Sale or other disposition of assets. - Subject to the provisions of

existing laws on illegal combinations and monopolies, a corporation may,by a majority vote of its board of directors or trustees, sell, lease, exchange,

mortgage, pledge or otherwise dispose of all or substantially all of its

property and assets, including its goodwill, upon such terms and conditions

and for such consideration, which may be money, stocks, bonds or other

instruments for the payment of money or other property or consideration,

as its board of directors or trustees may deem expedient, when authorized

by the vote of the stockholders representing at least two-thirds (2/3) of the

outstanding capital stock, or in case of non-stock corporation, by the vote

of at least to two-thirds (2/3) of the members, in a stockholder's or

member's meeting duly called for the purpose. Written notice of the

proposed action and of the time and place of the meeting shall beaddressed to each stockholder or member at his place of residence as

shown on the books of the corporation and deposited to the addressee in

the post office with postage prepaid, or served personally: Provided, That

any dissenting stockholder may exercise his appraisal right under the

conditions provided in this Code.

A sale or other disposition shall be deemed to cover substantially all the

corporate property and assets if thereby the corporation would be

rendered incapable of continuing the business or accomplishing the

purpose for which it was incorporated.

After such authorization or approval by the stockholders or members, the

board of directors or trustees may, nevertheless, in its discretion, abandon

such sale, lease, exchange, mortgage, pledge or other disposition of

property and assets, subject to the rights of third parties under any

contract relating thereto, without further action or approval by the

stockholders or members.

Nothing in this section is intended to restrict the power of any corporation,

without the authorization by the stockholders or members, to sell, lease,

exchange, mortgage, pledge or otherwise dispose of any of its property and

assets if the same is necessary in the usual and regular course of business

of said corporation or if the proceeds of the sale or other disposition of



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such property and assets be appropriated for the conduct of its remaining

business.

In non-stock corporations where there are no members with voting rights,

the vote of at least a majority of the trustees in office will be sufficient

authorization for the corporation to enter into any transaction authorized

by this section. (28 1/2a)

Sec. 41. Power to acquire own shares. - A stock corporation shall have the

power to purchase or acquire its own shares for a legitimate corporate

purpose or purposes, including but not limited to the following cases:

Provided, That the corporation has unrestricted retained earnings in its

books to cover the shares to be purchased or acquired:

1. To eliminate fractional shares arising out of stock dividends;

2. To collect or compromise an indebtedness to the corporation, arising out

of unpaid subscription, in a delinquency sale, and to purchase delinquent

shares sold during said sale; and

3. To pay dissenting or withdrawing stockholders entitled to payment for

their shares under the provisions of this Code. (n)

Sec. 42. Power to invest corporate funds in another corporation or business

or for any other purpose. - Subject to the provisions of this Code, a private

corporation may invest its funds in any other corporation or business or for

any purpose other than the primary purpose for which it was organized

when approved by a majority of the board of directors or trustees and

ratified by the stockholders representing at least two-thirds (2/3) of the

outstanding capital stock, or by at least two thirds (2/3) of the members in

the case of non-stock corporations, at a stockholder's or member's meeting

duly called for the purpose. Written notice of the proposed investment and

the time and place of the meeting shall be addressed to each stockholder

or member at his place of residence as shown on the books of the

corporation and deposited to the addressee in the post office with postage

prepaid, or served personally: Provided, That any dissenting stockholder

shall have appraisal right as provided in this Code: Provided, however, That

where the investment by the corporation is reasonably necessary to

accomplish its primary purpose as stated in the articles of incorporation,

the approval of the stockholders or members shall not be necessary. (17

1/2a)

Sec. 43. Power to declare dividends. - The board of directors of a stock

corporation may declare dividends out of the unrestricted retained

earnings which shall be payable in cash, in property, or in stock to all

stockholders on the basis of outstanding stock held by them: Provided,

That any cash dividends due on delinquent stock shall first be applied to

the unpaid balance on the subscription plus costs and expenses, while

stock dividends shall be withheld from the delinquent stockholder until hisunpaid subscription is fully paid: Provided, further, That no stock dividend

shall be issued without the approval of stockholders representing not less

than two-thirds (2/3) of the outstanding capital stock at a regular or special

meeting duly called for the purpose. (16a)

Stock corporations are prohibited from retaining surplus profits in excess of

one hundred (100%) percent of their paid-in capital stock, except: (1) when

justified by definite corporate expansion projects or programs approved by

the board of directors; or (2) when the corporation is prohibited under any

loan agreement with any financial institution or creditor, whether local or

foreign, from declaring dividends without its/his consent, and such consenthas not yet been secured; or (3) when it can be clearly shown that such

retention is necessary under special circumstances obtaining in the

corporation, such as when there is need for special reserve for probable

contingencies. (n)

Sec. 44. Power to enter into management contract. - No corporation shall

conclude a management contract with another corporation unless such

contract shall have been approved by the board of directors and by

stockholders owning at least the majority of the outstanding capital stock,

or by at least a majority of the members in the case of a non-stock

corporation, of both the managing and the managed corporation, at a

meeting duly called for the purpose: Provided, That (1) where a stockholder

or stockholders representing the same interest of both the managing and

the managed corporations own or control more than one-third (1/3) of the

total outstanding capital stock entitled to vote of the managing

corporation; or (2) where a majority of the members of the board of

directors of the managing corporation also constitute a majority of the

members of the board of directors of the managed corporation, then the

management contract must be approved by the stockholders of the

managed corporation owning at least two-thirds (2/3) of the total

outstanding capital stock entitled to vote, or by at least two-thirds (2/3) of

the members in the case of a non-stock corporation. No management



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contract shall be entered into for a period longer than five years for any

one term.

The provisions of the next preceding paragraph shall apply to any contract

whereby a corporation undertakes to manage or operate all or

substantially all of the business of another corporation, whether such

contracts are called service contracts, operating agreements or otherwise:Provided, however, That such service contracts or operating agreements

which relate to the exploration, development, exploitation or utilization of

natural resources may be entered into for such periods as may be provided

by the pertinent laws or regulations. (n)

Sec. 45. Ultra vires acts of corporations. - No corporation under this Code

shall possess or exercise any corporate powers except those conferred by

this Code or by its articles of incorporation and except such as are

necessary or incidental to the exercise of the powers so conferred. (n)

TITLE V BY LAWS

Sec. 46. Adoption of by-laws. - Every corporation formed under this Code

must, within one (1) month after receipt of official notice of the issuance of

its certificate of incorporation by the Securities and Exchange Commission,

adopt a code of by-laws for its government not inconsistent with this Code.

For the adoption of by-laws by the corporation the affirmative vote of the

stockholders representing at least a majority of the outstanding capital

stock, or of at least a majority of the members in case of non-stock

corporations, shall be necessary. The by-laws shall be signed by the

stockholders or members voting for them and shall be kept in the principal

office of the corporation, subject to the inspection of the stockholders or

members during office hours. A copy thereof, duly certified to by a majority

of the directors or trustees countersigned by the secretary of the

corporation, shall be filed with the Securities and Exchange Commission

which shall be attached to the original articles of incorporation.

Notwithstanding the provisions of the preceding paragraph, by-laws may

be adopted and filed prior to incorporation; in such case, such by-laws shall

be approved and signed by all the incorporators and submitted to the

Securities and Exchange Commission, together with the articles of

incorporation.

In all cases, by-laws shall be effective only upon the issuance by the

Securities and Exchange Commission of a certification that the by-laws are

not inconsistent with this Code.

The Securities and Exchange Commission shall not accept for filing the by-

laws or any amendment thereto of any bank, banking institution, buildingand loan association, trust company, insurance company, public utility,

educational institution or other special corporations governed by special

laws, unless accompanied by a certificate of the appropriate government

agency to the effect that such by-laws or amendments are in accordance

with law. (20a)

Sec. 47. Contents of by-laws. - Subject to the provisions of the Constitution,

this Code, other special laws, and the articles of incorporation, a private

corporation may provide in its by-laws for:

1. The time, place and manner of calling and conducting regular or specialmeetings of the directors or trustees;

2. The time and manner of calling and conducting regular or special

meetings of the stockholders or members;

3. The required quorum in meetings of stockholders or members and the

manner of voting therein;

4. The form for proxies of stockholders and members and the manner of

voting them;

5. The qualifications, duties and compensation of directors or trustees,

officers and employees;

6. The time for holding the annual election of directors of trustees and the

mode or manner of giving notice thereof;

7. The manner of election or appointment and the term of office of all

officers other than directors or trustees;

8. The penalties for violation of the by-laws;

9. In the case of stock corporations, the manner of issuing stock

certificates; and



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10. Such other matters as may be necessary for the proper or convenient

transaction of its corporate business and affairs. (21a)

Sec. 48. Amendments to by-laws. - The board of directors or trustees, by a

majority vote thereof, and the owners of at least a majority of the

outstanding capital stock, or at least a majority of the members of a non-

stock corporation, at a regular or special meeting duly called for thepurpose, may amend or repeal any by-laws or adopt new by-laws. The

owners of two-thirds (2/3) of the outstanding capital stock or two-thirds

(2/3) of the members in a non-stock corporation may delegate to the board

of directors or trustees the power to amend or repeal any by-laws or adopt

new by-laws: Provided, That any power delegated to the board of directors

or trustees to amend or repeal any by-laws or adopt new by-laws shall be

considered as revoked whenever stockholders owning or representing a

majority of the outstanding capital stock or a majority of the members in

non-stock corporations, shall so vote at a regular or special meeting.

Whenever any amendment or new by-laws are adopted, such amendment

or new by-laws shall be attached to the original by-laws in the office of thecorporation, and a copy thereof, duly certified under oath by the corporate

secretary and a majority of the directors or trustees, shall be filed with the

Securities and Exchange Commission the same to be attached to the

original articles of incorporation and original by-laws.

The amended or new by-laws shall only be effective upon the issuance by

the Securities and Exchange Commission of a certification that the same

are not inconsistent with this Code. (22a and 23a)

TITLE VI MEETINGS

Sec. 49. Kinds of meetings. - Meetings of directors, trustees, stockholders,

or members may be regular or special. (n)

Sec. 50. Regular and special meetings of stockholders or members. -

Regular meetings of stockholders or members shall be held annually on a

date fixed in the by-laws, or if not so fixed, on any date in April of every

year as determined by the board of directors or trustees: Provided, That

written notice of regular meetings shall be sent to all stockholders or

members of record at least two (2) weeks prior to the meeting, unless a

different period is required by the by-laws.

Special meetings of stockholders or members shall be held at any time

deemed necessary or as provided in the by-laws: Provided, however, That

at least one (1) week written notice shall be sent to all stockholders or

members, unless otherwise provided in the by-laws.

Notice of any meeting may be waived, expressly or impliedly, by any

stockholder or member.

Whenever, for any cause, there is no person authorized to call a meeting,

the Secretaries and Exchange Commission, upon petition of a stockholder

or member on a showing of good cause therefor, may issue an order to the

petitioning stockholder or member directing him to call a meeting of the

corporation by giving proper notice required by this Code or by the by-laws.

The petitioning stockholder or member shall preside thereat until at least a

majority of the stockholders or members present have been chosen one of

their number as presiding officer. (24, 26)

Sec. 51. Place and time of meetings of stockholders or members. -Stockholders' or members' meetings, whether regular or special, shall be

held in the city or municipality where the principal office of the corporation

is located, and if practicable in the principal office of the corporation:

Provided, That Metro Manila shall, for purposes of this section, be

considered a city or municipality.

Notice of meetings shall be in writing, and the time and place thereof

stated therein.

All proceedings had and any business transacted at any meeting of the

stockholders or members, if within the powers or authority of the

corporation, shall be valid even if the meeting be improperly held or called,

provided all the stockholders or members of the corporation are present or

duly represented at the meeting. (24 and 25)

Sec. 52. Quorum in meetings. - Unless otherwise provided for in this Code

or in the by-laws, a quorum shall consist of the stockholders representing a

majority of the outstanding capital stock or a majority of the members in

the case of non-stock corporations. (n)

Sec. 53. Regular and special meetings of directors or trustees. - Regular

meetings of the board of directors or trustees of every corporation shall be

held monthly, unless the by-laws provide otherwise.



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Special meetings of the board of directors or trustees may be held at any

time upon the call of the president or as provided in the by-laws.

Meetings of directors or trustees of corporations may be held anywhere in

or outside of the Philippines, unless the by-laws provide otherwise. Notice

of regular or special meetings stating the date, time and place of themeeting must be sent to every director or trustee at least one (1) day prior

to the scheduled meeting, unless otherwise provided by the by-laws. A

director or trustee may waive this requirement, either expressly or

impliedly. (n)

Sec. 54. Who shall preside at meetings. - The president shall preside at all

meetings of the directors or trustee as well as of the stockholders or

members, unless the by-laws provide otherwise. (n)

Sec. 55. Right to vote of pledgors, mortgagors, and administrators. - In case

of pledged or mortgaged shares in stock corporations, the pledgor ormortgagor shall have the right to attend and vote at meetings of

stockholders, unless the pledgee or mortgagee is expressly given by the

pledgor or mortgagor such right in writing which is recorded on the

appropriate corporate books. (n)

Executors, administrators, receivers, and other legal representatives duly

appointed by the court may attend and vote in behalf of the stockholders

or members without need of any written proxy. (27a)

Sec. 56. Voting in case of joint ownership of stock. - In case of shares of

stock owned jointly by two or more persons, in order to vote the same, the

consent of all the co-owners shall be necessary, unless there is a writtenproxy, signed by all the co-owners, authorizing one or some of them or any

other person to vote such share or shares: Provided, That when the shares

are owned in an "and/or" capacity by the holders thereof, any one of the

joint owners can vote said shares or appoint a proxy therefor. (n)

Sec. 57. Voting right for treasury shares. - Treasury shares shall have no

voting right as long as such shares remain in the Treasury. (n)

Sec. 58. Proxies. - Stockholders and members may vote in person or by

proxy in all meetings of stockholders or members. Proxies shall in writing,

signed by the stockholder or member and filed before the scheduled

meeting with the corporate secretary. Unless otherwise provided in the

proxy, it shall be valid only for the meeting for which it is intended. No

proxy shall be valid and effective for a period longer than five (5) years at

any one time. (n)

Sec. 59. Voting trusts. - One or more stockholders of a stock corporation

may create a voting trust for the purpose of conferring upon a trustee ortrustees the right to vote and other rights pertaining to the shares for a

period not exceeding five (5) years at any time: Provided, That in the case

of a voting trust specifically required as a condition in a loan agreement,

said voting trust may be for a period exceeding five (5) years but shall

automatically expire upon full payment of the loan. A voting trust

agreement must be in writing and notarized, and shall specify the terms

and conditions thereof. A certified copy of such agreement shall be filed

with the corporation and with the Securities and Exchange Commission;

otherwise, said agreement is ineffective and unenforceable. The certificate

or certificates of stock covered by the voting trust agreement shall be

canceled and new ones shall be issued in the name of the trustee ortrustees stating that they are issued pursuant to said agreement. In the

books of the corporation, it shall be noted that the transfer in the name of

the trustee or trustees is made pursuant to said voting trust agreement.

The trustee or trustees shall execute and deliver to the transferors voting

trust certificates, which shall be transferable in the same manner and with

the same effect as certificates of stock.

The voting trust agreement filed with the corporation shall be subject to

examination by any stockholder of the corporation in the same manner as

any other corporate book or record: Provided, That both the transferor and

the trustee or trustees may exercise the right of inspection of all corporatebooks and records in accordance with the provisions of this Code.

Any other stockholder may transfer his shares to the same trustee or

trustees upon the terms and conditions stated in the voting trust

agreement, and thereupon shall be bound by all the provisions of said

agreement.

No voting trust agreement shall be entered into for the purpose of

circumventing the law against monopolies and illegal combinations in

restraint of trade or used for purposes of fraud.



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Unless expressly renewed, all rights granted in a voting trust agreement

shall automatically expire at the end of the agreed period, and the voting

trust certificates as well as the certificates of stock in the name of the

trustee or trustees shall thereby be deemed canceled and new certificates

of stock shall be reissued in the name of the transferors.

The voting trustee or trustees may vote by proxy unless the agreementprovides otherwise. (36a)

TITLE VII STOCKS AND STOCKHOLDERS

Sec. 60. Subscription contract. - Any contract for the acquisition of unissued

stock in an existing corporation or a corporation still to be formed shall be

deemed a subscription within the meaning of this Title, notwithstanding

the fact that the parties refer to it as a purchase or some other contract. (n)

Sec. 61. Pre-incorporation subscription. - A subscription for shares of stockof a corporation still to be formed shall be irrevocable for a period of at

least six (6) months from the date of subscription, unless all of the other

subscribers consent to the revocation, or unless the incorporation of said

corporation fails to materialize within said period or within a longer period

as may be stipulated in the contract of subscription: Provided, That no pre-

incorporation subscription may be revoked after the submission of the

articles of incorporation to the Securities and Exchange Commission. (n)

Sec. 62. Considering for stocks. - Stocks shall not be issued for a

consideration less than the par or issued price thereof. Consideration for

the issuance of stock may be any or a combination of any two or more of

the following:

1. Actual cash paid to the corporation;

2. Property, tangible or intangible, actually received by the corporation and

necessary or convenient for its use and lawful purposes at a fair valuation

equal to the par or issued value of the stock issued;

3. Labor performed for or services actually rendered to the corporation;

4. Previously incurred indebtedness of the corporation;

5. Amounts transferred from unrestricted retained earnings to stated

capital; and

6. Outstanding shares exchanged for stocks in the event of reclassification

or conversion.

Where the consideration is other than actual cash, or consists of intangibleproperty such as patents of copyrights, the valuation thereof shall initially

be determined by the incorporators or the board of directors, subject to

approval by the Securities and Exchange Commission.

Shares of stock shall not be issued in exchange for promissory notes or

future service.

The same considerations provided for in this section, insofar as they may

be applicable, may be used for the issuance of bonds by the corporation.

The issued price of no-par value shares may be fixed in the articles of

incorporation or by the board of directors pursuant to authority conferredupon it by the articles of incorporation or the by-laws, or in the absence

thereof, by the stockholders representing at least a majority of the

outstanding capital stock at a meeting duly called for the purpose. (5 and

16)

Sec. 63. Certificate of stock and transfer of shares. - The capital stock of

stock corporations shall be divided into shares for which certificates signed

by the president or vice president, countersigned by the secretary or

assistant secretary, and sealed with the seal of the corporation shall be

issued in accordance with the by-laws. Shares of stock so issued are

personal property and may be transferred by delivery of the certificate or

certificates endorsed by the owner or his attorney-in-fact or other personlegally authorized to make the transfer. No transfer, however, shall be

valid, except as between the parties, until the transfer is recorded in the

books of the corporation showing the names of the parties to the

transaction, the date of the transfer, the number of the certificate or

certificates and the number of shares transferred.

No shares of stock against which the corporation holds any unpaid claim

shall be transferable in the books of the corporation. (35)

Sec. 64. Issuance of stock certificates. - No certificate of stock shall be

issued to a subscriber until the full amount of his subscription together



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with interest and expenses (in case of delinquent shares), if any is due, has

been paid. (37)

Sec. 65. Liability of directors for watered stocks. - Any director or officer of

a corporation consenting to the issuance of stocks for a consideration less

than its par or issued value or for a consideration in any form other than

cash, valued in excess of its fair value, or who, having knowledge thereof,does not forthwith express his objection in writing and file the same with

the corporate secretary, shall be solidarily, liable with the stockholder

concerned to the corporation and its creditors for the difference between

the fair value received at the time of issuance of the stock and the par or

issued value of the same. (n)

Sec. 66. Interest on unpaid subscriptions. - Subscribers for stock shall pay to

the corporation interest on all unpaid subscriptions from the date of

subscription, if so required by, and at the rate of interest fixed in the by-

laws. If no rate of interest is fixed in the by-laws, such rate shall be deemed

to be the legal rate. (37)

Sec. 67. Payment of balance of subscription. - Subject to the provisions of

the contract of subscription, the board of directors of any stock corporation

may at any time declare due and payable to the corporation unpaid

subscriptions to the capital stock and may collect the same or such

percentage thereof, in either case with accrued interest, if any, as it may

deem necessary.

Payment of any unpaid subscription or any percentage thereof, together

with the interest accrued, if any, shall be made on the date specified in the

contract of subscription or on the date stated in the call made by the

board. Failure to pay on such date shall render the entire balance due andpayable and shall make the stockholder liable for interest at the legal rate

on such balance, unless a different rate of interest is provided in the by-

laws, computed from such date until full payment. If within thirty (30) days

from the said date no payment is made, all stocks covered by said

subscription shall thereupon become delinquent and shall be subject to

sale as hereinafter provided, unless the board of directors orders

otherwise. (38)

Sec. 68. Delinquency sale. - The board of directors may, by resolution, order

the sale of delinquent stock and shall specifically state the amount due on

each subscription plus all accrued interest, and the date, time and place of

the sale which shall not be less than thirty (30) days nor more than sixty

(60) days from the date the stocks become delinquent.

Notice of said sale, with a copy of the resolution, shall be sent to every

delinquent stockholder either personally or by registered mail. The same

shall furthermore be published once a week for two (2) consecutive weeks

in a newspaper of general circulation in the province or city where theprincipal office of the corporation is located.

Unless the delinquent stockholder pays to the corporation, on or before

the date specified for the sale of the delinquent stock, the balance due on

his subscription, plus accrued interest, costs of advertisement and

expenses of sale, or unless the board of directors otherwise orders, said

delinquent stock shall be sold at public auction to such bidder who shall

offer to pay the full amount of the balance on the subscription together

with accrued interest, costs of advertisement and expenses of sale, for the

smallest number of shares or fraction of a share. The stock so purchased

shall be transferred to such purchaser in the books of the corporation and a

certificate for such stock shall be issued in his favor. The remaining shares,

if any, shall be credited in favor of the delinquent stockholder who shall

likewise be entitled to the issuance of a certificate of stock covering such

shares.

Should there be no bidder at the public auction who offers to pay the full

amount of the balance on the subscription together with accrued interest,

costs of advertisement and expenses of sale, for the smallest number of

shares or fraction of a share, the corporation may, subject to the provisions

of this Code, bid for the same, and the total amount due shall be credited

as paid in full in the books of the corporation. Title to all the shares of stock

covered by the subscription shall be vested in the corporation as treasuryshares and may be disposed of by said corporation in accordance with the

provisions of this Code.

Sec. 69. When sale may be questioned. - No action to recover delinquent

stock sold can be sustained upon the ground of irregularity or defect in the

notice of sale, or in the sale itself of the delinquent stock, unless the party

seeking to maintain such action first pays or tenders to the party holding

the stock the sum for which the same was sold, with interest from the date

of sale at the legal rate; and no such action shall be maintained unless it is

commenced by the filing of a complaint within six (6) months from the date

of sale. (47a)



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Sec. 70. Court action to recover unpaid subscription. - Nothing in this Code

shall prevent the corporation from collecting by action in a court of proper

jurisdiction the amount due on any unpaid subscription, with accrued

interest, costs and expenses. (49a)

Sec. 71. Effect of delinquency. - No delinquent stock shall be voted for beentitled to vote or to representation at any stockholder's meeting, nor shall

the holder thereof be entitled to any of the rights of a stockholder except

the right to dividends in accordance with the provisions of this Code, until

and unless he pays the amount due on his subscription with accrued

interest, and the costs and expenses of advertisement, if any. (50a)

Sec. 72. Rights of unpaid shares. - Holders of subscribed shares not fully

paid which are not delinquent shall have all the rights of a stockholder. (n)

Sec. 73. Lost or destroyed certificates. - The following procedure shall be

followed for the issuance by a corporation of new certificates of stock in

lieu of those which have been lost, stolen or destroyed:

1. The registered owner of a certificate of stock in a corporation or his legal

representative shall file with the corporation an affidavit in triplicate

setting forth, if possible, the circumstances as to how the certificate was

lost, stolen or destroyed, the number of shares represented by such

certificate, the serial number of the certificate and the name of the

corporation which issued the same. He shall also submit such other

information and evidence which he may deem necessary;

2. After verifying the affidavit and other information and evidence with the

books of the corporation, said corporation shall publish a notice in a

newspaper of general circulation published in the place where thecorporation has its principal office, once a week for three (3) consecutive

weeks at the expense of the registered owner of the certificate of stock

which has been lost, stolen or destroyed. The notice shall state the name of

said corporation, the name of the registered owner and the serial number

of said certificate, and the number of shares represented by such

certificate, and that after the expiration of one (1) year from the date of

the last publication, if no contest has been presented to said corporation

regarding said certificate of stock, the right to make such contest shall be

barred and said corporation shall cancel in its books the certificate of stock

which has been lost, stolen or destroyed and issue in lieu thereof new

certificate of stock, unless the registered owner files a bond or other

security in lieu thereof as may be required, effective for a period of one (1)

year, for such amount and in such form and with such sureties as may be

satisfactory to the board of directors, in which case a new certificate may

be issued even before the expiration of the one (1) year period provided

herein: Provided, That if a contest has been presented to said corporation

or if an action is pending in court regarding the ownership of said

certificate of stock which has been lost, stolen or destroyed, the issuance ofthe new certificate of stock in lieu thereof shall be suspended until the final

decision by the court regarding the ownership of said certificate of stock

which has been lost, stolen or destroyed.

Except in case of fraud, bad faith, or negligence on the part of the

corporation and its officers, no action may be brought against any

corporation which shall have issued certificate of stock in lieu of those lost,

stolen or destroyed pursuant to the procedure above-described. (R. A.

201a)

TITLE VIII CORPORATE BOOKS AND RECORDS

Sec. 74. Books to be kept; stock transfer agent. - Every corporation shall

keep and carefully preserve at its principal office a record of all business

transactions and minutes of all meetings of stockholders or members, or of

the board of directors or trustees, in which shall be set forth in detail the

time and place of holding the meeting, how authorized, the notice given,

whether the meeting was regular or special, if special its object, those

present and absent, and every act done or ordered done at the meeting.

Upon the demand of any director, trustee, stockholder or member, the

time when any director, trustee, stockholder or member entered or left the

meeting must be noted in the minutes; and on a similar demand, the yeasand nays must be taken on any motion or proposition, and a record thereof

carefully made. The protest of any director, trustee, stockholder or

member on any action or proposed action must be recorded in full on his

demand.

The records of all business transactions of the corporation and the minutes

of any meetings shall be open to inspection by any director, trustee,

stockholder or member of the corporation at reasonable hours on business

days and he may demand, writing, for a copy of excerpts from said records

or minutes, at his expense.



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Any officer or agent of the corporation who shall refuse to allow any

director, trustees, stockholder or member of the corporation to examine

and copy excerpts from its records or minutes, in accordance with the

provisions of this Code, shall be liable to such director, trustee, stockholder

or member for damages, and in addition, shall be guilty of an offense which

shall be punishable under Section 144 of this Code: Provided, That if such

refusal is made pursuant to a resolution or order of the board of directorsor trustees, the liability under this section for such action shall be imposed

upon the directors or trustees who voted for such refusal: and Provided,

further, That it shall be a defense to any action under this section that the

person demanding to examine and copy excerpts from the corporation's

records and minutes has improperly used any information secured through

any prior examination of the records or minutes of such corporation or of

any other corporation, or was not acting in good faith or for a legitimate

purpose in making his demand.

Stock corporations must also keep a book to be known as the "stock and

transfer book", in which must be kept a record of all stocks in the names of

the stockholders alphabetically arranged; the installments paid and unpaid

on all stock for which subscription has been made, and the date of

payment of any installment; a statement of every alienation, sale or

transfer of stock made, the date thereof, and by and to whom made; and

such other entries as the by-laws may prescribe. The stock and transfer

book shall be kept in the principal office of the corporation or in the office

of its stock transfer agent and shall be open for inspection by any director

or stockholder of the corporation at reasonable hours on business days.

No stock transfer agent or one engaged principally in the business of

registering transfers of stocks in behalf of a stock corporation shall be

allowed to operate in the Philippines unless he secures a license from theSecurities and Exchange Commission and pays a fee as may be fixed by the

Commission, which shall be renewable annually: Provided, That a stock

corporation is not precluded from performing or making transfer of its own

stocks, in which case all the rules and regulations imposed on stock transfer

agents, except the payment of a license fee herein provided, shall be

applicable. (51a and 32a; B. P. No. 268.)

Sec. 75. Right to financial statements. - Within ten (10) days from receipt of

a written request of any stockholder or member, the corporation shall

furnish to him its most recent financial statement, which shall include a

balance sheet as of the end of the last taxable year and a profit or loss

statement for said taxable year, showing in reasonable detail its assets and

liabilities and the result of its operations.

At the regular meeting of stockholders or members, the board of directors

or trustees shall present to such stockholders or members a financial

report of the operations of the corporation for the preceding year, which

shall include financial statements, duly signed and certified by anindependent certified public accountant.

However, if the paid-up capital of the corporation is less than P50,000.00,

the financial statements may be certified under oath by the treasurer or

any responsible officer of the corporation. (n)

TITLE IX MERGER AND CONSOLIDATION

Sec. 76. Plan or merger of consolidation. - Two or more corporations may

merge into a single corporation which shall be one of the constituent

corporations or may consolidate into a new single corporation which shall

be the consolidated corporation.

The board of directors or trustees of each corporation, party to the merger

or consolidation, shall approve a plan of merger or consolidation setting

forth the following:

1. The names of the corporations proposing to merge or consolidate,

hereinafter referred to as the constituent corporations;

2. The terms of the merger or consolidation and the mode of carrying the

same into effect;

3. A statement of the changes, if any, in the articles of incorporation of the

surviving corporation in case of merger; and, with respect to the

consolidated corporation in case of consolidation, all the statements

required to be set forth in the articles of incorporation for corporations

organized under this Code; and

4. Such other provisions with respect to the proposed merger or

consolidation as are deemed necessary or desirable. (n)

Sec. 77. Stockholder's or member's approval. - Upon approval by majority

vote of each of the board of directors or trustees of the constituent



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corporations of the plan of merger or consolidation, the same shall be

submitted for approval by the stockholders or members of each of such

corporations at separate corporate meetings duly called for the purpose.

Notice of such meetings shall be given to all stockholders or members of

the respective corporations, at least two (2) weeks prior to the date of the

meeting, either personally or by registered mail. Said notice shall state the

purpose of the meeting and shall include a copy or a summary of the planof merger or consolidation. The affirmative vote of stockholders

representing at least two-thirds (2/3) of the outstanding capital stock of

each corporation in the case of stock corporations or at least two-thirds

(2/3) of the members in the case of non-stock corporations shall be

necessary for the approval of such plan. Any dissenting stockholder in stock

corporations may exercise his appraisal right in accordance with the Code:

Provided, That if after the approval by the stockholders of such plan, the

board of directors decides to abandon the plan, the appraisal right shall be

extinguished.

Any amendment to the plan of merger or consolidation may be made,

provided such amendment is approved by majority vote of the respective

boards of directors or trustees of all the constituent corporations and

ratified by the affirmative vote of stockholders representing at least two-

thirds (2/3) of the outstanding capital stock or of two-thirds (2/3) of the

members of each of the constituent corporations. Such plan, together with

any amendment, shall be considered as the agreement of merger or

consolidation. (n)

Sec. 78. Articles of merger or consolidation. - After the approval by the

stockholders or members as required by the preceding section, articles of

merger or articles of consolidation shall be executed by each of the

constituent corporations, to be signed by the president or vice-president

and certified by the secretary or assistant secretary of each corporationsetting forth:

1. The plan of the merger or the plan of consolidation;

2. As to stock corporations, the number of shares outstanding, or in the

case of non-stock corporations, the number of members; and

3. As to each corporation, the number of shares or members voting for and

against such plan, respectively. (n)

Sec. 79. Effectivity of merger or consolidation. - The articles of merger or of

consolidation, signed and certified as herein above required, shall be

submitted to the Securities and Exchange Commission in quadruplicate for

its approval: Provided, That in the case of merger or consolidation of banks

or banking institutions, building and loan associations, trust companies,

insurance companies, public utilities, educational institutions and other

special corporations governed by special laws, the favorable

recommendation of the appropriate government agency shall first be

obtained. If the Commission is satisfied that the merger or consolidation ofthe corporations concerned is not inconsistent with the provisions of this

Code and existing laws, it shall issue a certificate of merger or of

consolidation, at which time the merger or consolidation shall be effective.

If, upon investigation, the Securities and Exchange Commission has reason

to believe that the proposed merger or consolidation is contrary to or

inconsistent with the provisions of this Code or existing laws, it shall set a

hearing to give the corporations concerned the opportunity to be heard.

Written notice of the date, time and place of hearing shall be given to each

constituent corporation at least two (2) weeks before said hearing. The

Commission shall thereafter proceed as provided in this Code. (n)

Sec. 80. Effects or merger or consolidation. - The merger or consolidation

shall have the following effects:

1. The constituent corporations shall become a single corporation which, in

case of merger, shall be the surviving corporation designated in the plan of

merger; and, in case of consolidation, shall be the consolidated corporation

designated in the plan of consolidation;

2. The separate existence of the constituent corporations shall cease,

except that of the surviving or the consolidated corporation;

3. The surviving or the consolidated corporation shall possess all the rights,

privileges, immunities and powers and shall be subject to all the duties andliabilities of a corporation organized under this Code;

4. The surviving or the consolidated corporation shall thereupon and

thereafter possess all the rights, privileges, immunities and franchises of

each of the constituent corporations; and all property, real or personal, and

all receivables due on whatever account, including subscriptions to shares

and other choses in action, and all and every other interest of, or belonging

to, or due to each constituent corporation, shall be deemed transferred to

and vested in such surviving or consolidated corporation without further

act or deed; and



G R A C I E |

5. The surviving or consolidated corporation shall be responsible and liable

for all the liabilities and obligations of each of the constituent corporations

in the same manner as if such surviving or consolidated corporation had

itself incurred such liabilities or obligations; and any pending claim, action

or proceeding brought by or against any of such constituent corporations

may be prosecuted by or against the surviving or consolidated corporation.

The rights of creditors or liens upon the property of any of such constituentcorporations shall not be impaired by such merger or consolidation. (n)

TITLE X APPRAISAL RIGHT

Sec. 81. Instances of appraisal right. - Any stockholder of a corporation shall

have the right to dissent and demand payment of the fair value of his

shares in the following instances:

1. In case any amendment to the articles of incorporation has the effect of

changing or restricting the rights of any stockholder or class of shares, or of

authorizing preferences in any respect superior to those of outstanding

shares of any class, or of extending or shortening the term of corporate

existence;

2. In case of sale, lease, exchange, transfer, mortgage, pledge or other

disposition of all or substantially all of the corporate property and assets as

provided in the Code; and

3. In case of merger or consolidation. (n)

Sec. 82. How right is exercised. - The appraisal right may be exercised by

any stockholder who shall have voted against the proposed corporate

action, by making a written demand on the corporation within thirty (30)days after the date on which the vote was taken for payment of the fair

value of his shares: Provided, That failure to make the demand within such

period shall be deemed a waiver of the appraisal right. If the proposed

corporate action is implemented or affected, the corporation shall pay to

such stockholder, upon surrender of the certificate or certificates of stock

representing his shares, the fair value thereof as of the day prior to the

date on which the vote was taken, excluding any appreciation or

depreciation in anticipation of such corporate action.

If within a period of sixty (60) days from the date the corporate action was

approved by the stockholders, the withdrawing stockholder and the

corporation cannot agree on the fair value of the shares, it shall be

determined and appraised by three (3) disinterested persons, one of whom

shall be named by the stockholder, another by the corporation, and the

third by the two thus chosen. The findings of the majority of the appraisers

shall be final, and their award shall be paid by the corporation within thirty

(30) days after such award is made: Provided, That no payment shall be

made to any dissenting stockholder unless the corporation has unrestricted

retained earnings in its books to cover such payment: and Provided,further, That upon payment by the corporation of the agreed or awarded

price, the stockholder shall forthwith transfer his shares to the corporation.

(n)

Sec. 83. Effect of demand and termination of right. - From the time of

demand for payment of the fair value of a stockholder's shares until either

the abandonment of the corporate action involved or the purchase of the

said shares by the corporation, all rights accruing to such shares, including

voting and dividend rights, shall be suspended in accordance with the

provisions of this Code, except the right of such stockholder to receive

payment of the fair value thereof: Provided, That if the dissenting

stockholder is not paid the value of his shares within 30 days after the

award, his voting and dividend rights shall immediately be restored. (n)

Sec. 84. When right to payment ceases. - No demand for payment under

this Title may be withdrawn unless the corporation consents thereto. If,

however, such demand for payment is withdrawn with the consent of the

corporation, or if the proposed corporate action is abandoned or rescinded

by the corporation or disapproved by the Securities and Exchange

Commission where such approval is necessary, or if the Securities and

Exchange Commission determines that such stockholder is not entitled to

the appraisal right, then the right of said stockholder to be paid the fair

value of his shares shall cease, his status as a stockholder shall thereuponbe restored, and all dividend distributions which would have accrued on his

shares shall be paid to him. (n)

Sec. 85. Who bears costs of appraisal. - The costs and expenses of appraisal

shall be borne by the corporation, unless the fair value ascertained by the

appraisers is approximately the same as the price which the corporation

may have offered to pay the stockholder, in which case they shall be borne

by the latter. In the case of an action to recover such fair value, all costs

and expenses shall be assessed against the corporation, unless the refusal

of the stockholder to receive payment was unjustified. (n)



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Sec. 86. Notation on certificates; rights of transferee. - Within ten (10) days

after demanding payment for his shares, a dissenting stockholder shall

submit the certificates of stock representing his shares to the corporation

for notation thereon that such shares are dissenting shares. His failure to

do so shall, at the option of the corporation, terminate his rights under this

Title. If shares represented by the certificates bearing such notation aretransferred, and the certificates consequently canceled, the rights of the

transferor as a dissenting stockholder under this Title shall cease and the

transferee shall have all the rights of a regular stockholder; and all dividend

distributions which would have accrued on such shares shall be paid to the

transferee. (n)

TITLE XI NON-STOCK CORPORATIONS

Sec. 87. Definition. - For the purposes of this Code, a non-stock corporation

is one where no part of its income is distributable as dividends to its

members, trustees, or officers, subject to the provisions of this Code on

dissolution: Provided, That any profit which a non-stock corporation may

obtain as an incident to its operations shall, whenever necessary or proper,

be used for the furtherance of the purpose or purposes for which the

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

The provisions governing stock corporation, when pertinent, shall be

applicable to non-stock corporations, except as may be covered by specific

provisions of this Title. (n)

Sec. 88. Purposes. - Non-stock corporations may be formed or organized

for charitable, religious, educational, professional, cultural, fraternal,literary, scientific, social, civic service, or similar purposes, like trade,

industry, agricultural and like chambers, or any combination thereof,

subject to the special provisions of this Title governing particular classes of

non-stock corporations. (n)

Chapter I – MEMBERS

Sec. 89. Right to vote. - The right of the members of any class or classes to

vote may be limited, broadened or denied to the extent specified in the

articles of incorporation or the by-laws. Unless so limited, broadened or

denied, each member, regardless of class, shall be entitled to one vote.

Unless otherwise provided in the articles of incorporation or the by-laws, a

member may vote by proxy in accordance with the provisions of this Code.

(n)

Voting by mail or other similar means by members of non-stock

corporations may be authorized by the by-laws of non-stock corporationswith the approval of, and under such conditions which may be prescribed

by, the Securities and Exchange Commission.

Sec. 90. Non-transferability of membership. - Membership in a non-stock

corporation and all rights arising therefrom are personal and non-

transferable, unless the articles of incorporation or the by-laws otherwise

provide. (n)

Sec. 91. Termination of membership. - Membership shall be terminated in

the manner and for the causes provided in the articles of incorporation or

the by-laws. Termination of membership shall have the effect of

extinguishing all rights of a member in the corporation or in its property,

unless otherwise provided in the articles of incorporation or the by-laws.

(n)

Chapter II - TRUSTEES AND OFFICERS

Sec. 92. Election and term of trustees. - Unless otherwise provided in the

articles of incorporation or the by-laws, the board of trustees of non-stock

corporations, which may be more than fifteen (15) in number as may be

fixed in their articles of incorporation or by-laws, shall, as soon as

organized, so classify themselves that the term of office of one-third (1/3)

of their number shall expire every year; and subsequent elections oftrustees comprising one-third (1/3) of the board of trustees shall be held

annually and trustees so elected shall have a term of three (3) years.

Trustees thereafter elected to fill vacancies occurring before the expiration

of a particular term shall hold office only for the unexpired period.

No person shall be elected as trustee unless he is a member of the

corporation.

Unless otherwise provided in the articles of incorporation or the by-laws,

officers of a non-stock corporation may be directly elected by the

members. (n)



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Sec. 93. Place of meetings. - The by-laws may provide that the members of

a non-stock corporation may hold their regular or special meetings at any

place even outside the place where the principal office of the corporation is

located: Provided, That proper notice is sent to all members indicating the

date, time and place of the meeting: and Provided, further, That the place

of meeting shall be within the Philippines. (n)

Chapter III - DISTRIBUTION OF ASSETS IN

NON-STOCK CORPORATIONS

Sec. 94. Rules of distribution. - In case dissolution of a non-stock

corporation in accordance with the provisions of this Code, its assets shall

be applied and distributed as follows:

1. All liabilities and obligations of the corporation shall be paid, satisfied

and discharged, or adequate provision shall be made therefore;

2. Assets held by the corporation upon a condition requiring return,

transfer or conveyance, and which condition occurs by reason of the

dissolution, shall be returned, transferred or conveyed in accordance with

such requirements;

3. Assets received and held by the corporation subject to limitations

permitting their use only for charitable, religious, benevolent, educational

or similar purposes, but not held upon a condition requiring return,

transfer or conveyance by reason of the dissolution, shall be transferred or

conveyed to one or more corporations, societies or organizations engaged

in activities in the Philippines substantially similar to those of the dissolving

corporation according to a plan of distribution adopted pursuant to this

Chapter;

4. Assets other than those mentioned in the preceding paragraphs, if any,

shall be distributed in accordance with the provisions of the articles of

incorporation or the by-laws, to the extent that the articles of

incorporation or the by-laws, determine the distributive rights of members,

or any class or classes of members, or provide for distribution; and

5. In any other case, assets may be distributed to such persons, societies,

organizations or corporations, whether or not organized for profit, as may

be specified in a plan of distribution adopted pursuant to this Chapter. (n)

Sec. 95. Plan of distribution of assets. - A plan providing for the distribution

of assets, not inconsistent with the provisions of this Title, may be adopted

by a non-stock corporation in the process of dissolution in the following

manner:

The board of trustees shall, by majority vote, adopt a resolution

recommending a plan of distribution and directing the submission thereof

to a vote at a regular or special meeting of members having voting rights.Written notice setting forth the proposed plan of distribution or a summary

thereof and the date, time and place of such meeting shall be given to each

member entitled to vote, within the time and in the manner provided in

this Code for the giving of notice of meetings to members. Such plan of

distribution shall be adopted upon approval of at least two-thirds (2/3) of

the members having voting rights present or represented by proxy at such

meeting. (n)

TITLE XII CLOSE CORPORATIONS

Sec. 96. Definition and applicability of Title. - A close corporation, within

the meaning of this Code, is one whose articles of incorporation provide

that: (1) All the corporation's issued stock of all classes, exclusive of

treasury shares, shall be held of record by not more than a specified

number of persons, not exceeding twenty (20); (2) all the issued stock of all

classes shall be subject to one or more specified restrictions on transfer

permitted by this Title; and (3) The corporation shall not list in any stock

exchange or make any public offering of any of its stock of any class.

Notwithstanding the foregoing, a corporation shall not be deemed a close

corporation when at least two-thirds (2/3) of its voting stock or voting

rights is owned or controlled by another corporation which is not a close

corporation within the meaning of this Code.

Any corporation may be incorporated as a close corporation, except mining

or oil companies, stock exchanges, banks, insurance companies, public

utilities, educational institutions and corporations declared to be vested

with public interest in accordance with the provisions of this Code.

The provisions of this Title shall primarily govern close corporations:

Provided, That the provisions of other Titles of this Code shall apply

suppletorily except insofar as this Title otherwise provides.



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Sec. 97. Articles of incorporation. - The articles of incorporation of a close

corporation may provide:

1. For a classification of shares or rights and the qualifications for owning or

holding the same and restrictions on their transfers as may be stated

therein, subject to the provisions of the following section;

2. For a classification of directors into one or more classes, each of whommay be voted for and elected solely by a particular class of stock; and

3. For a greater quorum or voting requirements in meetings of stockholders

or directors than those provided in this Code.

The articles of incorporation of a close corporation may provide that the

business of the corporation shall be managed by the stockholders of the

corporation rather than by a board of directors. So long as this provision

continues in effect:

1. No meeting of stockholders need be called to elect directors;

2. Unless the context clearly requires otherwise, the stockholders of the

corporation shall be deemed to be directors for the purpose of applying the

provisions of this Code; and

3. The stockholders of the corporation shall be subject to all liabilities of

directors.

The articles of incorporation may likewise provide that all officers or

employees or that specified officers or employees shall be elected or

appointed by the stockholders, instead of by the board of directors.

Sec. 98. Validity of restrictions on transfer of shares. - Restrictions on the

right to transfer shares must appear in the articles of incorporation and in

the by-laws as well as in the certificate of stock; otherwise, the same shallnot be binding on any purchaser thereof in good faith. Said restrictions

shall not be more onerous than granting the existing stockholders or the

corporation the option to purchase the shares of the transferring

stockholder with such reasonable terms, conditions or period stated

therein. If upon the expiration of said period, the existing stockholders or

the corporation fails to exercise the option to purchase, the transferring

stockholder may sell his shares to any third person.

Sec. 99. Effects of issuance or transfer of stock in breach of qualifying

conditions. -

1. If stock of a close corporation is issued or transferred to any person who

is not entitled under any provision of the articles of incorporation to be a

holder of record of its stock, and if the certificate for such stock

conspicuously shows the qualifications of the persons entitled to be

holders of record thereof, such person is conclusively presumed to have

notice of the fact of his ineligibility to be a stockholder.

2. If the articles of incorporation of a close corporation states the numberof persons, not exceeding twenty (20), who are entitled to be holders of

record of its stock, and if the certificate for such stock conspicuously states

such number, and if the issuance or transfer of stock to any person would

cause the stock to be held by more than such number of persons, the

person to whom such stock is issued or transferred is conclusively

presumed to have notice of this fact.

3. If a stock certificate of any close corporation conspicuously shows a

restriction on transfer of stock of the corporation, the transferee of the

stock is conclusively presumed to have notice of the fact that he has

acquired stock in violation of the restriction, if such acquisition violates the

restriction.

4. Whenever any person to whom stock of a close corporation has been

issued or transferred has, or is conclusively presumed under this section to

have, notice either (a) that he is a person not eligible to be a holder of stock

of the corporation, or (b) that transfer of stock to him would cause the

stock of the corporation to be held by more than the number of persons

permitted by its articles of incorporation to hold stock of the corporation,

or (c) that the transfer of stock is in violation of a restriction on transfer of

stock, the corporation may, at its option, refuse to register the transfer of

stock in the name of the transferee.

5. The provisions of subsection (4) shall not applicable if the transfer of

stock, though contrary to subsections (1), (2) of (3), has been consented to

by all the stockholders of the close corporation, or if the close corporation

has amended its articles of incorporation in accordance with this Title.

6. The term "transfer", as used in this section, is not limited to a transfer for

value.

7. The provisions of this section shall not impair any right which the

transferee may have to rescind the transfer or to recover under any

applicable warranty, express or implied.



G R A C I E |

Sec. 100. Agreements by stockholders. -

1. Agreements by and among stockholders executed before the formation

and organization of a close corporation, signed by all stockholders, shall

survive the incorporation of such corporation and shall continue to be valid

and binding between and among such stockholders, if such be their intent,

to the extent that such agreements are not inconsistent with the articles ofincorporation, irrespective of where the provisions of such agreements are

contained, except those required by this Title to be embodied in said

articles of incorporation.

2. An agreement between two or more stockholders, if in writing and

signed by the parties thereto, may provide that in exercising any voting

rights, the shares held by them shall be voted as therein provided, or as

they may agree, or as determined in accordance with a procedure agreed

upon by them.

3. No provision in any written agreement signed by the stockholders,

relating to any phase of the corporate affairs, shall be invalidated as

between the parties on the ground that its effect is to make them partners

among themselves.

4. A written agreement among some or all of the stockholders in a close

corporation shall not be invalidated on the ground that it so relates to the

conduct of the business and affairs of the corporation as to restrict or

interfere with the discretion or powers of the board of directors: Provided,

That such agreement shall impose on the stockholders who are parties

thereto the liabilities for managerial acts imposed by this Code on

directors.

5. To the extent that the stockholders are actively engaged in themanagement or operation of the business and affairs of a close

corporation, the stockholders shall be held to strict fiduciary duties to each

other and among themselves. Said stockholders shall be personally liable

for corporate torts unless the corporation has obtained reasonably

adequate liability insurance.

Sec. 101. When board meeting is unnecessary or improperly held. - Unless

the by-laws provide otherwise, any action by the directors of a close

corporation without a meeting shall nevertheless be deemed valid if:

1. Before or after such action is taken, written consent thereto is signed by

all the directors; or

2. All the stockholders have actual or implied knowledge of the action and

make no prompt objection thereto in writing; or

3. The directors are accustomed to take informal action with the express or

implied acquiescence of all the stockholders; or

4. All the directors have express or implied knowledge of the action inquestion and none of them makes prompt objection thereto in writing.

If a director's meeting is held without proper call or notice, an action taken

therein within the corporate powers is deemed ratified by a director who

failed to attend, unless he promptly files his written objection with the

secretary of the corporation after having knowledge thereof.

Sec. 102. Pre-emptive right in close corporations. - The pre-emptive right of

stockholders in close corporations shall extend to all stock to be issued,

including reissuance of treasury shares, whether for money, property or

personal services, or in payment of corporate debts, unless the articles of

incorporation provide otherwise.

Sec. 103. Amendment of articles of incorporation. - Any amendment to the

articles of incorporation which seeks to delete or remove any provision

required by this Title to be contained in the articles of incorporation or to

reduce a quorum or voting requirement stated in said articles of

incorporation shall not be valid or effective unless approved by the

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

whether with or without voting rights, or of such greater proportion of

shares as may be specifically provided in the articles of incorporation for

amending, deleting or removing any of the aforesaid provisions, at a

meeting duly called for the purpose.

Sec. 104. Deadlocks. - Notwithstanding any contrary provision in the

articles of incorporation or by-laws or agreement of stockholders of a close

corporation, if the directors or stockholders are so divided respecting the

management of the corporation's business and affairs that the votes

required for any corporate action cannot be obtained, with the

consequence that the business and affairs of the corporation can no longer

be conducted to the advantage of the stockholders generally, the Securities

and Exchange Commission, upon written petition by any stockholder, shall

have the power to arbitrate the dispute. In the exercise of such power, the

Commission shall have authority to make such order as it deems

appropriate, including an order: (1) canceling or altering any provision



G R A C I E |

contained in the articles of incorporation, by-laws, or any stockholder's

agreement; (2) canceling, altering or enjoining any resolution or act of the

corporation or its board of directors, stockholders, or officers; (3) directing

or prohibiting any act of the corporation or its board of directors,

stockholders, officers, or other persons party to the action; (4) requiring

the purchase at their fair value of shares of any stockholder, either by the

corporation regardless of the availability of unrestricted retained earningsin its books, or by the other stockholders; (5) appointing a provisional

director; (6) dissolving the corporation; or (7) granting such other relief as

the circumstances may warrant.

A provisional director shall be an impartial person who is neither a

stockholder nor a creditor of the corporation or of any subsidiary or

affiliate of the corporation, and whose further qualifications, if any, may be

determined by the Commission. A provisional director is not a receiver of

the corporation and does not have the title and powers of a custodian or

receiver. A provisional director shall have all the rights and powers of a duly

elected director of the corporation, including the right to notice of and to

vote at meetings of directors, until such time as he shall be removed by

order of the Commission or by all the stockholders. His compensation shall

be determined by agreement between him and the corporation subject to

approval of the Commission, which may fix his compensation in the

absence of agreement or in the event of disagreement between the

provisional director and the corporation.

Sec. 105. Withdrawal of stockholder or dissolution of corporation. - In

addition and without prejudice to other rights and remedies available to a

stockholder under this Title, any stockholder of a close corporation may,

for any reason, compel the said corporation to purchase his shares at their

fair value, which shall not be less than their par or issued value, when thecorporation has sufficient assets in its books to cover its debts and liabilities

exclusive of capital stock: Provided, That any stockholder of a close

corporation may, by written petition to the Securities and Exchange

Commission, compel the dissolution of such corporation whenever any of

acts of the directors, officers or those in control of the corporation is illegal,

or fraudulent, or dishonest, or oppressive or unfairly prejudicial to the

corporation or any stockholder, or whenever corporate assets are being

misapplied or wasted.

TITLE XIII SPECIAL CORPORATIONS

Chapter I - Educational Corporations

Sec. 106. Incorporation. - Educational corporations shall be governed by

special laws and by the general provisions of this Code. (n)

Sec. 107. Pre-requisites to incorporation. - Except upon favorable

recommendation of the Ministry of Education and Culture, the Securities

and Exchange Commission shall not accept or approve the articles of

incorporation and by-laws of any educational institution. (168a)

Sec. 108. Board of trustees. - Trustees of educational institutions organized

as non-stock corporations shall not be less than five (5) nor more than

fifteen (15): Provided, however, That the number of trustees shall be in

multiples of five (5).

Unless otherwise provided in the articles of incorporation on the by-laws,

the board of trustees of incorporated schools, colleges, or other institutions

of learning shall, as soon as organized, so classify themselves that the term

of office of one-fifth (1/5) of their number shall expire every year. Trustees

thereafter elected to fill vacancies, occurring before the expiration of a

particular term, shall hold office only for the unexpired period. Trustees

elected thereafter to fill vacancies caused by expiration of term shall hold

office for five (5) years. A majority of the trustees shall constitute a quorum

for the transaction of business. The powers and authority of trustees shall

be defined in the by-laws.

For institutions organized as stock corporations, the number and term of

directors shall be governed by the provisions on stock corporations. (169a)

Chapter II - RELIGIOUS CORPORATIONS

Sec. 109. Classes of religious corporations. - Religious corporations may be

incorporated by one or more persons. Such corporations may be classified

into corporations sole and religious societies.

Religious corporations shall be governed by this Chapter and by the general

provisions on non-stock corporations insofar as they may be applicable. (n)



G R A C I E |

Sec. 110. Corporation sole. - For the purpose of administering and

managing, as trustee, the affairs, property and temporalities of any

religious denomination, sect or church, a corporation sole may be formed

by the chief archbishop, bishop, priest, minister, rabbi or other presiding

elder of such religious denomination, sect or church. (154a)

Sec. 111. Articles of incorporation. - In order to become a corporation sole,the chief archbishop, bishop, priest, minister, rabbi or presiding elder of

any religious denomination, sect or church must file with the Securities and

Exchange Commission articles of incorporation setting forth the following:

1. That he is the chief archbishop, bishop, priest, minister, rabbi or

presiding elder of his religious denomination, sect or church and that he

desires to become a corporation sole;

2. That the rules, regulations and discipline of his religious denomination,

sect or church are not inconsistent with his becoming a corporation sole

and do not forbid it;

3. That as such chief archbishop, bishop, priest, minister, rabbi or presiding

elder, he is charged with the administration of the temporalities and the

management of the affairs, estate and properties of his religious

denomination, sect or church within his territorial jurisdiction, describing

such territorial jurisdiction;

4. The manner in which any vacancy occurring in the office of chief

archbishop, bishop, priest, minister, rabbi of presiding elder is required to

be filled, according to the rules, regulations or discipline of the religious

denomination, sect or church to which he belongs; and

5. The place where the principal office of the corporation sole is to beestablished and located, which place must be within the Philippines.

The articles of incorporation may include any other provision not contrary

to law for the regulation of the affairs of the corporation. (n)

Sec. 112. Submission of the articles of incorporation. - The articles of

incorporation must be verified, before filing, by affidavit or affirmation of

the chief archbishop, bishop, priest, minister, rabbi or presiding elder, as

the case may be, and accompanied by a copy of the commission, certificate

of election or letter of appointment of such chief archbishop, bishop,

priest, minister, rabbi or presiding elder, duly certified to be correct by any

notary public.

From and after the filing with the Securities and Exchange Commission of

the said articles of incorporation, verified by affidavit or affirmation, and

accompanied by the documents mentioned in the preceding paragraph,

such chief archbishop, bishop, priest, minister, rabbi or presiding elder shall

become a corporation sole and all temporalities, estate and properties of

the religious denomination, sect or church theretofore administered ormanaged by him as such chief archbishop, bishop, priest, minister, rabbi or

presiding elder shall be held in trust by him as a corporation sole, for the

use, purpose, behalf and sole benefit of his religious denomination, sect or

church, including hospitals, schools, colleges, orphan asylums, parsonages

and cemeteries thereof. (n)

Sec. 113. Acquisition and alienation of property. - Any corporation sole may

purchase and hold real estate and personal property for its church,

charitable, benevolent or educational purposes, and may receive bequests

or gifts for such purposes. Such corporation may sell or mortgage real

property held by it by obtaining an order for that purpose from the Court of

First Instance of the province where the property is situated upon proof

made to the satisfaction of the court that notice of the application for leave

to sell or mortgage has been given by publication or otherwise in such

manner and for such time as said court may have directed, and that it is to

the interest of the corporation that leave to sell or mortgage should be

granted. The application for leave to sell or mortgage must be made by

petition, duly verified, by the chief archbishop, bishop, priest, minister,

rabbi or presiding elder acting as corporation sole, and may be opposed by

any member of the religious denomination, sect or church represented by

the corporation sole: Provided, That in cases where the rules, regulations

and discipline of the religious denomination, sect or church, religious

society or order concerned represented by such corporation sole regulatethe method of acquiring, holding, selling and mortgaging real estate and

personal property, such rules, regulations and discipline shall control, and

the intervention of the courts shall not be necessary. (159a)

Sec. 114. Filling of vacancies. - The successors in office of any chief

archbishop, bishop, priest, minister, rabbi or presiding elder in a

corporation sole shall become the corporation sole on their accession to

office and shall be permitted to transact business as such on the filing with

the Securities and Exchange Commission of a copy of their commission,

certificate of election, or letters of appointment, duly certified by any

notary public.



G R A C I E |

During any vacancy in the office of chief archbishop, bishop, priest,

minister, rabbi or presiding elder of any religious denomination, sect or

church incorporated as a corporation sole, the person or persons

authorized and empowered by the rules, regulations or discipline of the

religious denomination, sect or church represented by the corporation sole

to administer the temporalities and manage the affairs, estate andproperties of the corporation sole during the vacancy shall exercise all the

powers and authority of the corporation sole during such vacancy. (158a)

Sec. 115. Dissolution. - A corporation sole may be dissolved and its affairs

settled voluntarily by submitting to the Securities and Exchange

Commission a verified declaration of dissolution.

The declaration of dissolution shall set forth:

1. The name of the corporation;

2. The reason for dissolution and winding up;

3. The authorization for the dissolution of the corporation by the particular

religious denomination, sect or church;

4. The names and addresses of the persons who are to supervise the

winding up of the affairs of the corporation.

Upon approval of such declaration of dissolution by the Securities and

Exchange Commission, the corporation shall cease to carry on its

operations except for the purpose of winding up its affairs. (n)

Sec. 116. Religious societies. - Any religious society or religious order, or

any diocese, synod, or district organization of any religious denomination,sect or church, unless forbidden by the constitution, rules, regulations, or

discipline of the religious denomination, sect or church of which it is a part,

or by competent authority, may, upon written consent and/or by an

affirmative vote at a meeting called for the purpose of at least two-thirds

(2/3) of its membership, incorporate for the administration of its

temporalities or for the management of its affairs, properties and estate by

filing with the Securities and Exchange Commission, articles of

incorporation verified by the affidavit of the presiding elder, secretary, or

clerk or other member of such religious society or religious order, or

diocese, synod, or district organization of the religious denomination, sect

or church, setting forth the following:

1. That the religious society or religious order, or diocese, synod, or district

organization is a religious organization of a religious denomination, sect or

church;

2. That at least two-thirds (2/3) of its membership have given their written

consent or have voted to incorporate, at a duly convened meeting of the

body;

3. That the incorporation of the religious society or religious order, or

diocese, synod, or district organization desiring to incorporate is not

forbidden by competent authority or by the constitution, rules, regulations

or discipline of the religious denomination, sect, or church of which it forms

a part;

4. That the religious society or religious order, or diocese, synod, or district

organization desires to incorporate for the administration of its affairs,

properties and estate;

5. The place where the principal office of the corporation is to be

established and located, which place must be within the Philippines; and

6. The names, nationalities, and residences of the trustees elected by the

religious society or religious order, or the diocese, synod, or district

organization to serve for the first year or such other period as may be

prescribed by the laws of the religious society or religious order, or of the

diocese, synod, or district organization, the board of trustees to be not less

than five (5) nor more than fifteen (15). (160a)

TITLE XIV DISSOLUTION

Sec. 117. Methods of dissolution. - A corporation formed or organized

under the provisions of this Code may be dissolved voluntarily or

involuntarily. (n)

Sec. 118. Voluntary dissolution where no creditors are affected. - If

dissolution of a corporation does not prejudice the rights of any creditor

having a claim against it, the dissolution may be effected by majority vote

of the board of directors or trustees, and by a resolution duly adopted by

the affirmative vote of the stockholders owning at least two-thirds (2/3) of

the outstanding capital stock or of at least two-thirds (2/3) of the members

of a meeting to be held upon call of the directors or trustees after



G R A C I E |

publication of the notice of time, place and object of the meeting for three

(3) consecutive weeks in a newspaper published in the place where the

principal office of said corporation is located; and if no newspaper is

published in such place, then in a newspaper of general circulation in the

Philippines, after sending such notice to each stockholder or member

either by registered mail or by personal delivery at least thirty (30) days

prior to said meeting. A copy of the resolution authorizing the dissolutionshall be certified by a majority of the board of directors or trustees and

countersigned by the secretary of the corporation. The Securities and

Exchange Commission shall thereupon issue the certificate of dissolution.

(62a)

Sec. 119. Voluntary dissolution where creditors are affected. - Where the

dissolution of a corporation may prejudice the rights of any creditor, the

petition for dissolution shall be filed with the Securities and Exchange

Commission. The petition shall be signed by a majority of its board of

directors or trustees or other officers having the management of its affairs,

verified by its president or secretary or one of its directors or trustees, and

shall set forth all claims and demands against it, and that its dissolution was

resolved upon by the affirmative vote of the stockholders representing at

least two-thirds (2/3) of the outstanding capital stock or by at least two-

thirds (2/3) of the members at a meeting of its stockholders or members

called for that purpose.

If the petition is sufficient in form and substance, the Commission shall, by

an order reciting the purpose of the petition, fix a date on or before which

objections thereto may be filed by any person, which date shall not be less

than thirty (30) days nor more than sixty (60) days after the entry of the

order. Before such date, a copy of the order shall be published at least once

a week for three (3) consecutive weeks in a newspaper of generalcirculation published in the municipality or city where the principal office of

the corporation is situated, or if there be no such newspaper, then in a

newspaper of general circulation in the Philippines, and a similar copy shall

be posted for three (3) consecutive weeks in three (3) public places in such

municipality or city.

Upon five (5) day's notice, given after the date on which the right to file

objections as fixed in the order has expired, the Commission shall proceed

to hear the petition and try any issue made by the objections filed; and if

no such objection is sufficient, and the material allegations of the petition

are true, it shall render judgment dissolving the corporation and directing

such disposition of its assets as justice requires, and may appoint a receiver

to collect such assets and pay the debts of the corporation. (Rule 104, RCa)

Sec. 120. Dissolution by shortening corporate term. - A voluntary

dissolution may be effected by amending the articles of incorporation to

shorten the corporate term pursuant to the provisions of this Code. A copy

of the amended articles of incorporation shall be submitted to theSecurities and Exchange Commission in accordance with this Code. Upon

approval of the amended articles of incorporation of the expiration of the

shortened term, as the case may be, the corporation shall be deemed

dissolved without any further proceedings, subject to the provisions of this

Code on liquidation. (n)

Sec. 121. Involuntary dissolution. - A corporation may be dissolved by the

Securities and Exchange Commission upon filing of a verified complaint and

after proper notice and hearing on the grounds provided by existing laws,

rules and regulations. (n)

Sec. 122. Corporate liquidation. - Every corporation whose charter expires

by its own limitation or is annulled by forfeiture or otherwise, or whose

corporate existence for other purposes is terminated in any other manner,

shall nevertheless be continued as a body corporate for three (3) years

after the time when it would have been so dissolved, for the purpose of

prosecuting and defending suits by or against it and enabling it to settle

and close its affairs, to dispose of and convey its property and to distribute

its assets, but not for the purpose of continuing the business for which it

was established.

At any time during said three (3) years, the corporation is authorized and

empowered to convey all of its property to trustees for the benefit ofstockholders, members, creditors, and other persons in interest. From and

after any such conveyance by the corporation of its property in trust for the

benefit of its stockholders, members, creditors and others in interest, all

interest which the corporation had in the property terminates, the legal

interest vests in the trustees, and the beneficial interest in the

stockholders, members, creditors or other persons in interest.

Upon the winding up of the corporate affairs, any asset distributable to any

creditor or stockholder or member who is unknown or cannot be found

shall be escheated to the city or municipality where such assets are

located.



G R A C I E |

Except by decrease of capital stock and as otherwise allowed by this Code,

no corporation shall distribute any of its assets or property except upon

lawful dissolution and after payment of all its debts and liabilities. (77a,

89a, 16a)

TITLE XV FOREIGN CORPORATIONS

Sec. 123. Definition and rights of foreign corporations. - For the purposes of

this Code, a foreign corporation is one formed, organized or existing under

any laws other than those of the Philippines and whose laws allow Filipino

citizens and corporations to do business in its own country or state. It shall

have the right to transact business in the Philippines after it shall have

obtained a license to transact business in this country in accordance with

this Code and a certificate of authority from the appropriate government

agency. (n)

Sec. 124. Application to existing foreign corporations. - Every foreign

corporation which on the date of the effectivity of this Code is authorized

to do business in the Philippines under a license therefore issued to it, shall

continue to have such authority under the terms and condition of its

license, subject to the provisions of this Code and other special laws. (n)

Sec. 125. Application for a license. - A foreign corporation applying for a

license to transact business in the Philippines shall submit to the Securities

and Exchange Commission a copy of its articles of incorporation and by-

laws, certified in accordance with law, and their translation to an official

language of the Philippines, if necessary. The application shall be under

oath and, unless already stated in its articles of incorporation, shall

specifically set forth the following:

1. The date and term of incorporation;

2. 2. The address, including the street number, of the principal office of the

corporation in the country or state of incorporation;

3. The name and address of its resident agent authorized to accept

summons and process in all legal proceedings and, pending the

establishment of a local office, all notices affecting the corporation;

4. The place in the Philippines where the corporation intends to operate;

5. The specific purpose or purposes which the corporation intends to

pursue in the transaction of its business in the Philippines: Provided, That

said purpose or purposes are those specifically stated in the certificate of

authority issued by the appropriate government agency;

6. The names and addresses of the present directors and officers of thecorporation;

7. A statement of its authorized capital stock and the aggregate number of

shares which the corporation has authority to issue, itemized by classes,

par value of shares, shares without par value, and series, if any;

8. A statement of its outstanding capital stock and the aggregate number of

shares which the corporation has issued, itemized by classes, par value of

shares, shares without par value, and series, if any;

9. A statement of the amount actually paid in; and

10. Such additional information as may be necessary or appropriate in

order to enable the Securities and Exchange Commission to determine

whether such corporation is entitled to a license to transact business in the

Philippines, and to determine and assess the fees payable.

Attached to the application for license shall be a duly executed certificate

under oath by the authorized official or officials of the jurisdiction of its

incorporation, attesting to the fact that the laws of the country or state of

the applicant allow Filipino citizens and corporations to do business

therein, and that the applicant is an existing corporation in good standing.

If such certificate is in a foreign language, a translation thereof in Englishunder oath of the translator shall be attached thereto.

The application for a license to transact business in the Philippines shall

likewise be accompanied by a statement under oath of the president or any

other person authorized by the corporation, showing to the satisfaction of

the Securities and Exchange Commission and other governmental agency in

the proper cases that the applicant is solvent and in sound financial

condition, and setting forth the assets and liabilities of the corporation as

of the date not exceeding one (1) year immediately prior to the filing of the

application.



G R A C I E |

Foreign banking, financial and insurance corporations shall, in addition to

the above requirements, comply with the provisions of existing laws

applicable to them. In the case of all other foreign corporations, no

application for license to transact business in the Philippines shall be

accepted by the Securities and Exchange Commission without previous

authority from the appropriate government agency, whenever required by

law. (68a)

Sec. 126. Issuance of a license. - If the Securities and Exchange Commission

is satisfied that the applicant has complied with all the requirements of this

Code and other special laws, rules and regulations, the Commission shall

issue a license to the applicant to transact business in the Philippines for

the purpose or purposes specified in such license. Upon issuance of the

license, such foreign corporation may commence to transact business in

the Philippines and continue to do so for as long as it retains its authority to

act as a corporation under the laws of the country or state of its

incorporation, unless such license is sooner surrendered, revoked,

suspended or annulled in accordance with this Code or other special laws.

Within sixty (60) days after the issuance of the license to transact business

in the Philippines, the license, except foreign banking or insurance

corporation, shall deposit with the Securities and Exchange Commission for

the benefit of present and future creditors of the licensee in the

Philippines, securities satisfactory to the Securities and Exchange

Commission, consisting of bonds or other evidence of indebtedness of the

Government of the Philippines, its political subdivisions and

instrumentalities, or of government-owned or controlled corporations and

entities, shares of stock in "registered enterprises" as this term is defined in

Republic Act No. 5186, shares of stock in domestic corporations registered

in the stock exchange, or shares of stock in domestic insurance companiesand banks, or any combination of these kinds of securities, with an actual

market value of at least one hundred thousand (P100,000.) pesos;

Provided, however, That within six (6) months after each fiscal year of the

licensee, the Securities and Exchange Commission shall require the licensee

to deposit additional securities equivalent in actual market value to two

(2%) percent of the amount by which the licensee's gross income for that

fiscal year exceeds five million (P5,000,000.00) pesos. The Securities and

Exchange Commission shall also require deposit of additional securities if

the actual market value of the securities on deposit has decreased by at

least ten (10%) percent of their actual market value at the time they were

deposited. The Securities and Exchange Commission may at its discretion

release part of the additional securities deposited with it if the gross

income of the licensee has decreased, or if the actual market value of the

total securities on deposit has increased, by more than ten (10%) percent

of the actual market value of the securities at the time they were

deposited. The Securities and Exchange Commission may, from time to

time, allow the licensee to substitute other securities for those already on

deposit as long as the licensee is solvent. Such licensee shall be entitled tocollect the interest or dividends on the securities deposited. In the event

the licensee ceases to do business in the Philippines, the securities

deposited as aforesaid shall be returned, upon the licensee's application

therefor and upon proof to the satisfaction of the Securities and Exchange

Commission that the licensee has no liability to Philippine residents,

including the Government of the Republic of the Philippines. (n)

Sec. 127. Who may be a resident agent. - A resident agent may be either an

individual residing in the Philippines or a domestic corporation lawfully

transacting business in the Philippines: Provided, That in the case of an

individual, he must be of good moral character and of sound financial

standing. (n)

Sec. 128. Resident agent; service of process. - The Securities and Exchange

Commission shall require as a condition precedent to the issuance of the

license to transact business in the Philippines by any foreign corporation

that such corporation file with the Securities and Exchange Commission a

written power of attorney designating some person who must be a

resident of the Philippines, on whom any summons and other legal

processes may be served in all actions or other legal proceedings against

such corporation, and consenting that service upon such resident agent

shall be admitted and held as valid as if served upon the duly authorized

officers of the foreign corporation at its home office. Any such foreigncorporation shall likewise execute and file with the Securities and Exchange

Commission an agreement or stipulation, executed by the proper

authorities of said corporation, in form and substance as follows:

"The (name of foreign corporation) does hereby stipulate and agree, in

consideration of its being granted by the Securities and Exchange

Commission a license to transact business in the Philippines, that if at any

time said corporation shall cease to transact business in the Philippines, or

shall be without any resident agent in the Philippines on whom any

summons or other legal processes may be served, then in any action or

proceeding arising out of any business or transaction which occurred in the



G R A C I E |

Philippines, service of any summons or other legal process may be made

upon the Securities and Exchange Commission and that such service shall

have the same force and effect as if made upon the duly-authorized

officers of the corporation at its home office."

Whenever such service of summons or other process shall be made upon

the Securities and Exchange Commission, the Commission shall, within ten(10) days thereafter, transmit by mail a copy of such summons or other

legal process to the corporation at its home or principal office. The sending

of such copy by the Commission shall be necessary part of and shall

complete such service. All expenses incurred by the Commission for such

service shall be paid in advance by the party at whose instance the service

is made.

In case of a change of address of the resident agent, it shall be his or its

duty to immediately notify in writing the Securities and Exchange

Commission of the new address. (72a; and n)

Sec. 129. Law applicable. - Any foreign corporation lawfully doing business

in the Philippines shall be bound by all laws, rules and regulations

applicable to domestic corporations of the same class, except such only as

provide for the creation, formation, organization or dissolution of

corporations or those which fix the relations, liabilities, responsibilities, or

duties of stockholders, members, or officers of corporations to each other

or to the corporation. (73a)

Sec. 130. Amendments to articles of incorporation or by-laws of foreign

corporations. - Whenever the articles of incorporation or by-laws of a

foreign corporation authorized to transact business in the Philippines are

amended, such foreign corporation shall, within sixty (60) days after theamendment becomes effective, file with the Securities and Exchange

Commission, and in the proper cases with the appropriate government

agency, a duly authenticated copy of the articles of incorporation or by-

laws, as amended, indicating clearly in capital letters or by underscoring

the change or changes made, duly certified by the authorized official or

officials of the country or state of incorporation. The filing thereof shall not

of itself enlarge or alter the purpose or purposes for which such

corporation is authorized to transact business in the Philippines. (n)

Sec. 131. Amended license. - A foreign corporation authorized to transact

business in the Philippines shall obtain an amended license in the event it

changes its corporate name, or desires to pursue in the Philippines other or

additional purposes, by submitting an application therefor to the Securities

and Exchange Commission, favorably endorsed by the appropriate

government agency in the proper cases. (n)

Sec. 132. Merger or consolidation involving a foreign corporation licensed

in the Philippines. - One or more foreign corporations authorized totransact business in the Philippines may merge or consolidate with any

domestic corporation or corporations if such is permitted under Philippine

laws and by the law of its incorporation: Provided, That the requirements

on merger or consolidation as provided in this Code are followed.

Whenever a foreign corporation authorized to transact business in the

Philippines shall be a party to a merger or consolidation in its home country

or state as permitted by the law of its incorporation, such foreign

corporation shall, within sixty (60) days after such merger or consolidation

becomes effective, file with the Securities and Exchange Commission, and

in proper cases with the appropriate government agency, a copy of the

articles of merger or consolidation duly authenticated by the proper official

or officials of the country or state under the laws of which merger or

consolidation was effected: Provided, however, That if the absorbed

corporation is the foreign corporation doing business in the Philippines, the

latter shall at the same time file a petition for withdrawal of it license in

accordance with this Title. (n)

Sec. 133. Doing business without a license. - No foreign corporation

transacting business in the Philippines without a license, or its successors or

assigns, shall be permitted to maintain or intervene in any action, suit or

proceeding in any court or administrative agency of the Philippines; but

such corporation may be sued or proceeded against before Philippinecourts or administrative tribunals on any valid cause of action recognized

under Philippine laws. (69a)

Sec. 134. Revocation of license. - Without prejudice to other grounds

provided by special laws, the license of a foreign corporation to transact

business in the Philippines may be revoked or suspended by the Securities

and Exchange Commission upon any of the following grounds:

1. Failure to file its annual report or pay any fees as required by this Code;



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2. Failure to appoint and maintain a resident agent in the Philippines as

required by this Title;

3. Failure, after change of its resident agent or of his address, to submit to

the Securities and Exchange Commission a statement of such change as

required by this Title;

4. Failure to submit to the Securities and Exchange Commission an

authenticated copy of any amendment to its articles of incorporation or by-

laws or of any articles of merger or consolidation within the time

prescribed by this Title;

5. A misrepresentation of any material matter in any application, report,

affidavit or other document submitted by such corporation pursuant to this

Title;

6. Failure to pay any and all taxes, imposts, assessments or penalties, if any,

lawfully due to the Philippine Government or any of its agencies or political

subdivisions;

7. Transacting business in the Philippines outside of the purpose or

purposes for which such corporation is authorized under its license;

8. Transacting business in the Philippines as agent of or acting for and in

behalf of any foreign corporation or entity not duly licensed to do business

in the Philippines; or

9. Any other ground as would render it unfit to transact business in the

Philippines. (n)

Sec. 135. Issuance of certificate of revocation. - Upon the revocation of any

such license to transact business in the Philippines, the Securities and

Exchange Commission shall issue a corresponding certificate of revocation,

furnishing a copy thereof to the appropriate government agency in the

proper cases.

The Securities and Exchange Commission shall also mail to the corporation

at its registered office in the Philippines a notice of such revocation

accompanied by a copy of the certificate of revocation. (n)

Sec. 136. Withdrawal of foreign corporations. - Subject to existing laws and

regulations, a foreign corporation licensed to transact business in the

Philippines may be allowed to withdraw from the Philippines by filing a

petition for withdrawal of license. No certificate of withdrawal shall be

issued by the Securities and Exchange Commission unless all the following

requirements are met;

1. All claims which have accrued in the Philippines have been paid,

compromised or settled;2. All taxes, imposts, assessments, and penalties, if any, lawfully due to the

Philippine Government or any of its agencies or political subdivisions have

been paid; and

3. The petition for withdrawal of license has been published once a week

for three (3) consecutive weeks in a newspaper of general circulation in the

Philippines.

TITLE XVI MISCELLANEOUS PROVISIONS

Sec. 137. Outstanding capital stock defined. - The term "outstanding capital

stock", as used in this Code, means the total shares of stock issued under

binding subscription agreements to subscribers or stockholders, whether or

not fully or partially paid, except treasury shares. (n)

Sec. 138. Designation of governing boards. - The provisions of specific

provisions of this Code to the contrary notwithstanding, non-stock or

special corporations may, through their articles of incorporation or their

by-laws, designate their governing boards by any name other than as board

of trustees. (n)

Sec. 139. Incorporation and other fees. - The Securities and Exchange

Commission is hereby authorized to collect and receive fees as authorizedby law or by rules and regulations promulgated by the Commission. (n)

Sec. 140. Stock ownership in certain corporations. - Pursuant to the duties

specified by Article XIV of the Constitution, the National Economic and

Development Authority shall, from time to time, make a determination of

whether the corporate vehicle has been used by any corporation or by

business or industry to frustrate the provisions thereof or of applicable

laws, and shall submit to the Batasang Pambansa, whenever deemed

necessary, a report of its findings, including recommendations for their

prevention or correction.



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Maximum limits may be set by the Batasang Pambansa for stockholdings in

corporations declared by it to be vested with a public interest pursuant to

the provisions of this section, belonging to individuals or groups of

individuals related to each other by consanguinity or affinity or by close

business interests, or whenever it is necessary to achieve national

objectives, prevent illegal monopolies or combinations in restraint or trade,

or to implement national economic policies declared in laws, rules andregulations designed to promote the general welfare and foster economic

development.

In recommending to the Batasang Pambansa corporations, business or

industries to be declared vested with a public interest and in formulating

proposals for limitations on stock ownership, the National Economic and

Development Authority shall consider the type and nature of the industry,

the size of the enterprise, the economies of scale, the geographic location,

the extent of Filipino ownership, the labor intensity of the activity, the

export potential, as well as other factors which are germane to the

realization and promotion of business and industry.

Sec. 141. Annual report or corporations. - Every corporation, domestic or

foreign, lawfully doing business in the Philippines shall submit to the

Securities and Exchange Commission an annual report of its operations,

together with a financial statement of its assets and liabilities, certified by

any independent certified public accountant in appropriate cases, covering

the preceding fiscal year and such other requirements as the Securities and

Exchange Commission may require. Such report shall be submitted within

such period as may be prescribed by the Securities and Exchange

Commission. (n)

Sec. 142. Confidential nature of examination results. - All interrogatoriespropounded by the Securities and Exchange Commission and the answers

thereto, as well as the results of any examination made by the Commission

or by any other official authorized by law to make an examination of the

operations, books and records of any corporation, shall be kept strictly

confidential, except insofar as the law may require the same to be made

public or where such interrogatories, answers or results are necessary to be

presented as evidence before any court. (n)

Sec. 143. Rule-making power of the Securities and Exchange Commission. -

The Securities and Exchange Commission shall have the power and

authority to implement the provisions of this Code, and to promulgate

rules and regulations reasonably necessary to enable it to perform its

duties hereunder, particularly in the prevention of fraud and abuses on the

part of the controlling stockholders, members, directors, trustees or

officers. (n)

Sec. 144. Violations of the Code. - Violations of any of the provisions of this

Code or its amendments not otherwise specifically penalized therein shallbe punished by a fine of not less than one thousand (P1,000.00) pesos but

not more than ten thousand (P10,000.00) pesos or by imprisonment for not

less than thirty (30) days but not more than five (5) years, or both, in the

discretion of the court. If the violation is committed by a corporation, the

same may, after notice and hearing, be dissolved in appropriate

proceedings before the Securities and Exchange Commission: Provided,

That such dissolution shall not preclude the institution of appropriate

action against the director, trustee or officer of the corporation responsible

for said violation: Provided, further, That nothing in this section shall be

construed to repeal the other causes for dissolution of a corporation

provided in this Code. (190 1/2 a)

Sec. 145. Amendment or repeal. - No right or remedy in favor of or against

any corporation, its stockholders, members, directors, trustees, or officers,

nor any liability incurred by any such corporation, stockholders, members,

directors, trustees, or officers, shall be removed or impaired either by the

subsequent dissolution of said corporation or by any subsequent

amendment or repeal of this Code or of any part thereof. (n)

Sec. 146. Repealing clause. - Except as expressly provided by this Code, all

laws or parts thereof inconsistent with any provision of this Code shall be

deemed repealed. (n)

Sec. 147. Separability of provisions. - Should any provision of this Code or

any part thereof be declared invalid or unconstitutional, the other

provisions, so far as they are separable, shall remain in force. (n)

Sec. 148. Applicability to existing corporations. - All corporations lawfully

existing and doing business in the Philippines on the date of the effectivity

of this Code and heretofore authorized, licensed or registered by the

Securities and Exchange Commission, shall be deemed to have been

authorized, licensed or registered under the provisions of this Code, subject

to the terms and conditions of its license, and shall be governed by the

provisions hereof: Provided, That if any such corporation is affected by the



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new requirements of this Code, said corporation shall, unless otherwise

herein provided, be given a period of not more than two (2) years from the

effectivity of this Code within which to comply with the same. (n)

Sec. 149. Effectivity. - This Code shall take effect immediately upon its

approval.

Approved: May 1, 1980



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REPUBLIC ACT NO. 8799 SECURITIES REGULATION CODE

CHAPTER I Title and Definitions

SECTION 1. Title. – This shall be known as “The Securities Regulation Code”.

SEC. 2. Declaration of State Policy. – The State shall establish a socially

conscious, free market that regulates itself, encourage the widest

participation of ownership in enterprises, enhance the democratization of

wealth, promote the development of the capital market, protect investors,

ensure full and fair disclosure about securities, minimize if not totally

eliminate insider trading and other fraudulent or manipulative devices and

practices which create distortions in the free market.

To achieve these ends, this Securities Regulation Code is hereby enacted.

SEC. 3. Definition of Terms. –

3.1. “Securities” are shares, participation or interests in a corporation or in

a commercial enterprise or profit-making venture and evidenced by a

certificate, contract, instrument, whether written or electronic in character.

It includes:

(a) Shares of stock, bonds, debentures, notes, evidences of indebtedness,

asset-backed securities;

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

sharing agreement, certificates of deposit for a future subscription;

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

(d) Derivatives like option and warrants;

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

certificates, voting trust certificates or similar instruments;

(f) Proprietary or non proprietary membership certificates incorporations;

and

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

Commission.

3.2 “Issuer” is the originator, maker, obligor, or creator of the security.

3.3 “Broker” is a person engaged in the business of buying and selling

securities for the account of others.

3.4 “Dealer” means any person who buys and se lls securities for his/her

own account in the ordinary course of business.

3.5. “Associated person of a broker or dealer” is an employee thereof who,

directly exercises control of supervisory authority, but does not include a

salesman, or an agent or a person whose functions are solely clerical or

ministerial.

3.6. “Clearing Agency” is any person who acts as intermediary in making

deliveries upon payment to effect settlement in securities transactions.

3.7. “Exchange” is an organized marketplace or facility that brings together

buyers and sellers and executes trades of securities and/or commodities.

3.8. “Insider” means: (a) the issuer; (b) a director or officer (or person

performing similar functions) of, or a person controlling the issuer; (c) a

person whose relationship or former relationship to the issuer gives or gave

him access to material information about the issuer or the security that is

not generally available to the public; (d) a government employee, or

director, or officer of an exchange, clearing agency and/or self-regulatory

organization who has access to material information about an issuer or a

security that is not generally available to the public; or (e) a person who

learns such information by a communication from any of the foregoing

insiders.

3.9. “Pre-Need Plans” are contracts which provide for the performance offuture services or the payment of future monetary considerations at the

time of actual need, for which planholders pay in cash or installment at

stated prices, with or without interest or insurance coverage and includes

life, pension, education, interment, and other plans which the Commission

may from time to time approve.

3.10. “Promoter” is a person who, acting alone or with others, takes

initiative in founding and organizing the business or enterprise of the issuer

and receives consideration therefor.



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3.11. “Prospectus” is the document made by or on behalf of an issuer,

underwriter or dealer to sell or offer securities for sale to the public

through a registration statement filed with the Commission.

3.12. “Registration statement” is the application for the registration of

securities required to be filed with the Commission.

3.13. “Salesman” is a natural person, employed as such or as an agent, by a

dealer, issuer or broker to buy and sell securities.

3.14. “Uncertificated security” is a security evidenced by electronic or

similar records.

3.15. “Underwriter” is a person who guarantees on a firm commitment

and/or declared best effort basis the distribution and sale of securities of

any kind by another company.

CHAPTER II Securities and Exchange Commission

SEC. 4. Administrative Agency. -

4.1. This Code shall be administered by the Securities and Exchange

Commission (hereafter the “Commission”) as a collegial body, composed of

a Chairperson and four (4) Commissioners, appointed by the President for a

term of seven (7) years each and who shall serve as such until their

successor shall have been appointed and qualified. A Commissioner

appointed to fill a vacancy occurring prior to the expiration of the term for

which his/her predecessor was appointed, shall serve only for the

unexpired portion of such term. The incumbent Chairperson and

Commissioners at the effectivity of this Code, shall serve the unexpiredportion of their terms under Presidential Decree No. 902-A. Unless the

context indicates otherwise, the term “Commissioner” includes the

Chairperson.

4.2. The Commissioners must be natural-born citizens of the Philippines, at

least forty (40) years of age for the Chairperson and at least thirty-five (35)

years of age for the Commissioners, of good moral character, of

unquestionable integrity, of known probity and patriotism, and with

recognized competence in social and economic disciplines: Provided, That

the majority of Commissioners, including the Chairperson, shall be

members of the Philippine Bar.

4.3. The Chairperson is the chief executive officer of the Commission. The

Chairperson shall execute and administer the policies, decisions, orders and

resolutions approved by the Commission and shall have the general

executive direction and supervision of the work and operation of the

Commission and of its members, bodies, boards, offices, personnel and all

its administrative business.

4.4. The salary of the Chairperson and the Commissioners shall be fixed by

the President of the Philippines based on an objective classification system,

at a sum comparable to the members of the Monetary Board and

commensurate to the importance and responsibilities attached to the

position.

4.5. The Commission shall hold meetings at least once a week for the

conduct of business or as often as may be necessary upon call of the

Chairperson or upon the request of three (3) Commissioners. The notice of

the meeting shall be given to all Commissioners and the presence of three

(3) Commissioners shall constitute a quorum. In the absence of the

Chairperson, the most senior Commissioner shall act as presiding officer of

the meeting.

4.6. The Commission may, for purposes of efficiency, delegate any of its

functions to any department or office of the Commission, an individual

Commissioner or staff member of the Commission except its review or

appellate authority and its power to adopt, alter and supplement any rule

or regulation.

The Commission may review upon its own initiative or upon the petition of

any interested party any action of any department or office, individualCommissioner, or staff member of the Commission.

SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission

shall act with transparency and shall have the powers and functions

provided by this Code, Presidential Decree No. 902-A, the Corporation

Code, the Investment Houses Law, the Financing Company Act and other

existing laws. Pursuant thereto the Commission shall have, among others,

the following powers and functions:

(a) Have jurisdiction and supervision over all corporations, partnerships or

associations who are the grantees of primary franchises and/or a license or

permit issued by the Government;



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(b) Formulate policies and recommendations on issues concerning the

securities market, advise Congress and other government agencies on all

aspects of the securities market and propose legislation and amendments

thereto;

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

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

compliance;

(e) Supervise, monitor, suspend or take over the activities of exchanges,

clearing agencies and other SROs;

(f) Impose sanctions for the violation of laws and the rules, regulations and

orders issued pursuant thereto;

(g) Prepare, approve, amend or repeal rules, regulations and orders, and

issue opinions and provide guidance on and supervise compliance with

such rules, regulations and orders;

(h) Enlist the aid and support of and/or deputize any and all enforcement

agencies of the Government, civil or military as well as any private

institution, corporation, firm, association or person in the implementation

of its powers and functions under this Code;

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

public;

(j) Punish for contempt of the Commission, both direct and indirect, in

accordance with the pertinent provisions of and penalties prescribed by the

Rules of Court;

(k) Compel the officers of any registered corporation or association to call

meetings of stockholders or members thereof under its supervision;

(l) Issue subpoena duces tecum and summon witnesses to appear in any

proceedings of the Commission and in appropriate cases, order the

examination, search and seizure of all documents, papers, files and records,

tax returns, and books of accounts of any entity or person under

investigation as may be necessary for the proper disposition of the cases

before it, subject to the provisions of existing laws;

(m) Suspend, or revoke, after proper notice and hearing the franchise or

certificate of registration of corporations, partnerships or associations,

upon any of the grounds provided by law; and

(n) Exercise such other powers as may be provided by law as well as those

which may be implied from, or which are necessary or incidental to the

carrying out of, the express powers granted the Commission to achieve the

objectives and purposes of these laws.

5.2. The Commission’s jurisdiction over all cases enumerated under Section

5 of Presidential Decree No. 902-A is hereby transferred to the Courts of

general jurisdiction or the appropriate Regional Trial Court: Provided, that

the Supreme Court in the exercise of its authority may designate the

Regional Trial Court branches that shall exercise jurisdiction over these

cases. The Commission shall retain jurisdiction over pending cases involving

intra-corporate disputes submitted for final resolution which should be

resolved within one (1) year from the enactment of this Code. The

Commission shall retain jurisdiction over pending suspension of

payments/rehabilitation cases filed as of 30 June 2000 until finally

disposed.

SEC. 6. Indemnification and Responsibilities of Commissioners.- 6.1. The

Commission shall indemnify each Commissioner and other officials of the

Commission, including personnel performing supervision and examination

functions for all costs and expenses reasonably incurred by such persons in

connection with any civil or criminal actions, suits or proceedings to which

they may be or made a party by reason of the performance of their

functions or duties, unless they are finally adjudged in such actions orproceedings to be liable for gross negligence or misconduct.

In the event of settlement or compromise, indemnification shall be

provided only in connection with such matters covered by the settlement

as to which the Commission is advised by external counsel that the persons

to be indemnified did not commit any gross negligence or misconduct.

The costs and expenses incurred in defending the aforementioned action,

suit or proceeding may be paid by the Commission in advance of the final

disposition of such action, suit or proceeding upon receipt of an

undertaking by or on behalf of the Commissioner, officer or employee to



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repay the amount advanced should it ultimately be determined by the

Commission that he/she is not entitled to be indemnified as provided in

this subsection.

6.2. The Commissioners, officers and employees of the Commission who

willfully violate this Code or who are guilty of negligence, abuse or acts of

malfeasance or fail to exercise extraordinary diligence in the performanceof their duties shall be held liable for any loss or injury suffered by the

Commission or other institutions as a result of such violation, negligence,

abuse, malfeasance, or failure to exercise extraordinary diligence. Similar

responsibility shall apply to the Commissioners, officers and employees of

the Commission for (1) the disclosure of any information, discussion or

resolution of the Commission of a confidential nature, or about the

confidential operations of the Commission, unless the disclosure is in

connection with the performance of official functions with the Commission

or with prior authorization of the Commissioners; or (2) the use of such

information for personal gain or to the detriment of the government, the

Commission or third parties: Provided, however, That any data or

information required to be submitted to the President and/or Congress or

its appropriate committee, or to be published under the provisions of this

Code shall not be considered confidential.

SEC. 7. Reorganization.- 7.1. To achieve the goals of this Code, consistent

with Civil Service laws, the Commission is hereby authorized to provide for

its reorganization, to streamline its structure and operations, upgrade its

human resource component and enable it to more efficiently and

effectively perform its functions and exercise its powers under this Code.

7.2. All positions of the Commission shall be governed by a compensation

and position classification systems and qualification standards approved by

the Commission based on a comprehensive job analysis and audit of actualduties and responsibilities. The compensation plan shall be comparable

with the prevailing compensation plan in the Bangko Sentral ng Pilipinas

and other government financial institutions and shall be subject to periodic

review by the Commission no more than once every two (2) years without

prejudice to yearly merit reviews or increases based on productivity and

efficiency. The Commission shall, therefore, be exempt from laws, rules,

and regulations on compensation, position classification and qualification

standards. The Commission shall, however, endeavor to make its system

conform as closely as possible with the principles under the Compensation

and Position Classification Act of 1989 (Republic Act No. 6758, as

amended).

CHAPTER III Registration of Securities

SEC. 8. Requirement of Registration of Securities. – 8.1. Securities shall not

be sold or offered for sale or distribution within the Philippines, without a

registration statement duly filed with and approved by the Commission.

Prior to such sale, information on the securities, in such form and with such

substance as the Commission may prescribe, shall be made available toeach prospective purchaser.

8.2. The Commission may conditionally approve the registration statement

under such terms as it may deem necessary.

8.3. The Commission may specify the terms and conditions under which

any written communication, including any summary prospectus, shall be

deemed not to constitute an offer for sale under this Section.

8.4. A record of the registration of securities shall be kept in a Register of

Securities in which shall be recorded orders entered by the Commission

with respect to such securities. Such register and all documents or

information with respect to the securities registered therein shall be open

to public inspection at reasonable hours on business days.

8.5. The Commission may audit the financial statements, assets and other

information of a firm applying for registration of its securities whenever it

deems the same necessary to insure full disclosure or to protect the

interest of the investors and the public in general.

SEC. 9. Exempt Securities. -

9.1. The requirement of registration under Subsection 8.1 shall not as a

general rule apply to any of the following classes of securities:

(a) Any security issued or guaranteed by the Government of the

Philippines, or by any political subdivision or agency thereof, or by any

person controlled or supervised by, and acting as an instrumentality of said

Government.

(b) Any security issued or guaranteed by the government of any country

with which the Philippines maintains diplomatic relations, or by any state,

province or political subdivision thereof on the basis of reciprocity:

Provided, That the Commission may require compliance with the form and

content of disclosures the Commission may prescribe.



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

approved by the proper adjudicatory body.

(d) Any security or its derivatives the sale or transfer of which, by law, is

under the supervision and regulation of the Office of the Insurance

Commission, Housing and Land Use Regulatory Board, or the Bureau ofInternal Revenue.

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

9.2. The Commission may, by rule or regulation after public hearing, add to

the foregoing any class of securities if it finds that the enforcement of this

Code with respect to such securities is not necessary in the public interest

and for the protection of investors.

SEC. 10. Exempt Transactions. - 10.1. The requirement of registration under

Subsection 8.1. shall not apply to the sale of any security in any of the

following transactions:

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

receiver or trustee in insolvency or bankruptcy.

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

similar lien holder selling or offering for sale or delivery in the ordinary

course of business and not for the purpose of avoiding the provisions of

this Code, to liquidate a bona fide debt, a security pledged in good faith as

security for such debt.

(c) An isolated transaction in which any security is sold, offered for sale,

subscription or delivery by the owner thereof, or by his representative for

the owner’s account, such sale or offer for sale, subscription or delivery notbeing made in the course of repeated and successive transactions of a like

character by such owner, or on his account by such representative and

such owner or representative not being the underwriter of such security.

(d) The distribution by a corporation, actively engaged in the business

authorized by its articles of incorporation, of securities to its stockholders

or other security holders as a stock dividend or other distribution out of

surplus.

(e) The sale of capital stock of a corporation to its own stockholders

exclusively, where no commission or other remuneration is paid or given

directly or indirectly in connection with the sale of such capital stock.

(f) The issuance of bonds or notes secured by mortgage upon real estate or

tangible personal property, where the entire mortgage together with all

the bonds or notes secured thereby are sold to a single purchaser at asingle sale.

(g) The issue and delivery of any security in exchange for any other security

of the same issuer pursuant to a right of conversion entitling the holder of

the security surrendered in exchange to make such conversion: Provided,

That the security so surrendered has been registered under this Code or

was, when sold, exempt from the provisions of this Code, and that the

security issued and delivered in exchange, if sold at the conversion price,

would at the time of such conversion fall within the class of securities

entitled to registration under this Code. Upon such conversion the par

value of the security surrendered in such exchange shall be deemed the

price at which the securities issued and delivered in such exchange are

sold.

(h) Broker’s transactions, executed upon customer’s orders, on any

registered Exchange or other trading market.

(i) Subscriptions for shares of the capital stock of a corporation prior to the

incorporation thereof or in pursuance of an increase in its authorized

capital stock under the Corporation Code, when no expense is incurred, or

no commission, compensation or remuneration is paid or given in

connection with the sale or disposition of such securities, and only when

the purpose for soliciting, giving or taking of such subscriptions is to complywith the requirements of such law as to the percentage of the capital stock

of a corporation which should be subscribed before it can be registered and

duly incorporated, or its authorized capital increased.

(j) The exchange of securities by the issuer with its existing security holders

exclusively, where no commission or other remuneration is paid or given

directly or indirectly for soliciting such exchange.

(k) The sale of securities by an issuer to fewer than twenty (20) persons in

the Philippines during any twelve-month period.



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

(i) Bank;

(ii) Registered investment house;

(iii) Insurance company;

(iv) Pension fund or retirement plan maintained by the Government of the

Philippines or any political subdivision thereof or managed by a bank or

other persons authorized by the Bangko Sentral to engage in trust

functions;

(v) Investment company; or

(vi) Such other person as the Commission may by rule determine as

qualified buyers, on the basis of such factors as financial sophistication, net

worth, knowledge, and experience in financial and business matters, or

amount of assets under management.

10.2. The Commission may exempt other transactions, if it finds that the

requirements of registration under this Code is not necessary in the public

interest or for the protection of the investors such as by reason of the small

amount involved or the limited character of the public offering.

10.3. Any person applying for an exemption under this Section, shall file

with the Commission a notice identifying the exemption relied upon on

such form and at such time as the Commission by rule may prescribe and

with such notice shall pay to the Commission a fee equivalent to one-tenth

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

of the securities.

SEC. 11. Commodity Futures Contracts.- No person shall offer, sell or enter

into commodity futures contracts except in accordance with rules,

regulations and orders the Commission may prescribe in the public

interest. The Commission shall promulgate rules and regulations involving

commodity futures contracts to protect investors to ensure the

development of a fair and transparent commodities market.

SEC. 12. Procedure for Registration of Securities. -

12.1. All securities required to be registered under Subsection 8.1 shall be

registered through the filing by the issuer in the main office of the

Commission, of a sworn registration statement with respect to such

securities, in such form and containing such information and documents as

the Commission shall prescribe. The registration statement shall include

any prospectus required or permitted to be delivered under Subsections

8.2, 8.3 and 8.4.

12.2. In promulgating rules governing the content of any registrationstatement (including any prospectus made a part thereof or annexed

thereto), the Commission may require the registration statement to

contain such information or documents as it may, by rule, prescribe. It may

dispense with any such requirement, or may require additional information

or documents, including written information from an expert, depending on

the necessity thereof or their applicability to the class of securities sought

to be registered.

12.3. The information required for the registration of any kind, and all

securities, shall include, among others, the effect of the securities issue on

ownership, on the mix of ownership, especially foreign and local

ownership.

12.4. The registration statement shall be signed by the issuer’s executive

officer, its principal operating officer, its principal financial officer, its

comptroller, principal accounting officer, its corporate secretary or persons

performing similar functions accompanied by a duly verified resolution of

the board of directors of the issuer corporation. The written consent of the

expert named as having certified any part of the registration statement or

any document used in connection therewith shall also be filed. Where the

registration statement includes shares to be sold by selling shareholders, a

written certification by such selling shareholders as to the accuracy of any

part of the registration statement contributed to by such sellingshareholders shall also be filed.

12.5. (a) Upon filing of the registration statement, the issuer shall pay to

the Commission a fee of not more than one-tenth (1/10) of one per centum

(1%) of the maximum aggregate price at which such securities are

proposed to be offered. The Commission shall prescribe by rule diminishing

fees in inverse proportion to the value of the aggregate price of the

offering.

(b) Notice of the filing of the registration statement shall be immediately

published by the issuer, at its own expense, in two (2) newspapers of



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general circulation in the Philippines, once a week for two (2) consecutive

weeks, or in such other manner as the Commission by rule shall prescribe,

reciting that a registration statement for the sale of such security has been

filed, and that the aforesaid registration statement, as well as the papers

attached thereto are open to inspection at the Commission during business

hours, and copies thereof, photostatic or otherwise, shall be furnished to

interested parties at such reasonable charge as the Commission mayprescribe.

12.6. Within forty-five (45) days after the date of filing of the registration

statement, or by such later date to which the issuer has consented, the

Commission shall declare the registration statement effective or rejected,

unless the applicant is allowed to amend the registration statement as

provided in Section 14 hereof. The Commission shall enter an order

declaring the registration statement to be effective if it finds that the

registration statement together with all the other papers and documents

attached thereto, is on its face complete and that the requirements have

been complied with. The Commission may impose such terms and

conditions as may be necessary or appropriate for the protection of theinvestors.

12.7. Upon effectivity of the registration statement, the issuer shall state

under oath in every prospectus that all registration requirements have

been met and that all information are true and correct as represented by

the issuer or the one making the statement. Any untrue statement of fact

or omission to state a material fact required to be stated therein or

necessary to make the statement therein not misleading shall constitute

fraud.

SEC. 13. Rejection and Revocation of Registration of Securities. - 13.1. TheCommission may reject a registration statement and refuse registration of

the security thereunder, or revoke the effectivity of a registration

statement and the registration of the security thereunder after due notice

and hearing by issuing an order to such effect, setting forth its findings in

respect thereto, if it finds that:

(a) The issuer:

(i) Has been judicially declared insolvent;

(ii) Has violated any of the provisions of this Code, the rules promulgated

pursuant thereto, or any order of the Commission of which the issuer has

notice in connection with the offering for which a registration statement

has been filed;

(iii) Has been or is engaged or is about to engage in fraudulent transactions;

(iv) Has made any false or misleading representation of material facts in

any prospectus concerning the issuer or its securities;

(v) Has failed to comply with any requirement that the Commission may

impose as a condition for registration of the security for which the

registration statement has been filed; or

(b) The registration statement is on its face incomplete or inaccurate in any

material respect or includes any untrue statement of a material fact or

omits to state a material fact required to be stated therein or necessary to

make the statements therein not misleading; or

(c) The issuer, any officer, director or controlling person of the issuer, or

person performing similar functions, or any underwriter has been

convicted, by a competent judicial or administrative body, upon plea ofguilty, or otherwise, of an offense involving moral turpitude and/or fraud

or is enjoined or restrained by the Commission or other competent judicial

or administrative body for violations of securities, commodities, and other

related laws.

For purposes of this subsection, the term “competent judicial or

administrative body” shall include a foreign court of competent jurisdiction

as provided for under the Rules of Court.

13.2. The Commission may compel the production of all the books andpapers of such issuer, and may administer oaths to, and examine the

officers of such issuer or any other person connected therewith as to its

business and affairs.

13.3. If any issuer shall refuse to permit an examination to be made by the

Commission, its refusal shall be ground for the refusal or revocation of the

registration of its securities.

13.4. If the Commission deems it necessary, it may issue an order

suspending the offer and sale of the securities pending any investigation.

The order shall state the grounds for taking such action, but such order of



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CHAPTER IV Regulation of Pre-Need Plans

SEC.16. Pre-Need Plans. - No person shall sell or offer for sale to the public

any pre-need plan except in accordance with rules and regulations which

the Commission shall prescribe. Such rules shall regulate the sale of pre-

need plans by, among other things, requiring the registration of pre-need

plans, licensing persons involved in the sale of pre-need plans, requiring

disclosures to prospective plan holders, prescribing advertising guidelines,

providing for uniform accounting system, reports and record keeping with

respect to such plans, imposing capital, bonding and other financial

responsibility, and establishing trust funds for the payment of benefits

under such plans.

CHAPTER V Reportorial Requirements

SEC. 17. Periodic and Other Reports of Issuers. -17.1. Every issuer satisfying

the requirements in Subsection 17.2 hereof shall file with the Commission:

(a) Within one hundred thirty-five (135) days, after the end of the issuer’s

fiscal year, or such other time as the Commission may prescribe, an annual

report which shall include, among others, a balance sheet, profit and loss

statement and statement of cash flows, for such last fiscal year, certified by

an independent certified public accountant, and a management discussion

and analysis of results of operations; and

(b) Such other periodical reports for interim fiscal periods and current

reports on significant developments of the issuer as the Commission may

prescribe as necessary to keep current information on the operation of the

business and financial condition of the issuer.

17.2.The reportorial requirements of Subsection 17.1 shall apply to the

following:

(a) An issuer which has sold a class of its securities pursuant to a

registration under Section 12 hereof: Provided, however, That the

obligation of such issuer to file reports shall be suspended for any fiscal

year after the year such registration became effective if such issuer, as of

the first day of any such fiscal year, has less than one hundred (100)

holders of such class of securities or such other number as the Commission

shall prescribe and it notifies the Commission of such;

(b) An issuer with a class of securities listed for trading on an Exchange; and

(c) An issuer with assets of at least Fifty million pesos (P50,000,000.00) or

such other amount as the Commission shall prescribe, and having Two

hundred (200) or more holders each holding at least One hundred (100)

shares of a class of its equity securities: Provided, however, That the

obligation of such issuer to file reports shall be terminated ninety (90) days

after notification to the Commission by the issuer that the number of its

holders holding at least one hundred (100) shares is reduced to less than

One hundred (100).

17.3. Every issuer of a security listed for trading on an Exchange shall file

with the Exchange a copy of any report filed with the Commission under

Subsection 17.1 hereof.

17.4. All reports (including financial statements) required to be filed with

the Commission pursuant to Subsection 17.1 hereof shall be in such form,

contain such information and be filed at such times as the Commission shallprescribe, and shall be in lieu of any periodical or current reports or

financial statements otherwise required to be filed under the Corporation

Code.

17.5. Every issuer which has a class of equity securities satisfying any of the

requirements in Subsection 17.2 shall furnish to each holder of such equity

security an annual report in such form and containing such information as

the Commission shall prescribe.

17.6. Within such period as the Commission may prescribe preceding the

annual meeting of the holders of any equity security of a class entitled tovote at such meeting, the issuer shall transmit to such holders an annual

report in conformity with Subsection 17.5.

SEC. 18. Reports by Five per centum (5%) Holders of Equity Securities. -

18.1. In every case in which an issuer satisfies the requirements of

Subsection 17.2 hereof, any person who acquires directly or indirectly the

beneficial ownership of more than five per centum (5%) of such class or in

excess of such lesser per centum as the Commission by rule may prescribe,

shall, within ten (10) days after such acquisition or such reasonable time as

fixed by the Commission, submit to the issuer of the security, to the

Exchange where the security is traded, and to the Commission a sworn



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statement containing the following information and such other information

as the Commission may require in the public interest or for the protection

of investors:

(a) The personal background, identity, residence, and citizenship of, and

the nature of such beneficial ownership by, such person and all other

persons by whom or on whose behalf the purchases are effected; in the

event the beneficial owner is a juridical person, the lines of business of the

beneficial owner shall also be reported;

(b) If the purpose of the purchases or prospective purchases is to acquire

control of the business of the issuer of the securities, any plans or

proposals which such persons may have that will effect a major change in

its business or corporate structure;

(c) The number of shares of such security which are beneficially owned, and

the number of shares concerning which there is a right to acquire, directly

or indirectly, by: (i) such person, and (ii) each associate of such person,

giving the background, identity, residence, and citizenship of each such

associate; and

(d) Information as to any contracts, arrangements, or understanding with

any person with respect to any securities of the issuer including but notlimited to transfer, joint ventures, loan or option arrangements, puts or

calls, guarantees or division of losses or profits, or proxies naming the

persons with whom such contracts, arrangements, or understanding have

been entered into, and giving the details thereof.

18.2. If any change occurs in the facts set forth in the statements, an

amendment shall be transmitted to the issuer, the Exchange and the

Commission.

18.3. The Commission, may permit any person to file in lieu of the

statement required by Subsection 17.1 hereof, a notice stating the name of

such person, the shares of any equity securities subject to Subsection 17.1which are owned by him, the date of their acquisition and such other

information as the Commission may specify, if it appears to the

Commission that such securities were acquired by such person in the

ordinary course of his business and were not acquired for the purpose of

and do not have the effect of changing or influencing the control of the

issuer nor in connection with any transaction having such purpose or

effect.

CHAPTER VI Protection of Shareholder Interests

SEC. 19. Tender Offers. –19.1. (a) Any person or group of persons acting in

concert who intends to acquire at least fifteen per cent (15%) of any class

of any equity security of a listed corporation or of any class of any equity

security of a corporation with assets of at least Fifty Million Pesos

(P50,000,000.00) and having two hundred (200) or more stockholders with

at least one hundred (100) shares each or who intends to acquire at least

thirty per cent (30%) of such equity over a period of twelve (12) months

shall make a tender offer to stockholders by filing with the Commission a

declaration to that effect; and furnish the issuer, a statement containing

such of the information required in Section 17 of this Code as the

Commission may prescribe. Such person or group of persons shall publish

all requests or invitations for tender, or materials making a tender offer or

requesting or inviting letters of such a security. Copies of any additional

material soliciting or requesting such tender offers subsequent to the initial

solicitation or request shall contain such information as the Commission

may prescribe, and shall be filed with the Commission and sent to the

issuer not later than the time copies of such materials are first published orsent or given to security holders.

(b) Any solicitation or recommendation to the holders of such a security to

accept or reject a tender offer or request or invitation for tenders shall be

made in accordance with such rules and regulations as the Commission

may prescribe.

(c) Securities deposited pursuant to a tender offer or request or invitation

for tenders may be withdrawn by or on behalf of the depositor at any time

throughout the period that the tender offer remains open and if the

securities deposited have not been previously accepted for payment, andat any time after sixty (60) days from the date of the original tender offer

or request or invitation, except as the Commission may otherwise

prescribe.

(d) Where the securities offered exceed that which a person or group of

persons is bound or willing to take up and pay for, the securities that are

subject of the tender offer shall be taken up as nearly as may be pro rata,

disregarding fractions, according to the number of securities deposited by

each depositor. The provisions of this subsection shall also apply to

securities deposited within ten (10) days after notice of an increase in the



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consideration offered to security holders, as described in paragraph (e) of

this subsection, is first published or sent or given to security holders.

(e) Where any person varies the terms of a tender offer or request or

invitation for tenders before the expiration thereof by increasing the

consideration offered to holders of such securities, such person shall pay

the increased consideration to each security holder whose securities are

taken up and paid for whether or not such securities have been taken up by

such person before the variation of the tender offer or request or

invitation.

19.2. It shall be unlawful for any person to make any untrue statement of a

material fact or omit to state any material fact necessary in order to make

the statements made, in the light of the circumstances under which they

are made, not misleading, or to engage in any fraudulent, deceptive, or

manipulative acts or practices, in connection with any tender offer or

request or invitation for tenders, or any solicitation of security holders in

opposition to or in favor of any such offer, request, or invitation. The

Commission shall, for the purposes of this subsection, define and prescribemeans reasonably designed to prevent, such acts and practices as are

fraudulent, deceptive, or manipulative.

SEC. 20. Proxy Solicitations. – 20.1. Proxies must be issued and proxy

solicitation must be made in accordance with rules and regulations to be

issued by the Commission;

20.2. Proxies must be in writing, signed by the stockholder or his duly

authorized representative and filed before the scheduled meeting with the

corporate secretary.

20.3. Unless otherwise provided in the proxy, it shall be valid only for the

meeting for which it is intended. No proxy shall be valid and effective for a

period longer than five (5) years at one time.

20.4. No broker or dealer shall give any proxy, consent or authorization, in

respect of any security carried for the account of a customer, to a person

other than the customer, without the express written authorization of such

customer.

20.5. A broker or dealer who holds or acquires the proxy for at least ten per

centum (10%) or such percentage as the Commission may prescribe of the

outstanding share of the issuer, shall submit a report identifying the

beneficial owner within ten (10) days after such acquisition, for its own

account or customer, to the issuer of the security, to the Exchange where

the security is traded and to the Commission.

SEC. 21. Fees for Tender Offers and Certain Proxy Solicitations. - At the time

of filing with the Commission of any statement required under Section 19

for any tender offer or Section 72.2 for issuer repurchases, or Section 20 for

proxy or consent solicitation, the Commission may require that the person

making such filing pay a fee of not more than one-tenth (1/10) of one

percentum (1%) of:

21.1. The proposed aggregate purchase price in the case of a transaction

under Sections 20 or 72.2; or

21.2. The proposed payment in cash, and the value of any securities or

property to be transferred in the acquisition, merger or consolidation, or

the cash and value of any securities proposed to be received upon the sale

or disposition of such assets in the case of a solicitation under Section 20.The Commission shall prescribe by rule diminishing fees in inverse

proportion to the value of the aggregate price of the offering.

SEC. 22. Internal Record Keeping and Accounting Controls. - Every issuer

which has a class of securities that satisfies the requirements of Subsection

17.2 shall:

22.1. Make and keep books, records, and accounts which, in reasonable

detail accurately and fairly reflect the transactions and dispositions of

assets of the issuer;

22.2. Devise and maintain a system of internal accounting controls

sufficient to provide reasonable assurances that: (a) Transactions and

access to assets are pursuant to management authorization; (b) Financial

statements are prepared in conformity with generally accepted accounting

principles that are adopted by the Accounting Standards Council and the

rules promulgated by the Commission with regard to the preparation of

financial statements; and (c) Recorded assets are compared with existing

assets at reasonable intervals and differences are reconciled.

SEC. 23. Transactions of Directors, Officers and Principal Stockholders. -

23.1. Every person who is directly or indirectly the beneficial owner of



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more than ten per centum (10%) of any class of any equity security which

satisfies the requirements of Subsection 17.2, or who is a director or an

officer of the issuer of such security, shall file, at the time either such

requirement is first satisfied or within ten days after he becomes such a

beneficial owner, director, or officer, a statement with the Commission

and, if such security is listed for trading on an Exchange, also with the

Exchange, of the amount of all equity securities of such issuer of which he

is the beneficial owner, and within ten (10) days after the close of each

calendar month thereafter, if there has been a change in such ownership

during such month, shall file with the Commission, and if such security is

listed for trading on an Exchange, shall also file with the Exchange, a

statement indicating his ownership at the close of the calendar month and

such changes in his ownership as have occurred during such calendar

month.

23.2. For the purpose of preventing the unfair use of information which

may have been obtained by such beneficial owner, director, or officer by

reason of his relationship to the issuer, any profit realized by him from any

purchase and sale, or any sale and purchase, of any equity security of suchissuer within any period of less than six (6) months, unless such security

was acquired in good faith in connection with a debt previously contracted,

shall inure to and be recoverable by the issuer, irrespective of any intention

of holding the security purchased or of not repurchasing the security sold

for a period exceeding six (6) months. Suit to recover such profit may be

instituted before the Regional Trial Court by the issuer, or by the owner of

any security of the issuer in the name and in behalf of the issuer if the

issuer shall fail or refuse to bring such suit within sixty (60) days after

request or shall fail diligently to prosecute the same thereafter, but no such

suit shall be brought more than two (2) years after the date such profit was

realized. This subsection shall not be construed to cover any transactionwhere such beneficial owner was not such both at the time of the purchase

and sale, or the sale and purchase, of the security involved, or any

transaction or transactions which the Commission by rules and regulations

may exempt as not comprehended within the purpose of this subsection.

23.3. It shall be unlawful for any such beneficial owner, director, or officer,

directly or indirectly, to sell any equity security of such issuer if the person

selling the security or his principal: (a) Does not own the security sold; or

(b) If owning the security, does not deliver it against such sale within

twenty (20) days thereafter, or does not within five (5) days after such sale

deposit it in the mails or other usual channels of transportation; but no

person shall be deemed to have violated this subsection if he proves that

notwithstanding the exercise of good faith he was unable to make such

delivery or deposit within such time, or that to do so would cause undue

inconvenience or expense.

23.4. The provisions of Subsection 23.2 shall not apply to any purchase and

sale, or sale and purchase, and the provisions of Subsection 23.3 shall not

apply to any sale, of an equity security not then or thereafter held by him in

an investment account, by a dealer in the ordinary course of his business

and incident to the establishment or maintenance by him of a primary or

secondary market, otherwise than on an Exchange, for such security. The

Commission may, by such rules and regulations as it deems necessary or

appropriate in the public interest, define and prescribe terms and

conditions with respect to securities held in an investment account and

transactions made in the ordinary course of business and incident to the

establishment or maintenance of a primary or secondary market.

CHAPTER VII Prohibitions on Fraud, Manipulation and Insider Trading

SEC. 24. Manipulation of Security Prices; Devices and Practices. - 24.1 It

shall be unlawful for any person acting for himself or through a dealer or

broker, directly or indirectly:

(a) To create a false or misleading appearance of active trading in any listed

security traded in an Exchange or any other trading market (hereafter

referred to purposes of this Chapter as “Exchange”):

(i) By effecting any transaction in such security which involves no change in

the beneficial ownership thereof;

(ii) By entering an order or orders for the purchase or sale of such security

with the knowledge that a simultaneous order or orders of substantially

the same size, time and price, for the sale or purchase of any such security,has or will be entered by or for the same or different parties; or

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

ownership.

(b) To effect, alone or with others, a series of transactions in securities that:

(i) Raises their price to induce the purchase of a security, whether of the

same or a different class of the same issuer or of a controlling, controlled,

or commonly controlled company by others;

(ii) Depresses their price to induce the sale of a security, whether of the

same or a different class, of the same issuer or of a controlling, controlled,

or commonly controlled company by others; or



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virtue of the communication, becomes an insider as defined in Subsection

3.8, where the insider communicating the information knows or has reason

to believe that such person will likely buy or sell a security of the issuer

while in possession of such information.

27.4. (a) It shall be unlawful where a tender offer has commenced or is

about to commence for:

(i) Any person (other than the tender offeror) who is in possession of

material non-public information relating to such tender offer, to buy or sell

the securities of the issuer that are sought or to be sought by such tender

offer if such person knows or has reason to believe that the information is

non-public and has been acquired directly or indirectly from the tender

offeror, those acting on its behalf, the issuer of the securities sought or to

be sought by such tender offer, or any insider of such issuer; and

(ii) Any tender offeror, those acting on its behalf, the issuer of the securities

sought or to be sought by such tender offer, and any insider of such issuer

to communicate material non-public information relating to the tender

offer to any other person where such communication is likely to result in a

violation of Subsection 27.4 (a)(i).(b) For purposes of this subsection the term “securities of the issuer sought

or to be sought by such tender offer” shall include any securities

convertible or exchangeable into such securities or any options or rights in

any of the foregoing securities.

CHAPTER VIII Regulation of Securities Market Professionals

SEC. 28. Registration of Brokers, Dealers, Salesmen and Associated

Persons. - 28.1. No person shall engage in the business of buying or selling

securities in the Philippines as a broker or dealer, or act as a salesman, oran associated person of any broker or dealer unless registered as such with

the Commission.

28.2. No registered broker or dealer shall employ any salesman or any

associated person, and no issuer shall employ any salesman, who is not

registered as such with the Commission.

28.3. The Commission, by rule or order, may conditionally or

unconditionally exempt from Subsections 28.1 and 28.2 any broker, dealer,

salesman, associated person of any broker or dealer, or any class of the

foregoing, as it deems consistent with the public interest and the

protection of investors.

28.4. The Commission shall promulgate rules and regulations prescribing

the qualifications for registration of each category of applicant, which shall,

among other things, require as a condition for registration that:

(a) If a natural person, the applicant satisfactorily pass a written

examination as to his proficiency and knowledge in the area of activity for

which registration is sought;

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

capital as prescribed by the Commission, and provide a bond or other

security as the Commission may prescribe to secure compliance with the

provisions of this Code; and

(c) If located outside of the Philippines, the applicant files a written consent

to service of process upon the Commission pursuant to Section 65 hereof.

28.5. A broker or dealer may apply for registration by filing with the

Commission a written application in such form and containing such

information and documents concerning such broker or dealer as the

Commission by rule shall prescribe.

28.6. Registration of a salesman or of an associated person of a registered

broker or dealer may be made upon written application filed with the

Commission by such salesman or associated person. The application shall

be separately signed and certified by the registered broker or dealer to

which such salesman or associated person is to become affiliated, or by the

issuer in the case of a salesman employed, appointed or authorized solely

by such issuer. The application shall be in such form and contain such

information and documents concerning the salesman or associated person

as the Commission by rule shall prescribe. For purposes of this Section, a

salesman shall not include any employee of an issuer whose compensationis not determined directly or indirectly on sales of securities of the issuer.

28.7. Applications filed pursuant to Subsections 28.5 and 28.6 shall be

accompanied by a registration fee in such reasonable amount prescribed by

the Commission.

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

Section, the Commission shall by order: (a) Grant registration if it

determines that the requirements of this Section and the qualifications for

registration set forth in its rules and regulations have been satisfied; or (b)

Deny said registration.



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28.9. The names and addresses of all persons approved for registration as

brokers, dealers, associated persons or salesmen and all orders of the

Commission with respect thereto shall be recorded in a Register of

Securities Market Professionals kept in the office of the Commission which

shall be open to public inspection.

28.10. Every person registered pursuant to this Section shall file with the

Commission, in such form as the Commission shall prescribe, information

necessary to keep the application for registration current and accurate,

including in the case of a broker or dealer changes in salesmen, associated

persons and owners thereof.

28.11. Every person registered pursuant to this Section shall pay to the

Commission an annual fee at such time and in such reasonable amount as

the Commission shall prescribe. Upon notice by the Commission that such

annual fee has not been paid as required, the registration of such person

shall be suspended until payment has been made.

28.12. The registration of a salesman or associated person shall be

automatically terminated upon the cessation of his affiliation with said

registered broker or dealer, or with an issuer in the case of a salesman

employed, appointed or authorized by such issuer. Promptly following any

such cessation of affiliation, the registered broker or dealer, or issuer, as

the case may be, shall file with the Commission a notice of separation of

such salesman or associated person.

SEC. 29. Revocation, Refusal or Suspension of Registration of Brokers,

Dealers, Salesmen and Associated Persons. –

29.1. Registration under Section 28 of this Code may be refused, or any

registration granted thereunder may be revoked, suspended, or limitations

placed thereon, by the Commission if, after due notice and hearing, the

Commission determines the applicant or registrant:

(a) Has willfully violated any provision of this Code, any rule, regulation or

order made hereunder, or any other law administered by the Commission,

or in the case of a registered broker, dealer or associated person has failed

to supervise, with a view to preventing such violation, another person who

commits such violation;

(b) Has willfully made or caused to be made a materially false or misleading

statement in any application for registration or report filed with the

Commission or a self-regulatory organization, or has willfully omitted to

state any material fact that is required to be stated therein;

(c) Has failed to satisfy the qualifications or requirements for registration

prescribed under Section 28 and the rules and regulations of the

Commission promulgated thereunder;

(d) Has been convicted, by a competent judicial or administrative body of

an offense involving moral turpitude, fraud, embezzlement, counterfeiting,

theft, estafa, misappropriation, forgery, bribery, false oath, or perjury, or of

a violation of securities, commodities, banking, real estate or insurance

laws;

(e) Is enjoined or restrained by a competent judicial or administrative body

from engaging in securities, commodities, banking, real estate or insurance

activities or from willfully violating laws governing such activities;

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

refusing, revoking or suspending any registration, license or other permit

under this Code, the rules and regulations promulgated thereunder, any

other law administered by the Commission;

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

expelling him from membership or participation therein or from associationwith a member or participant thereof;

(h) Has been found by a competent judicial or administrative body to have

willfully violated any provisions of securities, commodities, banking, real

estate or insurance laws, or has willfully aided, abetted, counseled,

commanded, induced or procured such violation; or

(i) Has been judicially declared insolvent.

For purposes of this subsection, the term “competent judicial or

administrative body” shall include a foreign court of competent jurisdiction

and a foreign financial regulator.

29.2. (a) In cases of charges against a salesman or associated person, noticethereof shall also be given the broker, dealer or issuer employing such

salesman or associated person.

(b) Pending the hearing, the Commission shall have the power to order the

suspension of such broker’s, dealer’s, associated person’s or salesman’s

registration: Provided, That such order shall state the cause for such

suspension. Until the entry of a final order, the suspension of such

registration, though binding upon the persons notified thereof, shall be

deemed confidential, and shall not be published, unless it shall appear that

the order of suspension has been violated after notice.



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29.3. The order of the Commission refusing, revoking, suspending or

placing limitations on a registration as herein above provided, together

with its findings, shall be entered in the Register of Securities Market

Professionals. The suspension or revocation of the registration of a dealer

or broker shall also automatically suspend the registration of all salesmen

and associated persons affiliated with such broker or dealer.

29.4. It shall be sufficient cause for refusal, revocation or suspension of a

broker's or dealer’s registration, if any associated person thereof or any

juridical entity controlled by such associated person has committed any act

or omission or is subject to any disability enumerated in paragraphs (a)

through (i) of Subsection 29.1 hereof.

SEC. 30. Transactions and Responsibility of Brokers and Dealers. - 30.1. No

broker or dealer shall deal in or otherwise buy or sell, for its own account

or for the account of customers, securities listed on an Exchange issued by

any corporation where any stockholder, director, associated person or

salesman, or authorized clerk of said broker or dealer and all the relatives

of the foregoing within the fourth civil degree of consanguinity or affinity, isat the time holding office in said issuer corporation as a director, president,

vice-president, manager, treasurer, comptroller, secretary or any office of

trust and responsibility, or is a controlling person of the issuer.

30.2. No broker or dealer shall effect any transaction in securities or induce

or attempt to induce the purchase or sale of any security except in

compliance with such rules and regulations as the Commission shall

prescribe to ensure fair and honest dealings in securities and provide

financial safeguards and other standards for the operation of brokers and

dealers, including the establishment of minimum net capital requirements,

the acceptance of custody and use of securities of customers, and thecarrying and use of deposits and credit balances of customers.

SEC. 31. Development of Securities Market Professionals. - The

Commission, in joint undertaking with self regulatory organizations,

organizations and associations of finance professionals as well as private

educational and research institutions shall undertake or facilitate/organize

continuing training, conferences/ seminars, updating programs, research

and development as well as technology transfer at the latest and advanced

trends in issuance and trading of securities, derivatives, commodity trades

and other financial instruments, as well as securities markets of other

countries.

CHAPTER IX Exchanges and Other Securities Trading Markets

SEC. 32. Prohibition on Use of Unregistered Exchange; Regulation of Over-

the-Counter Markets. – 32.1. No broker, dealer, salesman, associated

person of a broker or dealer, or Exchange, directly or indirectly, shall make

use of any facility of an Exchange in the Philippines to effect any

transaction in a security, or to report such transaction, unless such

Exchange is registered as such under Section 33 of this Code.

32.2. (a) No broker, dealer, salesman or associated person of a broker or

dealer, singly or in concert with any other person, shall make, create or

operate, or enable another to make, create or operate, any trading market,

otherwise than on a registered Exchange, for the buying and selling of any

security, except in accordance with rules and regulations the Commission

may prescribe.

(b) The Commission may promulgate rules and regulations governing

transactions by brokers, dealers, salesmen or associated persons of abroker or dealer, over any facilities of such trading market and may require

such market to be administered by a self-regulatory organization

determined by the Commission as capable of insuring the protection of

investors comparable to that provided in the case of a registered Exchange.

Such self-regulatory organization must provide a centralized marketplace

for trading and must satisfy requirements comparable to those prescribed

for registration of Exchanges in Section 33 of this Code.

SEC. 33. Registration of Exchanges. - 33.1. Any Exchange may be registered

as such with the Commission under the terms and conditions hereinafter

provided in this Section and Section 40 hereof, by filing an application forregistration in such form and containing such information and supporting

documents as the Commission by rule shall prescribe, including the

following:

(a) An undertaking to comply and enforce compliance by its members with

the provisions of this Code, its implementing rules or regulations and the

rules of the Exchange;

(b) The organizational charts of the Exchange, rules of procedure, and a list

of its officers and members;

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

(d) An undertaking that in the event a member firm becomes insolvent or

when the Exchange shall have found that the financial condition of its

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member firm has so deteriorated that it cannot readily meet the demands

of its customers for the delivery of securities and/or payment of sales

proceeds, the Exchange shall, upon order of the Commission, take over the

operation of the insolvent member firm and immediately proceed to settle

the member firm’s liabilities to its customers.

33.2. Registration of an Exchange shall be granted upon compliance with

the following provisions:

(a) That the applicant is organized as a stock corporation: Provided, That

any registered Exchange existing prior to the effectivity of this Code shall

within one (1) year reorganize as a stock corporation pursuant to a

demutualization plan approved by the Commission;

(b) That the applicant is engaged solely in the business of operating an

exchange: Provided, however, That the Commission may adopt rules,

regulations or issue an order, upon application, exempting an Exchange

organized as a stock corporation and owned and controlled by another

juridical person from this restriction;

c) Where the Exchange is organized as a stock corporation, that no person

may beneficially own or control, directly or indirectly, more than five

percent (5%) of the voting rights of the Exchange and no industry orbusiness group may beneficially own or control, directly or indirectly, more

than twenty percent (20%) of the voting rights of the Exchange: Provided,

however, That the Commission may adopt rules, regulations or issue an

order, upon application, exempting an applicant from this prohibition

where it finds that such ownership or control will not negatively impact on

the exchange’s ability to effectively operate in the public interest;

(d) The expulsion, suspension, or disciplining of a member and persons

associated with a member for conduct or proceeding inconsistent with just

and equitable principles of fair trade, and for violations of provisions of this

Code, or any other Act administered by the Commission, the rules,regulations and orders thereunder, or the rules of the Exchange;

(e) A fair procedure for the disciplining of members and persons associated

with members, the denial of membership to any person seeking to be a

member, the barring of any person from association with a member, and

the prohibition or limitation of any person from access to services offered

by the Exchange;

(f) That the brokers in the board of the Exchange shall comprise of not

more than forty-nine percent (49%) of such board and shall proportionately

represent the Exchange membership in terms of volume/value of trade and

paid up capital, and that any natural person associated with a juridical

entity that is a member shall himself be deemed to be a member for this

purpose: Provided, That any registered Exchange existing prior to the

effectivity of this Code shall immediately comply with this requirement;

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

president of the Exchange, and (ii) no less than fifty one percent (51%) of

the remaining members of the board to be comprised of three (3)

independent directors and persons who represent the interests of issuers,

investors, and other market participants, who are not associated with any

broker or dealer or member of the Exchange for a period of two (2) years

prior to his/her appointment. No officer or employee of a member, its

subsidiaries or affiliates or related interests shall become an independent

director: Provided, however, That the Commission may by rule, regulation,

or order upon application, permit the exchange organized as a stock

corporation to use a different governance structure: Provided, further, That

the Commission is satisfied that the Exchange is acting in the public interest

and is able to effectively operate as a self-regulatory organization under

this Code: Provided, finally, That any registered exchange existing prior to

the effectivity of this Code shall immediately comply with this requirement.

(h) The president and other management of the Exchange to consist only of

persons who are not members and are not associated in any capacity,directly or indirectly with any broker or dealer or member or listed

company of the Exchange: Provided, That the Exchange may only appoint,

and a person may only serve, as an officer of the exchange if such person

has not been a member or affiliated with any broker, dealer, or member of

the Exchange for a period of at least two (2) years prior to such

appointment;

(i) The transparency of transactions on the Exchange;

(j) The equitable allocation of reasonable dues, fees, and other charges

among members and issuers and other persons using any facility or system

which the Exchange operates or controls;

(k) Prevention of fraudulent and manipulative acts and practices,promotion of just and equitable principles of trade, and, in general,

protection of investors and the public interest; and

(l) The transparent, prompt and accurate clearance and settlement of

transactions effected on the Exchange.

33.3. If the Commission finds that the applicant Exchange is capable of

complying and enforcing compliance by its members, and persons

associated with such members, with the provisions of this Code, its rules

and regulations, and the rules of the Exchange, and that the rules of the

Exchange are fair, just and adequate, the Commission shall cause such

Exchange to be registered. If, after notice due and hearing, the

Commission finds otherwise, the application shall be denied.

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

Commission may issue an order either granting or denying registration as

an Exchange, unless the Exchange applying for registration shall withdraw

its application or shall consent to the Commission’s deferring action on its

application for a stated longer period after the date of filing. The filing with

the Commission of an application for registration by an Exchange shall be

deemed to have taken place upon the receipt thereof. Amendments to an

application may be made upon such terms as the Commission may

prescribe.

33.5. Upon the registration of an Exchange, it shall pay a fee in such

amount and within such period as the Commission may fix.

33.6. Upon appropriate application in accordance with the rules and

regulations of the Commission and upon such terms as the Commission

may deem necessary for the protection of investors, an Exchange may

withdraw its registration or suspend its operations or resume the same.

SEC. 34. Segregation and Limitation of Functions of Members, Brokers and

Dealers. - 34.1. It shall be unlawful for any member-broker of an Exchange

to effect any transaction on such Exchange for its own account, the account

of an associated person, or an account with respect to which it or an

associated person thereof exercises investment discretion: Provided,

however, That this section shall not make unlawful -

(a) Any transaction by a member-broker acting in the capacity of a market

maker;

(b) Any transaction reasonably necessary to carry on an odd-lot

transactions;

(c) Any transaction to offset a transaction made in error; and(d) Any other transaction of a similar nature as may be defined by the

Commission.

34.2. In all instances where the member-broker effects a transaction on an

Exchange for its own account or the account of an associated person or an

account with respect to which it exercises investment discretion, it shall

disclose to such customer at or before the completion of the transaction it

is acting for its own account: Provided, further, That this fact shall be

reflected in the order ticket and the confirmation slip.

34.3. Any member-broker who violates the provisions of this Section shall

be subject to the administrative sanctions provided in Section 54 of this

Code.

SEC. 35. Additional Fees of Exchanges. - In addition to the registration fee

prescribed in Section 33 of this Code, every Exchange shall pay to the

Commission, on a semestral basis on or before the tenth day of the end of

every semester of the calendar year, a fee in such an amount as the

Commission shall prescribe, but not more than one-hundredth of one per

centum (1%) of the aggregate amount of the sales of securities transacted

on such Exchange during the preceding calendar year, for the privilege of

doing business, during the preceding calendar year or any part thereof.

SEC. 36. Powers with Respect to Exchanges and Other Trading Market. -

36.1. The Commission is authorized, if in its opinion such action is

necessary or appropriate for the protection of investors and the public

interest so requires, summarily to suspend trading in any listed security on

any Exchange or other trading market for a period not exceeding thirty (30)

days or, with the approval of the President of the Philippines, summarily tosuspend all trading on any securities Exchange or other trading market for a

period of more than thirty (30) but not exceeding ninety (90) days:

Provided, however, That the Commission, promptly following the issuance

of the order of suspension, shall notify the affected issuer of the reasons

for such suspension and provide such issuer with an opportunity for

hearing to determine whether the suspension should be lifted.

36.2. Wherever two or more Exchanges or other trading markets exist, the

Commission may require and enforce uniformity of trading regulations in

and/or between or among said Exchanges or other trading markets.

36.3. In addition to the existing Philippine Stock Exchange, the Commission

shall have the authority to determine the number, size and location of

stock Exchanges, other trading markets and commodity Exchanges and

other similar organizations in the light of national or regional requirements

for such activities with the view to promote, enhance, protect, conserve or

rationalize investment.

36.4. The Commission, having due regard to the public interest, the

protection of investors, the safeguarding of securities and funds, and

maintenance of fair competition among brokers, dealers, clearing agencies,



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prescribe as necessary or appropriate in the public interest or for the

protection of investors.

39.3. An association of brokers and dealers shall not be registered as a

securities association unless the Commission determines that:

(a) The association is so organized and has the capacity to be able to carry

out the purposes of this Code and to comply with, and to enforce

compliance by its members and persons associated with its members, with

the provisions of this Code, the rules and regulations thereunder, and the

rules of the association.

(b) The rules of the association, notwithstanding anything in the

Corporation Code to the contrary, provide that:

(i) Any registered broker or dealer may become a member of the

association;

(ii) There exist a fair representation of its members to serve on the Board of

Directors of the association and in the administration of its affairs, and that

any natural person associated with a juridical entity that is a member shallhimself be deemed to be a member for this purpose;

(iii) The Board of Directors of the association includes in its composition: (a)

The president of the association and (b) Persons who represent the

interests of issuers and public investors and are not associated with any

broker or dealer or member of the association; that the president and

other management of the association not be a member or associated with

any broker, dealer or member of the association;

(iv) For the equitable allocation of reasonable dues, fees, and other charges

among members and issuers and other persons using any facility or systemwhich the association operates or controls;

(v) For the prevention of fraudulent and manipulative acts and practices,

the promotion of just and equitable principles of trade, and, in general, the

protection of investors and the public interest;

(vi) That its members and persons associated with its members shall be

appropriately disciplined for violation of any provision of this Code, the

rules or regulations thereunder, or the rules of the association;

(vii) That a fair procedure for the disciplining of members and persons

associated with members, the denial of membership to any person seeking

membership therein, the barring of any person from becoming associated

with a member thereof, and the prohibition or limitation by the association

of any person with respect to access to services offered by the association

or a member thereof.

39.4. (a) A registered securities association shall deny membership to any

person who is not a registered broker or dealer.

(b) A registered securities association may deny membership to, or

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

or dealer:

(i) Does not meet the standards of financial responsibility, operational

capability, training, experience, or competence that are prescribed by the

rules of the association; or

(ii) Has engaged, and there is a reasonable likelihood it will again engage, in

acts or practices inconsistent with just and equitable principles of fair

trade.(c) A registered securities association may deny membership to a registered

broker or dealer not engaged in a type of business in which the rules of the

association require members to be engaged: Provided, however, That no

registered securities association may deny membership to a registered

broker or dealer by reason of the amount of business done by the broker or

dealer.

A registered securities association may examine and verify the

qualifications of an applicant to become a member in accordance with

procedures established by the rules of the association.

(d) A registered securities association may bar a salesman or person

associated with a broker or dealer from being employed by a member or

set conditions for the employment of a salesman or associated if such

person:

(i) Does not meet the standards of training, experience, or competence that

are prescribed by the rules of the association; or

(ii) Has engaged, and there is a reasonable likelihood he will again engage,

in acts or practices inconsistent with just and equitable principles of fair

trade.

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A registered securities association may examine and verify the

qualifications of an applicant to become a salesman or associated person

employed by a member in accordance with procedures established by the

rules of the association. A registered association also may require a

salesman or associated person employed by a member to be registered

with the association in accordance with procedures prescribed in the rules

of the association.

39.5. In any proceeding by a registered securities association to determine

whether a person shall be denied membership, or barred from association

with a member, the association shall provide notice to the person under

review of the specific grounds being considered for denial, afford him an

opportunity to defend against the allegations, and keep a record of the

proceedings. A determination by the association to deny membership shall

be supported by a statement setting forth the specific grounds on which

the denial is based.

SEC. 40. Powers with Respect to Self-Regulatory Organizations. - 40.1. Upon

the filing of an application for registration as an Exchange under Section 33,a registered securities association under Section 39, a registered clearing

agency under Section 42, or other self-regulatory organization under this

Section, the Commission shall have ninety (90) days within which to either

grant registration or institute a proceeding to determine whether

registration should be denied. In the event proceedings are instituted, the

Commission shall have two hundred seventy (270) days within which to

conclude such proceedings at which time it shall, by order, grant or deny

such registration.

40.2. Every self-regulatory organization shall comply with the provisions of

this Code, the rules and regulations thereunder, and its own rules, andenforce compliance therewith, notwithstanding any provision of the

Corporation Code to the contrary, by its members, persons associated with

its members or its participants.

40.3. (a) Each self-regulatory organization shall submit to the Commission

for prior approval any proposed rule or amendment thereto, together with

a concise statement of the reason and effect of the proposed amendment.

(b) Within sixty (60) days after submission of a proposed amendment, the

Commission shall, by order, approve the proposed amendment. Otherwise,

the same may be made effective by the self-regulatory organization.

(c) In the event of an emergency requiring action for the protection of

investors, the maintenance of fair and orderly markets, or the safeguarding

of securities and funds, a self-regulatory organization may put a proposed

amendment into effect summarily: Provided, however, That a copy of the

same shall be immediately submitted to the Commission.

40.4. The Commission is further authorized, if after making appropriate

request in writing to a self-regulatory organization that such organization

effect on its own behalf specified changes in its rules and practices and,

after due notice and hearing it determines that such changes have not

been effected, and that such changes are necessary, by rule or regulation

or by order, may alter, abrogate or supplement the rules of such self-

regulatory organization in so far as necessary or appropriate to effect such

changes in respect of such matters as:

(a) Safeguards in respect of the financial responsibility of members and

adequate provision against the evasion of financial responsibility through

the use of corporate forms or special partnerships;

(b) The supervision of trading practices;

(c) The listing or striking from listing of any security;

(d) Hours of trading;

(e) The manner, method, and place of soliciting business;

(f) Fictitious accounts;

(g) The time and method of making settlements, payments, and deliveries,and of closing accounts;

(h) The transparency of securities transactions and prices;

(i) The fixing of reasonable rates of fees, interest, listing and other charges,

but not rates of commission;

(j) Minimum units of trading;

(k) Odd-lot purchases and sales;

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(l) Minimum deposits on margin accounts; and

(m) The supervision, auditing and disciplining of members or participants.

40.5. The Commission, after due notice and hearing, is authorized, in the

public interest and to protect investors:

(a) To suspend for a period not exceeding twelve (12) months or to revoke

the registration of a self-regulatory organization, or to censure or impose

limitations on the activities, functions, and operations of such self-

regulatory organization, if the Commission finds that such a self-regulatory

organization has willfully violated or is unable to comply with any provision

of this Code or of the rules and regulations thereunder, or its own rules, or

has failed to enforce compliance therewith by a member of, person

associated with a member, or a participant in such self-regulatory

organization;

(b) To expel from a self-regulatory organization any member thereof or any

participant therein who is subject to an order of the Commission under

Section 29 of this Code or is found to have willfully violated any provision of

this Code or suspend for a period not exceeding twelve (12) months forviolation of any provision of this Code or any other laws administered by

the Commission, or the rules and regulations thereunder, or effected,

directly or indirectly, any transaction for any person who, such member or

participant had reason to believe, was violating in respect of such

transaction any of such provisions; and

(c) To remove from office or censure any officer or director of a self-

regulatory organization if it finds that such officer or director has violated

any provision of this Code, any other law administered by the Commission,

the rules or regulations thereunder, or the rules of such self-regulatory

organization, abused his authority, or without reasonable justification orexcuse has failed to enforce compliance with any of such provisions.

40.6. (a) A self-regulatory organization is authorized to discipline a member

of or participant in such self-regulatory organization, or any person

associated with a member, including the suspension or expulsion of such

member or participant, and the suspension or bar from being associated

with a member, if such person has engaged in acts or practices inconsistent

with just and equitable principles of fair trade or in willful violation of any

provision of the Code, any other law administered by the Commission, the

rules or regulations thereunder, or the rules of the self-regulatory

organization. In any disciplinary proceeding by a self-regulatory

organization (other than a summary proceeding pursuant to paragraph (b)

of this subsection) the self-regulatory organization shall bring specific

charges, provide notice to the person charged, afford the person charged

with an opportunity to defend against the charges, and keep a record of

the proceedings. A determination to impose a disciplinary sanction shall be

supported by a written statement of the offense, a summary of the

evidence presented and a statement of the sanction imposed.

(b) A self-regulatory organization may summarily: (i) Suspend a member,

participant or person associated with a member who has been or is

expelled or suspended from any other self-regulatory organization; or (ii)

Suspend a member who the self-regulatory organization finds to be in such

financial or operating difficulty that the member or participant cannot be

permitted to continue to do business as a member with safety to investors,

creditors, other members, participants or the self-regulatory organization:

Provided, That the self-regulatory organization immediately notifies the

Commission of the action taken. Any person aggrieved by a summary

action pursuant to this paragraph shall be promptly afforded an

opportunity for a hearing by the association in accordance with the

provisions of paragraph (a) of this subsection. The Commission, by order,may stay a summary action on its own motion or upon application by any

person aggrieved thereby, if the Commission determines summarily or

after due notice and hearing (which hearing may consist solely of the

submission of affidavits or presentation of oral arguments) that a stay is

consistent with the public interest and the protection of investors.

40.7. A self-regulatory organization shall promptly notify the Commission

of any disciplinary sanction on any member thereof or participant therein,

any denial of membership or participation in such organization, or the

imposition of any disciplinary sanction on a person associated with a

member or a bar of such person from becoming so associated. Withinthirty (30) days after such notice, any aggrieved person may appeal to the

Commission from, or the Commission on its own motion within such

period, may institute review of, the decision of the self-regulatory

organization, at the conclusion of which, after due notice and hearing

(which may consist solely of review of the record before the self-regulatory

organization), the Commission shall affirm, modify or set aside the

sanction. In such proceeding the Commission shall determine whether the

aggrieved person has engaged or omitted to engage in the acts and

practices as found by the self-regulatory organization, whether such acts

and practices constitute willful violations of this Code, any other law

administered by the Commission, the rules or regulations thereunder, or

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the rules of the self-regulatory organization as specified by such

organization, whether such provisions were applied in a manner consistent

with the purposes of this Code, and whether, with due regard for the public

interest and the protection of investors the sanction is excessive or

oppressive.

40.8. The powers of the Commission under this section shall apply to

organized exchanges and registered clearing agencies.

CHAPTER XI Acquisition and Transfer of Securities and Settlement of

Transactions in Securities

SEC. 41. Prohibition on Use of Unregistered Clearing Agency. - It shall be

unlawful for any broker, dealer, salesman, associated person of a broker or

dealer, or clearing agency, directly or indirectly, to make use of any facility

of a clearing agency in the Philippines to make deliveries in connection with

transactions in securities or to reduce the number of settlements of

securities transactions or to allocate securities settlement responsibilities

or to provide for the central handling of securities so that transfers, loansand pledges and similar transactions can be made by bookkeeping entry or

otherwise to facilitate the settlement of securities transactions without

physical delivery of securities certificates, unless such clearing agency is

registered as such under Section 42 of this Code or is exempted from such

registration upon application by the clearing agency because, in the opinion

of the Commission, by reason of the limited volume of transactions which

are settled using the clearing agency, it is not practicable and not necessary

or appropriate in the public interest or for the protection of investors to

require such registration.

SEC. 42. Registration of Clearing Agencies. – 42.1. Any clearing agency maybe registered as such with the Commission under the terms and conditions

hereinafter provided in this Section, by filing an application for registration

in such form and containing such information and supporting documents as

the Commission by rule shall prescribe, including the following:

(a) An undertaking to comply and enforce compliance by its participants

with the provisions of this Code, and any amendment thereto, and the

implementing rules or regulations made or to be made thereunder, and the

clearing agency’s rules;

(b) The organizational charts of the Exchange, its rules of procedure, and a

list of its officers and participants;

(c) Copies of the clearing agency’s rules.

42.2. No registration of a clearing agency shall be granted unless the rules

of the clearing agency include provision for:

(a) The expulsion, suspension, or disciplining of a participant for violations

of this Code, or any other Act administered by the Commission, the rules,

regulations, and orders thereunder, or the clearing agency’s rules;

(b) A fair procedure for the disciplining of participants, the denial of

participation rights to any person seeking to be a participant, and the

prohibition or limitation of any person from access to services offered by

the clearing agency;

(c) The equitable allocation of reasonable dues, fees, and other charges

among participants;

(d) Prevention of fraudulent and manipulative acts and practices,

promotion of just and equitable principles of trade, and, in general,

protection of investors and the public interest; and

(e) The transparent, prompt and accurate clearance and settlement of

transactions in securities handled by the clearing agency.

(f) The establishment and oversight of a fund to guarantee the prompt and

accurate clearance and settlement of transactions executed on an

exchange, including a requirement that members each contribute an

amount based on their volume and a relevant percentage of the daily

exposure of the four (4) largest trading brokers which adequately reflects

trading risks undertaken or pursuant to another formula set forth in

Commission rules or regulations or order, upon application: Provided,however, That a clearing agency engaged in the business of a securities

depository shall be exempt from this requirement.

42.3. In the case of an application filed pursuant to this Section, the

Commission shall grant registration if it finds that the requirements of this

Code and the rules and regulations thereunder with respect to the

applicant have been satisfied, and shall deny registration if it does not

make such finding.

42.4. Upon appropriate application in accordance with the rules and

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such rules and regulations as the Commission shall prescribe to prevent the

excessive use of credit for the purchasing or carrying of or trading in

securities in circumvention of the other provisions of this Section. Such

rules and regulations may impose upon all loans made for the purpose of

purchasing or carrying securities limitations similar to those imposed upon

members, brokers, or dealers by Subsection 48.2 and the rules and

regulations thereunder. This subsection and the rules and regulations

thereunder shall not apply: (a) To a credit extension made by a person not

in the ordinary course of business; (b) To a loan to a dealer to aid in the

financing of the distribution of securities to customers not through the

medium of an Exchange; or (c) To such other credit extension as the

Commission shall exempt from the operation of this subsection and the

rules and regulations thereunder upon specified terms and conditions or

for stated period.

SEC. 49. Restrictions on Borrowings by Members, Brokers, and Dealers. - It

shall be unlawful for any registered broker or dealer, or member of an

Exchange, directly or indirectly:

49.1. To permit in the ordinary course of business as a broker or dealer his

aggregate indebtedness including customers’ credit balances, to exceed

such percentage of the net capital (exclusive of fixed assets and value of

Exchange membership) employed in the business, but not exceeding in any

case two thousand per centum (2,000%), as the Commission may by rules

and regulations prescribe as necessary or appropriate in the public interest

or for the protection of investors.

49.2. To pledge, mortgage, or otherwise encumber or arrange for the

pledge, mortgage or encumbrance of any security carried for the account

of any customer under circumstances: (a) That will permit the commingling

of his securities, without his written consent, with the securities of any

customer; (b) That will permit such securities to be commingled with the

securities of any person other than a bona fide customer; or (c) That will

permit such securities to be pledged, mortgaged or encumbered, or

subjected to any lien or claim of the pledgee, for a sum in excess of the

aggregate indebtedness of such customers in respect of such securities.

However, the Commission, having due regard to the protection of

investors, may, by rules and regulations, allow certain transactions that

may otherwise be prohibited under this subsection.

49.3. To lend or arrange for the lending of any security carried for the

account of any customer without the written consent of such customer or

in contravention of such rules and regulations as the Commission shall

prescribe.

SEC. 50. Enforcement of Margin Requirements and Restrictions on

Borrowing. - To prevent indirect violations of the margin requirements

under Section 48, the broker or dealer shall require the customer in non-

margin transactions to pay the price of the security purchased for his

account within such period as the Commission may prescribe, which shall in

no case exceed the prescribed settlement date. Otherwise, the broker shall

sell the security purchased starting on the next trading day but not beyond

ten (10) trading days following the last day for the customer to pay such

purchase price, unless such sale cannot be effected within said period for

justifiable reasons. The sale shall be without prejudice to the right of the

broker or dealer to recover any deficiency from the customer. To prevent

indirect violation of the restrictions on borrowings under Section 49, the

broker shall, unless otherwise directed by the customer, pay the net sales

price of the securities sold for a customer within the same period as above

prescribed by the Commission: Provided, That the customer shall berequired to deliver the instruments evidencing the securities as a condition

for such payment upon demand by the broker.

CHAPTER XIII General Provisions

SEC. 51. Liabilities of Controlling Persons, Aider and Abettor and Other

Secondary Liability. – 51.1. Every person who, by or through stock

ownership, agency, or otherwise, or in connection with an agreement or

understanding with one or more other persons, controls any person liable

under this Code or the rules or regulations of the Commission thereunder,

shall also be liable jointly and severally with and to the same extent as such

controlled persons to any person to whom such controlled person is liable,

unless the controlling person proves that, despite the exercise of due

diligence on his part, he has no knowledge of the existence of the facts by

reason of which the liability of the controlled person is alleged to exist.

51.2. It shall be unlawful for any person, directly or indirectly, to do any act

or thing which it would be unlawful for such person to do under the

provisions of this Code or any rule or regulation thereunder.



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any rule of an Exchange, registered securities association, clearing agency

or other self-regulatory organization, it may issue an order to such person

to desist from committing such act or practice: Provided, however, That the

Commission shall not charge any person with violation of the rules of an

Exchange or other self regulatory organization unless it appears to the

Commission that such Exchange or other self-regulatory organization is

unable or unwilling to take action against such person. After finding that

such person has engaged in any such act or practice and that there is a

reasonable likelihood of continuing, further or future violations by such

person, the Commission may issue ex-parte a cease and desist order for a

maximum period of ten (10) days, enjoining the violation and compelling

compliance with such provision. The Commission may transmit such

evidence as may be available concerning any violation of any provision of

this Code, or any rule, regulation or order thereunder, to the Department

of Justice, which may institute the appropriate criminal proceedings under

this Code.

53.4. Any person who, within his power but without cause, fails or refuses

to comply with any lawful order, decision or subpoena issued by theCommission under Subsection 53.2 or Subsection 53.3 or Section 64 of this

Code, shall after due notice and hearing, be guilty of contempt of the

Commission. Such person shall be fined in such reasonable amount as the

Commission may determine, or when such failure or refusal is a clear and

open defiance of the Commission’s order, decision or subpoena, shall be

detained under an arrest order issued by the Commission, until such order,

decision or subpoena is complied with.

SEC. 54. Administrative Sanctions. - 54.1. If, after due notice and hearing,

the Commission finds that: (a) There is a violation of this Code, its rules, or

its orders; (b) Any registered broker or dealer, associated person thereof

has failed reasonably to supervise, with a view to preventing violations,

another person subject to supervision who commits any such violation; (c)

Any registrant or other person has, in a registration statement or in other

reports, applications, accounts, records or documents required by law or

rules to be filed with the Commission, made any untrue statement of a

material fact, or omitted to state any material fact required to be stated

therein or necessary to make the statements therein not misleading; or, in

the case of an underwriter, has failed to conduct an inquiry with

reasonable diligence to insure that a registration statement is accurate and

complete in all material respects; or (d) Any person has refused to permit

any lawful examinations into its affairs, it shall, in its discretion, and subject

only to the limitations hereinafter prescribed, impose any or all of the

following sanctions as may be appropriate in light of the facts and

circumstances:

(i) Suspension, or revocation of any registration for the offering of

securities;

(ii) A fine of no less than Ten thousand pesos (P10,000.00) nor more than

One million pesos (P1,000,000.00) plus not more than Two thousand pesos

(P2,000.00) for each day of continuing violation;

(iii) In the case of a violation of Sections 19.2, 20, 24, 26 and 27,

disqualification from being an officer, member of the Board of Directors, or

person performing similar functions, of an issuer required to file reports

under Section 17 of this Code or any other act, rule or regulation

administered by the Commission;

(iv) In the case of a violation of Section 34, a fine of no more than three (3)

times the profit gained or loss avoided as a result of the purchase, sale or

communication proscribed by such Section; and

(v) Other penalties within the power of the Commission to impose.

54.2. The imposition of the foregoing administrative sanctions shall be

without prejudice to the filing of criminal charges against the individuals

responsible for the violation.

54.3. The Commission shall have the power to issue writs of execution to

enforce the provisions of this Section and to enforce payment of the fees

and other dues collectible under this Code.

SEC. 55. Settlement Offers. – 55.1. At any time, during an investigation or

proceeding under this Code, parties being investigated and/or charged may

propose in writing an offer of settlement with the Commission.

55.2. Upon receipt of such offer of settlement, the Commission may

consider the offer based on timing, the nature of the investigation or

proceeding, and the public interest.

55.3. The Commission may only agree to a settlement offer based on its

findings that such settlement is in the public interest. Any agreement to

settle shall have no legal effect until publicly disclosed. Such decision may

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be made without a determination of guilt on the part of the person making

the offer.

55.4. The Commission shall adopt rules and procedures governing the filing,

review, withdrawal, form of rejection and acceptance of such offers.

SEC. 56. Civil Liabilities on Account of False Registration Statement. - 56.1.

Any person acquiring a security, the registration statement of which or any

part thereof contains on its effectivity an untrue statement of a material

fact or omits to state a material fact required to be stated therein or

necessary to make such statements not misleading, and who suffers

damage, may sue and recover damages from the following enumerated

persons, unless it is proved that at the time of such acquisition he knew of

such untrue statement or omission:

(a) The issuer and every person who signed the registration statement;

(b) Every person who was a director of, or any other person performing

similar functions, or a partner in, the issuer at the time of the filing of the

registration statement or any part, supplement or amendment thereof with

respect to which his liability is asserted;

(c) Every person who is named in the registration statement as being or

about to become a director of, or a person performing similar functions, or

a partner in, the issuer and whose written consent thereto is filed with the

registration statement;

(d) Every auditor or auditing firm named as having certified any financial

statements used in connection with the registration statement or

prospectus.

(e) Every person who, with his written consent, which shall be filed with the

registration statement, has been named as having prepared or certified any

part of the registration statement, or as having prepared or certified any

report or valuation which is used in connection with the registration

statement, with respect to the statement, report, or valuation, which

purports to have been prepared or certified by him.

(f) Every selling shareholder who contributed to and certified as to the

accuracy of a portion of the registration statement, with respect to that

portion of the registration statement which purports to have been

contributed by him.

(g) Every underwriter with respect to such security.

56.2. If the person who acquired the security did so after the issuer has

made generally available to its security holders an income statement

covering a period of at least twelve months beginning from the effective

date of the registration statement, then the right of recovery under this

subsection shall be conditioned on proof that such person acquired the

security relying upon such untrue statement in the registration statement

or relying upon the registration statement and not knowing of such income

statement, but such reliance may be established without proof of the

reading of the registration statement by such person.

SEC. 57. Civil Liabilities Arising in Connection With Prospectus,

Communications and Reports. - 57.1. Any person who:

(a) Offers to sell or sells a security in violation of Chapter III; or

(b) Offers to sell or sells a security, whether or not exempted by the

provisions of this Code, by the use of any means or instruments of

transportation or communication, by means of a prospectus or other

written or oral communication, which includes an untrue statement of amaterial fact or omits to state a material fact necessary in order to make

the statements, in the light of the circumstances under which they were

made, not misleading (the purchaser not knowing of such untruth or

omission), and who shall fail in the burden of proof that he did not know,

and in the exercise of reasonable care could not have known, of such

untruth or omission, shall be liable to the person purchasing such security

from him, who may sue to recover the consideration paid for such security

with interest thereon, less the amount of any income received thereon,

upon the tender of such security, or for damages if he no longer owns the

security.

57.2. Any person who shall make or cause to be made any statement in any

report, or document filed pursuant to this Code or any rule or regulation

thereunder, which statement was at the time and in the light of the

circumstances under which it was made false or misleading with respect to

any material fact, shall be liable to any person who, not knowing that such

statement was false or misleading, and relying upon such statements shall

have purchased or sold a security at a price which was affected by such

statement, for damages caused by such reliance, unless the person sued

shall prove that he acted in good faith and had no knowledge that such

statement was false or misleading.

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SEC. 58. Civil Liability For Fraud in Connection With Securities Transactions.

- Any person who engages in any act or transaction in violation of Sections

19.2, 20 or 26, or any rule or regulation of the Commission thereunder,

shall be liable to any other person who purchases or sells any security,

grants or refuses to grant any proxy, consent or authorization, or accepts or

declines an invitation for tender of a security, as the case may be, for the

damages sustained by such other person as a result of such act or

transaction.

SEC. 59. Civil Liability For Manipulation of Security Prices. - Any person who

willfully participates in any act or transaction in violation of Section 24 shall

be liable to any person who shall purchase or sell any security at a price

which was affected by such act or transaction, and the person so injured

may sue to recover the damages sustained as a result of such act or

transaction.

SEC. 60. Civil Liability With Respect to Commodity Futures Contracts and

Pre-need Plans. - 60.1. Any person who engages in any act or transaction in

willful violation of any rule or regulation promulgated by the Commissionunder Section 11 or 16, which the Commission denominates at the time of

issuance as intended to prohibit fraud in the offer and sale of pre-need

plans or to prohibit fraud, manipulation, fictitious transactions, undue

speculation, or other unfair or abusive practices with respect to commodity

future contracts, shall be liable to any other person sustaining damage as a

result of such act or transaction.

60.2. As to each such rule or regulation so denominated, the Commission

by rule shall prescribe the elements of proof required for recovery and any

limitations on the amount of damages that may be imposed.

SEC. 61. Civil Liability on Account of Insider Trading. - 61.1. Any insider who

violates Subsection 27.1 and any person in the case of a tender offer who

violates Subsection 27.4 (a)(i), or any rule or regulation thereunder, by

purchasing or selling a security while in possession of material information

not generally available to the public, shall be liable in a suit brought by any

investor who, contemporaneously with the purchase or sale of securities

that is the subject of the violation, purchased or sold securities of the same

class unless such insider, or such person in the case of a tender offer,

proves that such investor knew the information or would have purchased

or sold at the same price regardless of disclosure of the information to him.

61.2. An insider who violates Subsection 27.3 or any person in the case of a

tender offer who violates Subsection 27.4 (a), or any rule or regulation

thereunder, by communicating material non-public information, shall be

jointly and severally liable under Subsection 61.1 with, and to the same

extent as, the insider, or person in the case of a tender offer, to whom the

communication was directed and who is liable under Subsection 61.1 by

reason of his purchase or sale of a security.

SEC. 62. Limitation of Actions. - 62.1. No action shall be maintained to

enforce any liability created under Section 56 or 57 of this Code unless

brought within two (2) years after the discovery of the untrue statement or

the omission, or, if the action is to enforce a liability created under

Subsection 57.1(a), unless brought within two (2) years after the violation

upon which it is based. In no event shall any such action be brought to

enforce a liability created under Section 56 or Subsection 57.1 (a) more

than five (5) years after the security was bona fide offered to the public, or

under Subsection 57.1 (b) more than five (5) years after the sale.

62.2. No action shall be maintained to enforce any liability created underany other provision of this Code unless brought within two (2) years after

the discovery of the facts constituting the cause of action and within five

(5) years after such cause of action accrued.

SEC. 63. Amount of Damages to be Awarded. - 63.1. All suits to recover

damages pursuant to Sections 56, 57, 58, 59, 60 and 61 shall be brought

before the Regional Trial Court, which shall have exclusive jurisdiction to

hear and decide such suits. The Court is hereby authorized to award

damages in an amount not exceeding triple the amount of the transaction

plus actual damages.

Exemplary damages may also be awarded in cases of bad faith, fraud,

malevolence or wantonness in the violation of this Code or the rules and

regulations promulgated thereunder.

The Court is also authorized to award attorney’s fees not exceeding thirty

percentum (30%) of the award.

63.2. The persons specified in Sections 56, 57, 58, 59, 60 and 61 hereof

shall be jointly and severally liable for the payment of damages. However,

any person who becomes liable for the payment of such damages may

recover contribution from any other person who, if sued separately, would

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have been liable to make the same payment, unless the former was guilty

of fraudulent representation and the latter was not.

63.3. Notwithstanding any provision of law to the contrary, all persons,

including the issuer, held liable under the provisions of Sections 56, 57, 58,

59, 60 and 61 shall contribute equally to the total liability adjudged herein.

In no case shall the principal stockholders, directors and other officers of

the issuer or persons occupying similar positions therein, recover their

contribution to the liability from the issuer. However, the right of the issuer

to recover from the guilty parties the amount it has contributed under this

Section shall not be prejudiced.

SEC. 64. Cease and Desist Order. – 64.1. The Commission, after proper

investigation or verification, motu proprio, or upon verified complaint by

any aggrieved party, may issue a cease and desist order without the

necessity of a prior hearing if in its judgment the act or practice, unless

restrained, will operate as a fraud on investors or is otherwise likely to

cause grave or irreparable injury or prejudice to the investing public.

64.2. Until the Commission issues a cease and desist order, the fact that an

investigation has been initiated or that a complaint has been filed,

including the contents of the complaint, shall be confidential. Upon

issuance of a cease and desist order, the Commission shall make public

such order and a copy thereof shall be immediately furnished to each

person subject to the order.

64.3. Any person against whom a cease and desist order was issued may,

within five (5) days from receipt of the order, file a formal request for a

lifting thereof. Said request shall be set for hearing by the Commission not

later than fifteen (15) days from its filing and the resolution thereof shall be

made not later than ten (10) days from the termination of the hearing. If

the Commission fails to resolve the request within the time herein

prescribed, the cease and desist order shall automatically be lifted.

SEC. 65. Substituted Service Upon the Commission. - Service of summons

or other process shall be made upon the Commission in actions or legal

proceedings against an issuer or any person liable under this Code who is

not domiciled in the Philippines. Upon receipt by the Commission of such

summons, the Commission shall within ten (10) days thereafter, transmit

by registered mail a copy of such summons and the complaint or other

legal process to such issuer or person at his last known address or principal

office. The sending thereof by the Commission, the expenses for which

shall be advanced by the party at whose instance it is made, shall complete

such service.

SEC. 66. Revelation of Information Filed with the Commission. – 66.1. All

information filed with the Commission in compliance with the

requirements of this Code shall be made available to any member of the

general public, upon request, in the premises and during regular office

hours of the Commission, except as set forth in this Section.

66.2. Nothing in this Code shall be construed to require, or to authorize the

Commission to require, the revealing of trade secrets or processes in any

application, report, or document filed with the Commission.

66.3. Any person filing any such application, report or document may make

written objection to the public disclosure of information contained therein,

stating the grounds for such objection, and the Commission may hear

objections as it deems necessary. The Commission may, in such cases,

make available to the public the information contained in any suchapplication, report, or document only when a disclosure of such

information is required in the public interest or for the protection of

investors; and copies of information so made available may be furnished to

any person having a legitimate interest therein at such reasonable charge

and under such reasonable limitations as the Commission may prescribe.

66.4. It shall be unlawful for any member, officer, or employee of the

Commission to disclose to any person other than a member, officer or

employee of the Commission or to use for personal benefit, any

information contained in any application, report, or document filed with

the Commission which is not made available to the public pursuant to

Subsection 66.3.

66.5. Notwithstanding anything in Subsection 66.4 to the contrary, on

request from a foreign enforcement authority of any country whose laws

grant reciprocal assistance as herein provided, the Commission may

provide assistance in accordance with this subsection, including the

disclosure of any information filed with or transmitted to the Commission,

if the requesting authority states that it is conducting an investigation

which it deems necessary to determine whether any person has violated, is

violating, or is about to violate any laws relating to securities or

commodities matters that the requesting authority administers or



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violation of the provisions of this Code or any rules or regulations

thereunder; or

(b) To afford a defense to the collection of any debt, obligation or the

enforcement of any lien by any person who shall have acquired such debt,

obligation or lien in good faith, for value and without actual knowledge of

the violation of any provision of this Code or any rule or regulation

thereunder affecting the legality of such debt, obligation or lien.

SEC. 72. Rules and Regulations; Effectivity. - 72.1. This Code shall be self-

executory. To effect the provisions and purposes of this Code, the

Commission may issue, amend, and rescind such rules and regulations and

orders necessary or appropriate, including rules and regulations defining

accounting, technical, and trade terms used in this Code, and prescribing

the form or forms in which information required in registration statements,

applications, and reports to the Commission shall be set forth. For purposes

of its rules or regulations, the Commission may classify persons, securities,

and other matters within its jurisdiction, prescribe different requirements

for different classes of persons, securities, or matters, and by rule or order,

conditionally or unconditionally exempt any person, security, ortransaction, or class or classes of persons, securities or transactions, from

any or all provisions of this Code.

Failure on the part of the Commission to issue rules and regulations shall

not in any manner affect the self-executory nature of this Code.

72.2. The Commission shall promulgate rules and regulations providing for

reporting, disclosure and the prevention of fraudulent, deceptive or

manipulative practices in connection with the purchase by an issuer, by

tender offer or otherwise, of and equity security of a class issued by it that

satisfies the requirements of Subsection 17.2. Such rules and regulations

may require such issuer to provide holders of equity securities of such

dates with such information relating to the reasons for such purchase, the

source of funds, the number of shares to be purchased, the price to be paid

for such securities, the method of purchase and such additional

information as the Commission deems necessary or appropriate in the

public interest or for the protection of investors, or which the Commission

deems to be material to a determination by holders whether such security

should be sold.

72.3. For the purpose of Subsection 72.2, a purchase by or for the issuer or

any person controlling, controlled by, or under common control with the

issuer, or a purchase subject to the control of the issuer or any such person,

shall be deemed to be a purchased by the issuer. The Commission shall

have the power to make rules and regulations implementing this

subsection, including exemptive rules and regulations covering situations in

which the Commission deems it unnecessary or inappropriate that a

purchase of the type described in this subsection shall be deemed to be a

purchase by the issuer for the purpose of some or all of the provisions of

Subsection 72.2.

72.4. The rules and regulations promulgated by the Commission shall be

published in two (2) newspapers of general circulation in the Philippines,

and unless otherwise prescribed by the Commission, the same shall be

effective fifteen (15) days after the date of the last publication.

SEC. 73. Penalties. - Any person who violates any of the provisions of this

Code, or the rules and regulations promulgated by the Commission under

authority thereof, or any person who, in a registration statement filed

under this Code, makes any untrue statement of a material fact or omits to

state any material fact required to be stated therein or necessary to makethe statements therein not misleading, shall, upon conviction, suffer a fine

of not less than Fifty thousand pesos (P50,000.00) nor more than Five

million pesos (P5,000,000.00) or imprisonment of not less than seven (7)

years nor more than twenty- one (21) years, or both in the discretion of the

court. If the offender is a corporation, partnership or association or other

juridical entity, the penalty may in the discretion of the court be imposed

upon such juridical entity and upon the officer or officers of the

corporation, partnership, association or entity responsible for the violation,

and if such officer is an alien, he shall in addition to the penalties

prescribed, be deported without further proceedings after service of

sentence.

SEC. 74. Transitory Provisions. - The Commission, as organized under

existing laws, shall continue to exist and exercise its powers, functions and

duties under such laws and this Code: Provided, That until otherwise

mandated by a subsequent law, the Commission shall continue to regulate

and supervise commodity futures contracts as provided in Section 11 and

pre-need plans and the pre-need industry as provided in Section 16 of this

Code.

All further requirements herein shall be complied with upon approval of

this Code: Provided, however, That compliance may be deferred for such

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reasonable time as the Commission may determine but not to exceed one

(1) year from approval of this Code: Provided, further, That securities which

are being offered at the time of effectivity of this Code pursuant to an

effective registration and permit, may continue to be offered and sold in

accordance with the provisions of the Revised Securities Act in effect

immediately prior to approval of this Code.

All unexpended funds for the calendar year, properties, equipment andrecords of the Securities and Exchange Commission are hereby retained by

the Commission as reorganized under this Code and the amount of Two

hundred million (P200,000,000.00) or such amount necessary to carry out

the reorganization provided in this Code is hereby appropriated.

All employees of the Commission who voluntarily retire or are separated

from the service with the Commission and whose retirement or separation

has been approved by the Commission, shall be paid retirement or

separation benefits and other entitlements granted under existing laws.

SEC. 75. Partial Use Of Income. - To carry out the purposes of this Code,the Commission is hereby authorized, in addition to its annual budget, to

retain and utilize an amount equal to one hundred million pesos

(P100,000,000.00) from its income.

The use of such additional amount shall be subject to the auditing

requirements, standards and procedures under existing laws.

SEC. 76. Repealing Clause. - TheRevised Securities Act (Batas Pambansa Blg.

178), as amended, in its entirety, and Sections 2, 4 and 8 of Presidential

Decree 902-A as amended, are hereby repealed. All other laws, orders,

rules and regulations, or parts thereof, inconsistent with any provision of

this Code are hereby repealed or modified accordingly.

SEC. 77. Separability Clause. - If any portion or provision of this Code is

declared unconstitutional or invalid, the other portions or provisions

hereof, which are not affected thereby shall continue in full force and

effect.

SEC. 78. Effectivity. - This Code shall take effect fifteen (15) days after its

publication in the Official Gazette or in two (2) newspapers of general

circulation.

Approved: July 19, 2000

JOSEPH E. ESTRADA

President of the Philippines

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ACT NO. 2137 - THE WAREHOUSE RECEIPTS LAW

I — THE ISSUE OF WAREHOUSE RECEIPTS

Section 1. Persons who may issue receipts. — Warehouse receipts may be

issued by any warehouseman.

Sec. 2. Form of receipts; essential terms. — Warehouse receipts need not

be in any particular form but every such receipt must embody within its

written or printed terms:(a) The location of the warehouse where the goods are stored,

(b) The date of the issue of the receipt,

(c) The consecutive number of the receipt,

(d) A statement whether the goods received will be delivered to the bearer,

to a specified person or to a specified person or his order,

(e) The rate of storage charges,

(f) A description of the goods or of the packages containing them,

(g) The signature of the warehouseman which may be made by his

authorized agent,

(h) If the receipt is issued for goods of which the warehouseman is owner,

either solely or jointly or in common with others, the fact of such

ownership, and

(i) A statement of the amount of advances made and of liabilities incurred

for which the warehouseman claims a lien. If the precise amount of such

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advances made or of such liabilities incurred is, at the time of the issue of,

unknown to the warehouseman or to his agent who issues it, a statement

of the fact that advances have been made or liabilities incurred and the

purpose thereof is sufficient.

A warehouseman shall be liable to any person injured thereby for all

damages caused by the omission from a negotiable receipt of any of the

terms herein required.

Sec. 3. Form of receipts. — What terms may be inserted. — A

warehouseman may insert in a receipt issued by him any other terms and

conditions provided that such terms and conditions shall not:

(a) Be contrary to the provisions of this Act.

(b) In any wise impair his obligation to exercise that degree of care in the

safe-keeping of the goods entrusted to him which is reasonably careful

man would exercise in regard to similar goods of his own.

Sec. 4. Definition of non-negotiable receipt. — A receipt in which it is statedthat the goods received will be delivered to the depositor or to any other

specified person, is a non-negotiable receipt.

Sec. 5. Definition of negotiable receipt. — A receipt in which it is stated that

the goods received will be delivered to the bearer or to the order of any

person named in such receipt is a negotiable receipt.

No provision shall be inserted in a negotiable receipt that it is non-

negotiable. Such provision, if inserted shall be void.

Sec. 6. Duplicate receipts must be so marked. — When more than one

negotiable receipt is issued for the same goods, the word "duplicate" shall

be plainly placed upon the face of every such receipt, except the first one

issued. A warehouseman shall be liable for all damages caused by his

failure so to do to any one who purchased the subsequent receipt for value

supposing it to be an original, even though the purchase be after the

delivery of the goods by the warehouseman to the holder of the original

receipt.

Sec. 7. Failure to mark "non-negotiable." — A non-negotiable receipt shall

have plainly placed upon its face by the warehouseman issuing it "non-

negotiable," or "not negotiable." In case of the warehouseman's failure so

to do, a holder of the receipt who purchased it for value supposing it to be

negotiable, may, at his option, treat such receipt as imposing upon the

warehouseman the same liabilities he would have incurred had the receipt

been negotiable.

This section shall not apply, however, to letters, memoranda, or written

acknowledgment of an informal character.

II — OBLIGATIONS AND RIGHTS OF WAREHOUSEMEN UPON THEIR

RECEIPTS

Sec. 8. Obligation of warehousemen to deliver. — A warehouseman, in the

absence of some lawful excuse provided by this Act, is bound to deliver the

goods upon a demand made either by the holder of a receipt for the goods

or by the depositor; if such demand is accompanied with:

(a) An offer to satisfy the warehouseman's lien;

(b) An offer to surrender the receipt, if negotiable, with such indorsements

as would be necessary for the negotiation of the receipt; and

(c) A readiness and willingness to sign, when the goods are delivered, an

acknowledgment that they have been delivered, if such signature is

requested by the warehouseman.

In case the warehouseman refuses or fails to deliver the goods in

compliance with a demand by the holder or depositor so accompanied, the

burden shall be upon the warehouseman to establish the existence of a

lawful excuse for such refusal.

Sec. 9. Justification of warehouseman in delivering. — A warehouseman is

justified in delivering the goods, subject to the provisions of the three

following sections, to one who is:

(a) The person lawfully entitled to the possession of the goods, or his

agent;

(b) A person who is either himself entitled to delivery by the terms of a

non-negotiable receipt issued for the goods, or who has written authority

from the person so entitled either indorsed upon the receipt or written

upon another paper; or

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(c) A person in possession of a negotiable receipt by the terms of which the

goods are deliverable to him or order, or to bearer, or which has been

indorsed to him or in blank by the person to whom delivery was promised

by the terms of the receipt or by his mediate or immediate indorser.

Sec. 10. Warehouseman's liability for misdelivery. — Where a

warehouseman delivers the goods to one who is not in fact lawfully

entitled to the possession of them, the warehouseman shall be liable as forconversion to all having a right of property or possession in the goods if he

delivered the goods otherwise than as authorized by subdivisions (b) and

(c) of the preceding section, and though he delivered the goods as

authorized by said subdivisions, he shall be so liable, if prior to such

delivery he had either:

(a) Been requested, by or on behalf of the person lawfully entitled to a right

of property or possession in the goods, not to make such deliver; or

(b) Had information that the delivery about to be made was to one not

lawfully entitled to the possession of the goods.

Sec. 11. Negotiable receipt must be cancelled when goods delivered. —

Except as provided in section thirty-six, where a warehouseman delivers

goods for which he had issued a negotiable receipt, the negotiation of

which would transfer the right to the possession of the goods, and fails to

take up and cancel the receipt, he shall be liable to any one who purchases

for value in good faith such receipt, for failure to deliver the goods to him,

whether such purchaser acquired title to the receipt before or after the

delivery of the goods by the warehouseman.

Sec. 12. Negotiable receipts must be cancelled or marked when part of

goods delivered. — Except as provided in section thirty-six, where a

warehouseman delivers part of the goods for which he had issued a

negotiable receipt and fails either to take up and cancel such receipt or to

place plainly upon it a statement of what goods or packages have been

delivered, he shall be liable to any one who purchases for value in good

faith such receipt, for failure to deliver all the goods specified in the

receipt, whether such purchaser acquired title to the receipt before or after

the delivery of any portion of the goods by the warehouseman.

Sec. 13. Altered receipts. — The alteration of a receipt shall not excuse the

warehouseman who issued it from any liability if such alteration was:

(a) Immaterial,

(b) Authorized, or

(c) Made without fraudulent intent.

If the alteration was authorized, the warehouseman shall be liable

according to the terms of the receipt as altered. If the alteration was

unauthorized but made without fraudulent intent, the warehouseman shallbe liable according to the terms of the receipt as they were before

alteration.

Material and fraudulent alteration of a receipt shall not excuse the

warehouseman who issued it from liability to deliver according to the

terms of the receipt as originally issued, the goods for which it was issued

but shall excuse him from any other liability to the person who made the

alteration and to any person who took with notice of the alteration. Any

purchaser of the receipt for value without notice of the alteration shall

acquire the same rights against the warehouseman which such purchaser

would have acquired if the receipt had not been altered at the time ofpurchase.

Sec. 14. Lost or destroyed receipts. — Where a negotiable receipt has been

lost or destroyed, a court of competent jurisdiction may order the delivery

of the goods upon satisfactory proof of such loss or destruction and upon

the giving of a bond with sufficient sureties to be approved by the court to

protect the warehouseman from any liability or expense, which he or any

person injured by such delivery may incur by reason of the original receipt

remaining outstanding. The court may also in its discretion order the

payment of the warehouseman's reasonable costs and counsel fees.

The delivery of the goods under an order of the court as provided in this

section, shall not relieve the warehouseman from liability to a person to

whom the negotiable receipt has been or shall be negotiated for value

without notice of the proceedings or of the delivery of the goods.

Sec. 15. Effect of duplicate receipts. — A receipt upon the face of which the

word "duplicate" is plainly placed is a representation and warranty by the

warehouseman that such receipt is an accurate copy of an original receipt

properly issued and uncanceled at the date of the issue of the duplicate,

but shall impose upon him no other liability.

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Sec. 16. Warehouseman cannot set up title in himself . — No title or right

to the possession of the goods, on the part of the warehouseman, unless

such title or right is derived directly or indirectly from a transfer made by

the depositor at the time of or subsequent to the deposit for storage, or

from the warehouseman's lien, shall excuse the warehouseman from

liability for refusing to deliver the goods according to the terms of the

receipt.

Sec. 17. Interpleader of adverse claimants. — If more than one person

claims the title or possession of the goods, the warehouseman may, either

as a defense to an action brought against him for non-delivery of the goods

or as an original suit, whichever is appropriate, require all known claimants

to interplead.

Sec. 18. Warehouseman has reasonable time to determine validity of

claims. — If someone other than the depositor or person claiming under

him has a claim to the title or possession of goods, and the warehouseman

has information of such claim, the warehouseman shall be excused from

liability for refusing to deliver the goods, either to the depositor or personclaiming under him or to the adverse claimant until the warehouseman has

had a reasonable time to ascertain the validity of the adverse claim or to

bring legal proceedings to compel claimants to interplead.

Sec. 19. Adverse title is no defense except as above provided. — Except as

provided in the two preceding sections and in sections nine and thirty-six,

no right or title of a third person shall be a defense to an action brought by

the depositor or person claiming under him against the warehouseman for

failure to deliver the goods according to the terms of the receipt.

Sec. 20. Liability for non-existence or misdescription of goods. — A

warehouseman shall be liable to the holder of a receipt for damages

caused by the non-existence of the goods or by the failure of the goods to

correspond with the description thereof in the receipt at the time of its

issue. If, however, the goods are described in a receipt merely by a

statement of marks or labels upon them or upon packages containing them

or by a statement that the goods are said to be goods of a certain kind or

that the packages containing the goods are said to contain goods of a

certain kind or by words of like purport, such statements, if true, shall not

make liable the warehouseman issuing the receipt, although the goods are

not of the kind which the marks or labels upon them indicate or of the kind

they were said to be by the depositor.

Sec. 21. Liability for care of goods. — A warehouseman shall be liable for

any loss or injury to the goods caused by his failure to exercise such care in

regard to them as reasonably careful owner of similar goods would

exercise, but he shall not be liable, in the absence of an agreement to the

contrary, for any loss or injury to the goods which could not have been

avoided by the exercise of such care.

Sec. 22. Goods must be kept separate. — Except as provided in the

following section, a warehouseman shall keep the goods so far separate

from goods of other depositors and from other goods of the same

depositor for which a separate receipt has been issued, as to permit at all

times the identification and redelivery of the goods deposited.

Sec. 23. Fungible goods may be commingled if warehouseman authorized.

— If authorized by agreement or by custom, a warehouseman may mingle

fungible goods with other goods of the same kind and grade. In such case,

the various depositors of the mingled goods shall own the entire mass in

common and each depositor shall be entitled to such portion thereof as theamount deposited by him bears to the whole.

Sec. 24. Liability of warehouseman to depositors of commingled goods. —

The warehouseman shall be severally liable to each depositor for the care

and redelivery of his share of such mass to the same extent and under the

same circumstances as if the goods had been kept separate.

Sec. 25. Attachment or levy upon goods for which a negotiable receipt has

been issued. — If goods are delivered to a warehouseman by the owner or

by a person whose act in conveying the title to them to a purchaser in good

faith for value would bind the owner, and a negotiable receipt is issued for

them, they can not thereafter, while in the possession of the

warehouseman, be attached by garnishment or otherwise, or be levied

upon under an execution unless the receipt be first surrendered to the

warehouseman or its negotiation enjoined. The warehouseman shall in no

case be compelled to deliver up the actual possession of the goods until the

receipt is surrendered to him or impounded by the court.

Sec. 26. Creditor's remedies to reach negotiable receipts. — A creditor

whose debtor is the owner of a negotiable receipt shall be entitled to such

aid from courts of appropriate jurisdiction, by injunction and otherwise, in

attaching such receipt or in satisfying the claim by means thereof as is



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From the proceeds of such sale, the warehouseman shall satisfy his lien

including the reasonable charges of notice, advertisement and sale. The

balance, if any, of such proceeds shall be held by the warehouseman and

delivered on demand to the person to whom he would have been bound to

deliver or justified in delivering goods.

At any time before the goods are so sold, any person claiming a right ofproperty or possession therein may pay the warehouseman the amount

necessary to satisfy his lien and to pay the reasonable expenses and

liabilities incurred in serving notices and advertising and preparing for the

sale up to the time of such payment. The warehouseman shall deliver the

goods to the person making payment if he is a person entitled, under the

provision of this Act, to the possession of the goods on payment of charges

thereon. Otherwise, the warehouseman shall retain the possession of the

goods according to the terms of the original contract of deposit.

Sec. 34. Perishable and hazardous goods. — If goods are of a perishable

nature, or by keeping will deteriorate greatly in value, or, by their order,leakage, inflammability, or explosive nature, will be liable to injure other

property , the warehouseman may give such notice to the owner or to the

person in whose names the goods are stored, as is reasonable and possible

under the circumstances, to satisfy the lien upon such goods and to remove

them from the warehouse and in the event of the failure of such person to

satisfy the lien and to receive the goods within the time so specified, the

warehouseman may sell the goods at public or private sale without

advertising. If the warehouseman, after a reasonable effort, is unable to

sell such goods, he may dispose of them in any lawful manner and shall

incur no liability by reason thereof.

The proceeds of any sale made under the terms of this section shall be

disposed of in the same way as the proceeds of sales made under the terms

of the preceding section.

Sec. 35. Other methods of enforcing lien. — The remedy for enforcing a lien

herein provided does not preclude any other remedies allowed by law for

the enforcement of a lien against personal property nor bar the right to

recover so much of the warehouseman's claim as shall not be paid by the

proceeds of the sale of the property.

Sec. 36. Effect of sale. — After goods have been lawfully sold to satisfy a

warehouseman's lien, or have been lawfully sold or disposed of because of

their perishable or hazardous nature, the warehouseman shall not

thereafter be liable for failure to deliver the goods to the depositor or

owner of the goods or to a holder of the receipt given for the goods when

they were deposited, even if such receipt be negotiable.

III — NEGOTIATION AND TRANSFER OF RECEIPTS

Sec. 37. Negotiation of negotiable receipt of delivery. — A negotiable

receipt may be negotiated by delivery:

(a) Where, by terms of the receipt, the warehouseman undertakes to

deliver the goods to the bearer, or

(b) Where, by the terms of the receipt, the warehouseman undertakes to

deliver the goods to the order of a specified person, and such person or a

subsequent indorsee of the receipt has indorsed it in blank or to bearer.

Where, by the terms of a negotiable receipt, the goods are deliverable to

bearer or where a negotiable receipt has been indorsed in blank or to

bearer, any holder may indorse the same to himself or to any other

specified person, and, in such case, the receipt shall thereafter be

negotiated only by the indorsement of such indorsee.

Sec. 38. Negotiation of negotiable receipt by indorsement. — A negotiable

receipt may be negotiated by the indorsement of the person to whose

order the goods are, by the terms of the receipt, deliverable. Such

indorsement may be in blank, to bearer or to a specified person. If

indorsed to a specified person, it may be again negotiated by the

indorsement of such person in blank, to bearer or to another specified

person. Subsequent negotiation may be made in like manner.

Sec. 39. Transfer of receipt. — A receipt which is not in such form that it

can be negotiated by delivery may be transferred by the holder by delivery

to a purchaser or donee.

A non-negotiable receipt can not be negotiated, and the indorsement of

such a receipt gives the transferee no additional right.



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receipt to such person, if the person to whom the receipt was negotiated

or a person to whom the receipt was subsequently negotiated paid value

therefor, without notice of the breach of duty, or fraud, mistake or duress.

Sec. 48. Subsequent negotiation. — Where a person having sold,

mortgaged, or pledged goods which are in warehouse and for which a

negotiable receipt has been issued, or having sold, mortgaged, or pledged

the negotiable receipt representing such goods, continues in possession ofthe negotiable receipt, the subsequent negotiation thereof by the person

under any sale or other disposition thereof to any person receiving the

same in good faith, for value and without notice of the previous sale,

mortgage or pledge, shall have the same effect as if the first purchaser of

the goods or receipt had expressly authorized the subsequent negotiation.

Sec. 49. Negotiation defeats vendor's lien. — Where a negotiable receipt

has been issued for goods, no seller's lien or right of stoppage in transitu

shall defeat the rights of any purchaser for value in good faith to whom

such receipt has been negotiated, whether such negotiation be prior or

subsequent to the notification to the warehouseman who issued suchreceipt of the seller's claim to a lien or right of stoppage in transitu. Nor

shall the warehouseman be obliged to deliver or justified in delivering the

goods to an unpaid seller unless the receipt is first surrendered for

cancellation.

IV — CRIMINAL OFFENSES

Sec. 50. Issue of receipt for goods not received. — A warehouseman, or an

officer, agent, or servant of a warehouseman who issues or aids in issuing a

receipt knowing that the goods for which such receipt is issued have not

been actually received by such warehouseman, or are not under his actual

control at the time of issuing such receipt, shall be guilty of a crime, and,

upon conviction, shall be punished for each offense by imprisonment not

exceeding five years, or by a fine not exceeding ten thousand pesos, or

both.

Sec. 51. Issue of receipt containing false statement. — A warehouseman, or

any officer, agent or servant of a warehouseman who fraudulently issues or

aids in fraudulently issuing a receipt for goods knowing that it contains any

false statement, shall be guilty of a crime, and upon conviction, shall be

punished for each offense by imprisonment not exceeding one year, or by a

fine not exceeding two thousand pesos, or by both.

Sec. 52. Issue of duplicate receipt not so marked. — A warehouse, or any

officer, agent, or servant of a warehouseman who issues or aids in issuing a

duplicate or additional negotiable receipt for goods knowing that a former

negotiable receipt for the same goods or any part of them is outstanding

and uncanceled, without plainly placing upon the face thereof the word"duplicate" except in the case of a lost or destroyed receipt after

proceedings are provided for in section fourteen, shall be guilty of a crime,

and, upon conviction, shall be punished for each offense by imprisonment

not exceeding five years, or by a fine not exceeding ten thousand pesos, or

by both.

Sec. 53. Issue for warehouseman's goods or receipts which do not state

that fact. — Where they are deposited with or held by a warehouseman

goods of which he is owner, either solely or jointly or in common with

others, such warehouseman, or any of his officers, agents, or servants who,

knowing this ownership, issues or aids in issuing a negotiable receipt forsuch goods which does not state such ownership, shall be guilty of a crime,

and, upon conviction, shall be punished for each offense by imprisonment

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

by both.

Sec. 54. Delivery of goods without obtaining negotiable receipt. — A

warehouseman, or any officer, agent, or servant of a warehouseman, who

delivers goods out of the possession of such warehouseman, knowing that

a negotiable receipt the negotiation of which would transfer the right to

the possession of such goods is outstanding and uncanceled, without

obtaining the possession of such receipt at or before the time of such

delivery, shall, except in the cases provided for in sections fourteen and

thirty-six, be found guilty of a crime, and, upon conviction, shall be

punished for each offense by imprisonment not exceeding one year, or by a

fine not exceeding two thousand pesos, or by both.

Sec. 55. Negotiation of receipt for mortgaged goods. — Any person who

deposits goods to which he has no title, or upon which there is a lien or

mortgage, and who takes for such goods a negotiable receipt which he

afterwards negotiates for value with intent to deceive and without

disclosing his want of title or the existence of the lien or mortgage, shall be

guilty of a crime, and, upon conviction, shall be punished for each offense



G R A C I E |



TRUST RECEIPTS LAW

PD No. 115 PROVIDING FOR THE REGULATION OF TRUST RECEIPTS

TRANSACTIONS January 29, 1973

WHEREAS, the utilization of trust receipts, as a convenient business device

to assist importers and merchants solve their financing problems, had

gained popular acceptance in international and domestic business

practices, particularly in commercial banking transactions;

WHEREAS, there is no specific law in the Philippines that governs trust

receipt transactions, especially the rights and obligations of the parties

involved therein and the enforcement of the said rights in case of default or

violation of the terms of the trust receipt agreement;

WHEREAS, the recommendations contained in the report on the financial

system which have been accepted, with certain modifications by the

monetary authorities included, among others, the enactment of a law

regulating the trust receipt transactions;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines,

by virtue of the powers vested in me by the Constitution, as Commander-

in-Chief of all the Armed Forces of the Philippines, and pursuant to

Proclamation No. 1081, dated September 21, 1972, and General Order No.

1, dated September 22, 1972, as amended, and in order to effect the

desired changes and reforms in the social, economic, and political structure

of our society, do hereby order and decree and make as part of the law of

the land the following:

Section 1. Short Title. This Decree shall be known as the Trust Receipts Law.

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Section 2. Declaration of Policy. It is hereby declared to be the policy of the

state (a) to encourage and promote the use of trust receipts as an

additional and convenient aid to commerce and trade; (b) to provide for

the regulation of trust receipts transactions in order to assure the

protection of the rights and enforcement of obligations of the parties

involved therein; and (c) to declare the misuse and/or misappropriation of

goods or proceeds realized from the sale of goods, documents or

instruments released under trust receipts as a criminal offense punishableunder Article Three hundred and fifteen of the Revised Penal Code.

Section 3. Definition of terms. As used in this Decree, unless the context

otherwise requires, the term

(a) "Document" shall mean written or printed evidence of title to

goods.

(b) "Entrustee" shall refer to the person having or taking

possession of goods, documents or instruments under a trust

receipt transaction, and any successor in interest of such personfor the purpose or purposes specified in the trust receipt

agreement.

(c) "Entruster" shall refer to the person holding title over the

goods, documents, or instruments subject of a trust receipt

transaction, and any successor in interest of such person.

(d) "Goods" shall include chattels and personal property other

than: money, things in action, or things so affixed to land as to

become a part thereof.

(e) "Instrument" means any negotiable instrument as defined in

the Negotiable Instrument Law; any certificate of stock, or bond or

debenture for the payment of money issued by a public or private

corporation, or any certificate of deposit, participation certificate

or receipt, any credit or investment instrument of a sort marketed

in the ordinary course of business or finance, whereby the

entrustee, after the issuance of the trust receipt, appears by virtue

of possession and the face of the instrument to be the owner.

"Instrument" shall not include a document as defined in this

Decree.

(f) "Purchase" means taking by sale, conditional sale, lease,

mortgage, or pledge, legal or equitable.

(g) "Purchaser" means any person taking by purchase.

(h) "Security Interest" means a property interest in goods,

documents or instruments to secure performance of some

obligations of the entrustee or of some third persons to the

entruster and includes title, whether or not expressed to be

absolute, whenever such title is in substance taken or retained for

security only.

(i) "Person" means, as the case may be, an individual, trustee,

receiver, or other fiduciary, partnership, corporation, business

trust or other association, and two more persons having a joint or

common interest.

(j) "Trust Receipt" shall refer to the written or printed document

signed by the entrustee in favor of the entruster containing terms

and conditions substantially complying with the provisions of this

Decree. No further formality of execution or authentication shall

be necessary to the validity of a trust receipt.

(k) "Value" means any consideration sufficient to support a simple

contract.

Section 4. What constitutes a trust receipt transaction. A trust receipt

transaction, within the meaning of this Decree, is any transaction by and

between a person referred to in this Decree as the entruster, and another

person referred to in this Decree as entrustee, whereby the entruster, whoowns or holds absolute title or security interests over certain specified

goods, documents or instruments, releases the same to the possession of

the entrustee upon the latter's execution and delivery to the entruster of a

signed document called a "trust receipt" wherein the entrustee binds

himself to hold the designated goods, documents or instruments in trust

for the entruster and to sell or otherwise dispose of the goods, documents

or instruments with the obligation to turn over to the entruster the

proceeds thereof to the extent of the amount owing to the entruster or as

appears in the trust receipt or the goods, documents or instruments

themselves if they are unsold or not otherwise disposed of, in accordance



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less than five days after serving or sending of such notice, sell the goods,

documents or instruments at public or private sale, and the entruster may,

at a public sale, become a purchaser. The proceeds of any such sale,

whether public or private, shall be applied (a) to the payment of the

expenses thereof; (b) to the payment of the expenses of re-taking, keeping

and storing the goods, documents or instruments; (c) to the satisfaction of

the entrustee's indebtedness to the entruster. The entrustee shall receive

any surplus but shall be liable to the entruster for any deficiency. Notice ofsale shall be deemed sufficiently given if in writing, and either personally

served on the entrustee or sent by post-paid ordinary mail to the

entrustee's last known business address.

Section 8. Entruster not responsible on sale by entrustee. The entruster

holding a security interest shall not, merely by virtue of such interest or

having given the entrustee liberty of sale or other disposition of the goods,

documents or instruments under the terms of the trust receipt transaction

be responsible as principal or as vendor under any sale or contract to sell

made by the entrustee.

Section 9. Obligations of the entrustee. The entrustee shall (1) hold the

goods, documents or instruments in trust for the entruster and shall

dispose of them strictly in accordance with the terms and conditions of the

trust receipt; (2) receive the proceeds in trust for the entruster and turn

over the same to the entruster to the extent of the amount owing to the

entruster or as appears on the trust receipt; (3) insure the goods for their

total value against loss from fire, theft, pilferage or other casualties; (4)

keep said goods or proceeds thereof whether in money or whatever form,

separate and capable of identification as property of the entruster; (5)

return the goods, documents or instruments in the event of non-sale or

upon demand of the entruster; and (6) observe all other terms and

conditions of the trust receipt not contrary to the provisions of this Decree.

Section 10. Liability of entrustee for loss. The risk of loss shall be borne by

the entrustee. Loss of goods, documents or instruments which are the

subject of a trust receipt, pending their disposition, irrespective of whether

or not it was due to the fault or negligence of the entrustee, shall not

extinguish his obligation to the entruster for the value thereof.

Section 11. Rights of purchaser for value and in good faith. Any purchaser

of goods from an entrustee with right to sell, or of documents or

instruments through their customary form of transfer, who buys the goods,

documents, or instruments for value and in good faith from the entrustee,

acquires said goods, documents or instruments free from the entruster's

security interest.

Section 12. Validity of entruster's security interest as against creditors. The

entruster's security interest in goods, documents, or instruments pursuant

to the written terms of a trust receipt shall be valid as against all creditorsof the entrustee for the duration of the trust receipt agreement.

Section 13. Penalty clause. The failure of an entrustee to turn over the

proceeds of the sale of the goods, documents or instruments covered by a

trust receipt to the extent of the amount owing to the entruster or as

appears in the trust receipt or to return said goods, documents or

instruments if they were not sold or disposed of in accordance with the

terms of the trust receipt shall constitute the crime of estafa, punishable

under the provisions of Article Three hundred and fifteen, paragraph one

(b) of Act Numbered Three thousand eight hundred and fifteen, as

amended, otherwise known as the Revised Penal Code. If the violation oroffense is committed by a corporation, partnership, association or other

juridical entities, the penalty provided for in this Decree shall be imposed

upon the directors, officers, employees or other officials or persons therein

responsible for the offense, without prejudice to the civil liabilities arising

from the criminal offense.

Section 14. Cases not covered by this Decree. Cases not provided for in this

Decree shall be governed by the applicable provisions of existing laws.

Section 15. Separability clause. If any provision or section of this Decree or

the application thereof to any person or circumstance is held invalid, theother provisions or sections hereof and the application of such provisions

or sections to other persons or circumstances shall not be affected thereby.

Section 16. Repealing clause. All Acts inconsistent with this Decree are

hereby repealed.

Section 17. This Decree shall take effect immediately.

Done in the City of Manila, this 29th day of January, in the year of Our Lord,

nineteen hundred and seventy-three.

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ACT NO. 2031

February 03, 1911

THE NEGOTIABLE INSTRUMENTS LAW

I. FORM AND INTERPRETATION

Section 1. Form of negotiable instruments. - An instrument to be

negotiable must conform to the following requirements:

(a) It must be in writing and signed by the maker or drawer;

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

money;

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

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(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or

otherwise indicated therein with reasonable certainty.

Sec. 2. What constitutes certainty as to sum. - The sum payable is a sum

certain within the meaning of this Act, although it is to be paid:

(a) with interest; or

(b) by stated installments; or

(c) by stated installments, with a provision that, upon default in payment of

any installment or of interest, the whole shall become due; or

(d) with exchange, whether at a fixed rate or at the current rate; or

(e) with costs of collection or an attorney's fee, in case payment shall not

be made at maturity.

Sec. 3. When promise is unconditional. - An unqualified order or promise to

pay is unconditional within the meaning of this Act though coupled with:

(a) An indication of a particular fund out of which reimbursement is to be

made or a particular account to be debited with the amount; or

(b) A statement of the transaction which gives rise to the instrument.

But an order or promise to pay out of a particular fund is not unconditional.

Sec. 4. Determinable future time; what constitutes. - An instrument is

payable at a determinable future time, within the meaning of this Act,

which is expressed to be payable:

(a) At a fixed period after date or sight; or

(b) On or before a fixed or determinable future time specified therein; or

(c) On or at a fixed period after the occurrence of a specified event which is

certain to happen, though the time of happening be uncertain.

An instrument payable upon a contingency is not negotiable, and the

happening of the event does not cure the defect.

Sec. 5. Additional provisions not affecting negotiability. - An instrument

which contains an order or promise to do any act in addition to the

payment of money is not negotiable. But the negotiable character of aninstrument otherwise negotiable is not affected by a provision which:

(a) authorizes the sale of collateral securities in case the instrument be not

paid at maturity; or

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

maturity; or

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

of the obligor; or

(d) gives the holder an election to require something to be done in lieu of

payment of money.

But nothing in this section shall validate any provision or stipulation

otherwise illegal.

Sec. 6. Omissions; seal; particular money. - The validity and negotiable

character of an instrument are not affected by the fact that:

(a) it is not dated; or

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

therefor; or

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

payable; or

(d) bears a seal; or

(e) designates a particular kind of current money in which payment is to be

made.

But nothing in this section shall alter or repeal any statute requiring in

certain cases the nature of the consideration to be stated in the

instrument.

Sec. 7. When payable on demand. - An instrument is payable on

demand:

(a) When it is so expressed to be payable on demand, or at sight, or on

presentation; or

(b) In which no time for payment is expressed.

Where an instrument is issued, accepted, or indorsed when overdue, it is,as regards the person so issuing, accepting, or indorsing it, payable on

demand.

Sec. 8. When payable to order. - The instrument is payable to order where

it is drawn payable to the order of a specified person or to him or his order.

It may be drawn payable to the order of:

(a) A payee who is not maker, drawer, or drawee; or

(b) The drawer or maker; or

(c) The drawee; or

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(d) T j i l ( ) Wh h l l i d i i d i bl k



(d) Two or more payees jointly; or

(e) One or some of several payees; or

(f) The holder of an office for the time being.

Where the instrument is payable to order, the payee must be named or

otherwise indicated therein with reasonable certainty.

Sec. 9. When payable to bearer. - The instrument is payable to

bearer:

(a) When it is expressed to be so payable; or

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

(c) When it is payable to the order of a fictitious or non-existing person,

and such fact was known to the person making it so payable; or

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

person; or

(e) When the only or last indorsement is an indorsement in blank.

Sec. 10. Terms, when sufficient. - The instrument need not follow the

language of this Act, but any terms are sufficient which clearly indicate an

intention to conform to the requirements hereof.

Sec. 11. Date, presumption as to. - Where the instrument or an acceptance

or any indorsement thereon is dated, such date is deemed prima facie to

be the true date of the making, drawing, acceptance, or indorsement, as

the case may be.

Sec. 12. Ante-dated and post-dated. - The instrument is not invalid for the

reason only that it is ante-dated or post-dated, provided this is not done for

an illegal or fraudulent purpose. The person to whom an instrument so

dated is delivered acquires the title thereto as of the date of delivery.

Sec. 13. When date may be inserted. - Where an instrument expressed to

be payable at a fixed period after date is issued undated, or where the

acceptance of an instrument payable at a fixed period after sight is

undated, any holder may insert therein the true date of issue or

acceptance, and the instrument shall be payable accordingly. The insertion

of a wrong date does not avoid the instrument in the hands of a

subsequent holder in due course; but as to him, the date so inserted is to

be regarded as the true date.

Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in

any material particular, the person in possession thereof has a prima facie

authority to complete it by filling up the blanks therein. And a signature on

a blank paper delivered by the person making the signature in order that

the paper may be converted into a negotiable instrument operates as a

prima facie authority to fill it up as such for any amount. In order, however,

that any such instrument when completed may be enforced against any

G R A C I E |

h b t th t i t it l ti it t b fill d th bl b t if th d bi t i f



person who became a party thereto prior to its completion, it must be filled

up strictly in accordance with the authority given and within a reasonable

time. But if any such instrument, after completion, is negotiated to a holder

in due course, it is valid and effectual for all purposes in his hands, and he

may enforce it as if it had been filled up strictly in accordance with the

authority given and within a reasonable time.

Sec. 15. Incomplete instrument not delivered. - Where an incomplete

instrument has not been delivered, it will not, if completed and negotiated

without authority, be a valid contract in the hands of any holder, as against

any person whose signature was placed thereon before delivery.

Sec. 16. Delivery; when effectual; when presumed. - Every contract on a

negotiable instrument is incomplete and revocable until delivery of the

instrument for the purpose of giving effect thereto. As between immediateparties and as regards a remote party other than a holder in due course,

the delivery, in order to be effectual, must be made either by or under the

authority of the party making, drawing, accepting, or indorsing, as the case

may be; and, in such case, the delivery may be shown to have been

conditional, or for a special purpose only, and not for the purpose of

transferring the property in the instrument. But where the instrument is in

the hands of a holder in due course, a valid delivery thereof by all parties

prior to him so as to make them liable to him is conclusively presumed. And

where the instrument is no longer in the possession of a party whose

signature appears thereon, a valid and intentional delivery by him is

presumed until the contrary is proved.

Sec. 17. Construction where instrument is ambiguous. - Where the

language of the instrument is ambiguous or there are omissions therein,

the following rules of construction apply:

(a) Where the sum payable is expressed in words and also in figures and

there is a discrepancy between the two, the sum denoted by the words is

the sum payable; but if the words are ambiguous or uncertain, reference

may be had to the figures to fix the amount;

(b) Where the instrument provides for the payment of interest, without

specifying the date from which interest is to run, the interest runs from the

date of the instrument, and if the instrument is undated, from the issue

thereof;

(c) Where the instrument is not dated, it will be considered to be dated as

of the time it was issued;

(d) Where there is a conflict between the written and printed provisions of

the instrument, the written provisions prevail;

(e) Where the instrument is so ambiguous that there is doubt whether it is

a bill or note, the holder may treat it as either at his election;

(f) Where a signature is so placed upon the instrument that it is not clear in

what capacity the person making the same intended to sign, he is to bedeemed an indorser;

(g) Where an instrument containing the word "I promise to pay" is signed

by two or more persons, they are deemed to be jointly and severally liable

thereon.

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Sec 18 Liabilit of person signing in trade or ass med name No person is Sec 23 Forged signat re effect of When a signat re is forged or made



Sec. 18. Liability of person signing in trade or assumed name. - No person is

liable on the instrument whose signature does not appear thereon, except

as herein otherwise expressly provided. But one who signs in a trade or

assumed name will be liable to the same extent as if he had signed in his

own name.

Sec. 19. Signature by agent; authority; how shown. - The signature of any

party may be made by a duly authorized agent. No particular form of

appointment is necessary for this purpose; and the authority of the agent

may be established as in other cases of agency.

Sec. 20. Liability of person signing as agent, and so forth. - Where the

instrument contains or a person adds to his signature words indicating that

he signs for or on behalf of a principal or in a representative capacity, he is

not liable on the instrument if he was duly authorized; but the mereaddition of words describing him as an agent, or as filling a representative

character, without disclosing his principal, does not exempt him from

personal liability.

Sec. 21. Signature by procuration; effect of. - A signature by "procuration"

operates as notice that the agent has but a limited authority to sign, and

the principal is bound only in case the agent in so signing acted within the

actual limits of his authority.

Sec. 22. Effect of indorsement by infant or corporation.- The indorsement

or assignment of the instrument by a corporation or by an infant passes the

property therein, notwithstanding that from want of capacity, the

corporation or infant may incur no liability thereon.

Sec. 23. Forged signature; effect of. - When a signature is forged or made

without the authority of the person whose signature it purports to be, it is

wholly inoperative, and no right to retain the instrument, or to give a

discharge therefor, or to enforce payment thereof against any party

thereto, can be acquired through or under such signature, unless the party

against whom it is sought to enforce such right is precluded from setting up

the forgery or want of authority.

II. CONSIDERATION

Sec. 24. Presumption of consideration. - Every negotiable instrument is

deemed prima facie to have been issued for a valuable consideration; and

every person whose signature appears thereon to have become a party

thereto for value.

Sec. 25. Value, what constitutes. — Value is any consideration sufficient to

support a simple contract. An antecedent or pre-existing debt constitutes

value; and is deemed such whether the instrument is payable on demand

or at a future time.

Sec. 26. What constitutes holder for value. - Where value has at any time

been given for the instrument, the holder is deemed a holder for value in

respect to all parties who become such prior to that time.

Sec. 27. When lien on instrument constitutes holder for value. — Where

the holder has a lien on the instrument arising either from contract or by

implication of law, he is deemed a holder for value to the extent of his lien.

G R A C I E |

Sec 28 Effect of want of consideration Absence or failure of



Sec. 28. Effect of want of consideration. - Absence or failure of

consideration is a matter of defense as against any person not a holder in

due course; and partial failure of consideration is a defense pro tanto,

whether the failure is an ascertained and liquidated amount or otherwise.

Sec. 29. Liability of accommodation party. - An accommodation party is onewho has signed the instrument as maker, drawer, acceptor, or indorser,

without receiving value therefor, and for the purpose of lending his name

to some other person. Such a person is liable on the instrument to a holder

for value, notwithstanding such holder, at the time of taking the

instrument, knew him to be only an accommodation party.

III. NEGOTIATION

Sec. 30. What constitutes negotiation. - An instrument is negotiated when

it is transferred from one person to another in such manner as to

constitute the transferee the holder thereof. If payable to bearer, it is

negotiated by delivery; if payable to order, it is negotiated by the

indorsement of the holder and completed by delivery.

Sec. 31. Indorsement; how made. - The indorsement must be written on

the instrument itself or upon a paper attached thereto. The signature of

the indorser, without additional words, is a sufficient indorsement.

Sec. 32. Indorsement must be of entire instrument. - The indorsement

must be an indorsement of the entire instrument. An indorsement which

purports to transfer to the indorsee a part only of the amount payable, or

which purports to transfer the instrument to two or more indorsees

severally, does not operate as a negotiation of the instrument. But where

the instrument has been paid in part, it may be indorsed as to the residue.

Sec. 33. Kinds of indorsement. - An indorsement may be either special or in

blank; and it may also be either restrictive or qualified or conditional.

Sec. 34. Special indorsement; indorsement in blank. - A special indorsement

specifies the person to whom, or to whose order, the instrument is to be

payable, and the indorsement of such indorsee is necessary to the further

negotiation of the instrument. An indorsement in blank specifies no

indorsee, and an instrument so indorsed is payable to bearer, and may be

negotiated by delivery.

Sec. 35. Blank indorsement; how changed to special indorsement. - The

holder may convert a blank indorsement into a special indorsement by

writing over the signature of the indorser in blank any contract consistent

with the character of the indorsement.

Sec. 36. When indorsement restrictive. - An indorsement is restrictive

which either:

(a) Prohibits the further negotiation of the instrument; or

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

(c) Vests the title in the indorsee in trust for or to the use of some other

persons.

But the mere absence of words implying power to negotiate does not make

an indorsement restrictive.

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Sec 40 Indorsement of instrument payable to bearer Where an



Sec. 37. Effect of restrictive indorsement; rights of indorsee. - A restrictive

indorsement confers upon the indorsee the right:

(a) to receive payment of the instrument;

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

(c) to transfer his rights as such indorsee, where the form of the

indorsement authorizes him to do so.

But all subsequent indorsees acquire only the title of the first indorsee

under the restrictive indorsement.

Sec. 38. Qualified indorsement. - A qualified indorsement constitutes the

indorser a mere assignor of the title to the instrument. It may be made by

adding to the indorser's signature the words "without recourse" or any

words of similar import. Such an indorsement does not impair the

negotiable character of the instrument.

Sec. 39. Conditional indorsement. - Where an indorsement is conditional,

the party required to pay the instrument may disregard the condition and

make payment to the indorsee or his transferee whether the condition has

been fulfilled or not. But any person to whom an instrument so indorsed is

negotiated will hold the same, or the proceeds thereof, subject to the

rights of the person indorsing conditionally.

Sec. 40. Indorsement of instrument payable to bearer. - Where an

instrument, payable to bearer, is indorsed specially, it may nevertheless be

further negotiated by delivery; but the person indorsing specially is liable as

indorser to only such holders as make title through his indorsement.

Sec. 41. Indorsement where payable to two or more persons. - Where aninstrument is payable to the order of two or more payees or indorsees who

are not partners, all must indorse unless the one indorsing has authority to

indorse for the others.

Sec. 42. Effect of instrument drawn or indorsed to a person as

cashier. - Where an instrument is drawn or indorsed to a person as

"cashier" or other fiscal officer of a bank or corporation, it is deemed prima

facie to be payable to the bank or corporation of which he is such officer,

and may be negotiated by either the indorsement of the bank or

corporation or the indorsement of the officer.

Sec. 43. Indorsement where name is misspelled, and so forth. - Where the

name of a payee or indorsee is wrongly designated or misspelled, he may

indorse the instrument as therein described adding, if he thinks fit, his

proper signature.

Sec. 44. Indorsement in representative capacity. - Where any person is

under obligation to indorse in a representative capacity, he may indorse in

such terms as to negative personal liability.

Sec. 45. Time of indorsement; presumption. - Except where an indorsement

bears date after the maturity of the instrument, every negotiation is

G R A C I E |

deemed prima facie to have been effected before the instrument was



deemed prima facie to have been effected before the instrument was

overdue.

Sec. 46. Place of indorsement; presumption. - Except where the contrary

appears, every indorsement is presumed prima facie to have been made at

the place where the instrument is dated.

Sec. 47. Continuation of negotiable character. - An instrument negotiable in

its origin continues to be negotiable until it has been restrictively indorsed

or discharged by payment or otherwise.

Sec. 48. Striking out indorsement. - The holder may at any time strike out

any indorsement which is not necessary to his title. The indorser whose

indorsement is struck out, and all indorsers subsequent to him, are thereby

relieved from liability on the instrument.

Sec. 49. Transfer without indorsement; effect of. - Where the holder of an

instrument payable to his order transfers it for value without indorsing it,

the transfer vests in the transferee such title as the transferor had therein,

and the transferee acquires in addition, the right to have the indorsement

of the transferor. But for the purpose of determining whether the

transferee is a holder in due course, the negotiation takes effect as of the

time when the indorsement is actually made.

Sec. 50. When prior party may negotiate instrument. - Where an

instrument is negotiated back to a prior party, such party may, subject to

the provisions of this Act, reissue and further negotiable the same. But he

is not entitled to enforce payment thereof against any intervening party to

whom he was personally liable.

IV. RIGHTS OF THE HOLDER

Sec. 51. Right of holder to sue; payment. - The holder of a negotiable

instrument may to sue thereon in his own name; and payment to him in

due course discharges the instrument.

Sec. 52. What constitutes a holder in due course. - A holder in due course is

a holder who has taken the instrument under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without

notice that it has been previously dishonored, if such was the fact;

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

(d) That at the time it was negotiated to him, he had no notice of anyinfirmity in the instrument or defect in the title of the person negotiating it.

Sec. 53. When person not deemed holder in due course. - Where an

instrument payable on demand is negotiated on an unreasonable length of

time after its issue, the holder is not deemed a holder in due course.

Sec. 54. Notice before full amount is paid. - Where the transferee receives

notice of any infirmity in the instrument or defect in the title of the person

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negotiating the same before he has paid the full amount agreed to be paid Sec 59 Who is deemed holder in due course - Every holder is deemed



negotiating the same before he has paid the full amount agreed to be paid

therefor, he will be deemed a holder in due course only to the extent of the

amount therefore paid by him.

Sec. 55. When title defective. - The title of a person who negotiates an

instrument is defective within the meaning of this Act when he obtainedthe instrument, or any signature thereto, by fraud, duress, or force and

fear, or other unlawful means, or for an illegal consideration, or when he

negotiates it in breach of faith, or under such circumstances as amount to a

fraud.

Sec. 56. What constitutes notice of defect. - To constitutes notice of an

infirmity in the instrument or defect in the title of the person negotiating

the same, the person to whom it is negotiated must have had actual

knowledge of the infirmity or defect, or knowledge of such facts that hisaction in taking the instrument amounted to bad faith.

Sec. 57. Rights of holder in due course. - A holder in due course holds the

instrument free from any defect of title of prior parties, and free from

defenses available to prior parties among themselves, and may enforce

payment of the instrument for the full amount thereof against all parties

liable thereon.

Sec. 58. When subject to original defense. - In the hands of any holder

other than a holder in due course, a negotiable instrument is subject to the

same defenses as if it were non-negotiable. But a holder who derives his

title through a holder in due course, and who is not himself a party to any

fraud or illegality affecting the instrument, has all the rights of such former

holder in respect of all parties prior to the latter.

Sec. 59. Who is deemed holder in due course. Every holder is deemed

prima facie to be a holder in due course; but when it is shown that the title

of any person who has negotiated the instrument was defective, the

burden is on the holder to prove that he or some person under whom he

claims acquired the title as holder in due course. But the last-mentioned

rule does not apply in favor of a party who became bound on the

instrument prior to the acquisition of such defective title.

V. LIABILITIES OF PARTIES

Sec. 60. Liability of maker. - The maker of a negotiable instrument, by

making it, engages that he will pay it according to its tenor, and admits the

existence of the payee and his then capacity to indorse.

Sec. 61. Liability of drawer. - The drawer by drawing the instrument admits

the existence of the payee and his then capacity to indorse; and engages

that, on due presentment, the instrument will be accepted or paid, or both,

according to its tenor, and that if it be dishonored and the necessary

proceedings on dishonor be duly taken, he will pay the amount thereof to

the holder or to any subsequent indorser who may be compelled to pay it.

But the drawer may insert in the instrument an express stipulation

negativing or limiting his own liability to the holder.

Sec. 62. Liability of acceptor. - The acceptor, by accepting the instrument,

engages that he will pay it according to the tenor of his acceptance and

admits:

(a) The existence of the drawer, the genuineness of his signature, and his

capacity and authority to draw the instrument; and

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(b) The existence of the payee and his then capacity to indorse. (c) That all prior parties had capacity to contract;



(b) The existence of the payee and his then capacity to indorse.

Sec. 63. When a person deemed indorser. - A person placing his signature

upon an instrument otherwise than as maker, drawer, or acceptor, is

deemed to be indorser unless he clearly indicates by appropriate words his

intention to be bound in some other capacity.

Sec. 64. Liability of irregular indorser. - Where a person, not otherwise a

party to an instrument, places thereon his signature in blank before

delivery, he is liable as indorser, in accordance with the following rules:

(a) If the instrument is payable to the order of a third person, he is liable to

the payee and to all subsequent parties.

(b) If the instrument is payable to the order of the maker or drawer, or is

payable to bearer, he is liable to all parties subsequent to the maker or

drawer.

(c) If he signs for the accommodation of the payee, he is liable to all parties

subsequent to the payee.

Sec. 65. Warranty where negotiation by delivery and so forth. — Every

person negotiating an instrument by delivery or by a qualified indorsement

warrants:

(a) That the instrument is genuine and in all respects what it purports to be;

(b) That he has a good title to it;

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

(d) That he has no knowledge of any fact which would impair the validity of

the instrument or render it valueless.

But when the negotiation is by delivery only, the warranty extends in favor

of no holder other than the immediate transferee.

The provisions of subdivision (c) of this section do not apply to a person

negotiating public or corporation securities other than bills and notes.

Sec. 66. Liability of general indorser. - Every indorser who indorses without

qualification, warrants to all subsequent holders in due course:

(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the

next preceding section; and

(b) That the instrument is, at the time of his indorsement, valid and

subsisting;

And, in addition, he engages that, on due presentment, it shall be acceptedor paid, or both, as the case may be, according to its tenor, and that if it be

dishonored and the necessary proceedings on dishonor be duly taken, he

will pay the amount thereof to the holder, or to any subsequent indorser

who may be compelled to pay it.

Sec. 67. Liability of indorser where paper negotiable by delivery. — Where

a person places his indorsement on an instrument negotiable by delivery,

he incurs all the liability of an indorser.

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Sec. 72. What constitutes a sufficient presentment. - Presentment for



Sec. 68. Order in which indorsers are liable. - As respect one another,

indorsers are liable prima facie in the order in which they indorse; but

evidence is admissible to show that, as between or among themselves,

they have agreed otherwise. Joint payees or joint indorsees who indorse

are deemed to indorse jointly and severally.

Sec. 69. Liability of an agent or broker. - Where a broker or other agent

negotiates an instrument without indorsement, he incurs all the liabilities

prescribed by Section Sixty-five of this Act, unless he discloses the name of

his principal and the fact that he is acting only as agent.

VI. PRESENTATION FOR PAYMENT

Sec. 70. Effect of want of demand on principal debtor. - Presentment for

payment is not necessary in order to charge the person primarily liable on

the instrument; but if the instrument is, by its terms, payable at a special

place, and he is able and willing to pay it there at maturity, such ability and

willingness are equivalent to a tender of payment upon his part. But except

as herein otherwise provided, presentment for payment is necessary in

order to charge the drawer and indorsers.

Sec. 71. Presentment where instrument is not payable on demand and

where payable on demand. - Where the instrument is not payable on

demand, presentment must be made on the day it falls due. Where it is

payable on demand, presentment must be made within a reasonable time

after its issue, except that in the case of a bill of exchange, presentment for

payment will be sufficient if made within a reasonable time after the last

negotiation thereof.

Sec. 72. What constitutes a sufficient presentment. Presentment for

payment, to be sufficient, must be made:

(a) By the holder, or by some person authorized to receive payment on his

behalf;

(b) At a reasonable hour on a business day;

(c) At a proper place as herein defined;

(d) To the person primarily liable on the instrument, or if he is absent or

inaccessible, to any person found at the place where the presentment is

made.

Sec. 73. Place of presentment. - Presentment for payment is made at the

proper place:

(a) Where a place of payment is specified in the instrument and it is there

presented;

(b) Where no place of payment is specified but the address of the person tomake payment is given in the instrument and it is there presented;

(c) Where no place of payment is specified and no address is given and the

instrument is presented at the usual place of business or residence of the

person to make payment;



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(a) It is duly presented for payment and payment is refused or cannot be Sec. 88. What constitutes payment in due course. - Payment is made in due



( ) y p p y p y

obtained; or

(b) Presentment is excused and the instrument is overdue and unpaid.

Sec. 84. Liability of person secondarily liable, when instrument dishonored.

- Subject to the provisions of this Act, when the instrument is dishonored

by non-payment, an immediate right of recourse to all parties secondarily

liable thereon accrues to the holder.

Sec. 85. Time of maturity. - Every negotiable instrument is payable at the

time fixed therein without grace. When the day of maturity falls upon

Sunday or a holiday, the instruments falling due or becoming payable on

Saturday are to be presented for payment on the next succeeding business

day except that instruments payable on demand may, at the option of theholder, be presented for payment before twelve o'clock noon on Saturday

when that entire day is not a holiday.

Sec. 86. Time; how computed. - When the instrument is payable at a fixed

period after date, after sight, or after that happening of a specified event,

the time of payment is determined by excluding the day from which the

time is to begin to run, and by including the date of payment.

Sec. 87. Rule where instrument payable at bank. - Where the instrument is

made payable at a bank, it is equivalent to an order to the bank to pay the

same for the account of the principal debtor thereon.

p y y

course when it is made at or after the maturity of the payment to the

holder thereof in good faith and without notice that his title is defective.

VII. NOTICE OF DISHONOR

Sec. 89. To whom notice of dishonor must be given. - Except as herein

otherwise provided, when a negotiable instrument has been dishonored by

non-acceptance or non-payment, notice of dishonor must be given to the

drawer and to each indorser, and any drawer or indorser to whom such

notice is not given is discharged.

Sec. 90. By whom given. - The notice may be given by or on behalf of the

holder, or by or on behalf of any party to the instrument who might be

compelled to pay it to the holder, and who, upon taking it up, would have a

right to reimbursement from the party to whom the notice is given.

Sec. 91. Notice given by agent. - Notice of dishonor may be given by any

agent either in his own name or in the name of any party entitled to given

notice, whether that party be his principal or not.

Sec. 92. Effect of notice on behalf of holder. - Where notice is given by or

on behalf of the holder, it inures to the benefit of all subsequent holders

and all prior parties who have a right of recourse against the party to whom

it is given.

G R A C I E |

Sec. 93. Effect where notice is given by party entitled thereto. - Where found. If there be no personal representative, notice may be sent to the



notice is given by or on behalf of a party entitled to give notice, it inures to

the benefit of the holder and all parties subsequent to the party to whom

notice is given.

Sec. 94. When agent may give notice. - Where the instrument has beendishonored in the hands of an agent, he may either himself give notice to

the parties liable thereon, or he may give notice to his principal. If he gives

notice to his principal, he must do so within the same time as if he were the

holder, and the principal, upon the receipt of such notice, has himself the

same time for giving notice as if the agent had been an independent

holder.

Sec. 95. When notice sufficient. - A written notice need not be signed and

an insufficient written notice may be supplemented and validated by verbalcommunication. A misdescription of the instrument does not vitiate the

notice unless the party to whom the notice is given is in fact misled

thereby.

Sec. 96. Form of notice. - The notice may be in writing or merely oral and

may be given in any terms which sufficiently identify the instrument, and

indicate that it has been dishonored by non-acceptance or non-payment. It

may in all cases be given by delivering it personally or through the mails.

Sec. 97. To whom notice may be given. - Notice of dishonor may be given

either to the party himself or to his agent in that behalf.

Sec. 98. Notice where party is dead. - When any party is dead and his death

is known to the party giving notice, the notice must be given to a personal

representative, if there be one, and if with reasonable diligence, he can be

last residence or last place of business of the deceased.

Sec. 99. Notice to partners. - Where the parties to be notified are partners,

notice to any one partner is notice to the firm, even though there has been

a dissolution.

Sec. 100. Notice to persons jointly liable. - Notice to joint persons who are

not partners must be given to each of them unless one of them has

authority to receive such notice for the others.

Sec. 101. Notice to bankrupt. - Where a party has been adjudged a

bankrupt or an insolvent, or has made an assignment for the benefit of

creditors, notice may be given either to the party himself or to his trustee

or assignee.

Sec. 102. Time within which notice must be given. - Notice may be given as

soon as the instrument is dishonored and, unless delay is excused as

hereinafter provided, must be given within the time fixed by this Act.

Sec. 103. Where parties reside in same place. - Where the person giving

and the person to receive notice reside in the same place, notice must be

given within the following times:

(a) If given at the place of business of the person to receive notice, it must

be given before the close of business hours on the day following.

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(b) If given at his residence, it must be given before the usual hours of rest



on the day following.

(c) If sent by mail, it must be deposited in the post office in time to reach

him in usual course on the day following.

Sec. 104. Where parties reside in different places. - Where the person

giving and the person to receive notice reside in different places, the notice

must be given within the following times:

(a) If sent by mail, it must be deposited in the post office in time to go by

mail the day following the day of dishonor, or if there be no mail at a

convenient hour on last day, by the next mail thereafter.

(b) If given otherwise than through the post office, then within the time

that notice would have been received in due course of mail, if it had been

deposited in the post office within the time specified in the last subdivision.

Sec. 105. When sender deemed to have given due notice. - Where notice of

dishonor is duly addressed and deposited in the post office, the sender is

deemed to have given due notice, notwithstanding any miscarriage in the

mails.

Sec. 106. Deposit in post office; what constitutes. - Notice is deemed to

have been deposited in the post-office when deposited in any branch post

office or in any letter box under the control of the post-office department.

Sec. 107. Notice to subsequent party; time of. - Where a party receives

notice of dishonor, he has, after the receipt of such notice, the same time

for giving notice to antecedent parties that the holder has after the

dishonor.

Sec. 108. Where notice must be sent. - Where a party has added an address

to his signature, notice of dishonor must be sent to that address; but if he

has not given such address, then the notice must be sent as follows:

(a) Either to the post-office nearest to his place of residence or to the post-

office where he is accustomed to receive his letters; or

(b) If he lives in one place and has his place of business in another, notice

may be sent to either place; or

(c) If he is sojourning in another place, notice may be sent to the place

where he is so sojourning.

But where the notice is actually received by the party within the time

specified in this Act, it will be sufficient, though not sent in accordance with

the requirement of this section.

Sec. 109. Waiver of notice. - Notice of dishonor may be waived either

before the time of giving notice has arrived or after the omission to give

due notice, and the waiver may be expressed or implied.

Sec. 110. Whom affected by waiver. - Where the waiver is embodied in the

instrument itself, it is binding upon all parties; but, where it is written

above the signature of an indorser, it binds him only.

Sec. 111. Waiver of protest. - A waiver of protest, whether in the case of a

foreign bill of exchange or other negotiable instrument, is deemed to be a

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waiver not only of a formal protest but also of presentment and notice of



dishonor.

Sec. 112. When notice is dispensed with. - Notice of dishonor is dispensed

with when, after the exercise of reasonable diligence, it cannot be given to

or does not reach the parties sought to be charged.

Sec. 113. Delay in giving notice; how excused. - Delay in giving notice of

dishonor is excused when the delay is caused by circumstances beyond the

control of the holder and not imputable to his default, misconduct, or

negligence. When the cause of delay ceases to operate, notice must be

given with reasonable diligence.

Sec. 114. When notice need not be given to drawer. - Notice of dishonor is

not required to be given to the drawer in either of the following cases:

(a) Where the drawer and drawee are the same person;

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

contract;

(c) When the drawer is the person to whom the instrument is presented for

payment;

(d) Where the drawer has no right to expect or require that the drawee or

acceptor will honor the instrument;

(e) Where the drawer has countermanded payment.

Sec. 115. When notice need not be given to indorser. — Notice of dishonor

is not required to be given to an indorser in either of the following cases:

(a) When the drawee is a fictitious person or person not having capacity tocontract, and the indorser was aware of that fact at the time he indorsed

the instrument;

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

for payment;

(c) Where the instrument was made or accepted for his accommodation.

Sec. 116. Notice of non-payment where acceptance refused. - Where due

notice of dishonor by non-acceptance has been given, notice of a

subsequent dishonor by non-payment is not necessary unless in the

meantime the instrument has been accepted.

Sec. 117. Effect of omission to give notice of non-acceptance. - An omission

to give notice of dishonor by non-acceptance does not prejudice the rights

of a holder in due course subsequent to the omission.

Sec. 118. When protest need not be made; when must be made. - Where

any negotiable instrument has been dishonored, it may be protested for

non-acceptance or non-payment, as the case may be; but protest is not

required except in the case of foreign bills of exchange.

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VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTS (c) By the discharge of a prior party;



Sec. 119. Instrument; how discharged. - A negotiable instrument is

discharged:

(a) By payment in due course by or on behalf of the principal debtor;

(b) By payment in due course by the party accommodated, where the

instrument is made or accepted for his accommodation;

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

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

of money;

(e) When the principal debtor becomes the holder of the instrument at or

after maturity in his own right.

Sec. 120. When persons secondarily liable on the instrument aredischarged. - A person secondarily liable on the instrument is discharged:

(a) By any act which discharges the instrument;

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

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

(e) By a release of the principal debtor unless the holder's right of recourse

against the party secondarily liable is expressly reserved;

(f) By any agreement binding upon the holder to extend the time of

payment or to postpone the holder's right to enforce the instrument unless

made with the assent of the party secondarily liable or unless the right of

recourse against such party is expressly reserved.

Sec. 121. Right of party who discharges instrument. - Where the instrument

is paid by a party secondarily liable thereon, it is not discharged; but the

party so paying it is remitted to his former rights as regard all prior parties,

and he may strike out his own and all subsequent indorsements and

against negotiate the instrument, except:

(a) Where it is payable to the order of a third person and has been paid by

the drawer; and

(b) Where it was made or accepted for accommodation and has been paid

by the party accommodated.

Sec. 122. Renunciation by holder. - The holder may expressly renounce his

rights against any party to the instrument before, at, or after its maturity.

An absolute and unconditional renunciation of his rights against the

principal debtor made at or after the maturity of the instrument discharges

the instrument. But a renunciation does not affect the rights of a holder in

due course without notice. A renunciation must be in writing unless the

instrument is delivered up to the person primarily liable thereon.

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Sec. 123. Cancellation; unintentional; burden of proof. - A cancellation

made unintentionally or under a mistake or without the authority of the

holder, is inoperative but where an instrument or any signature thereon

appears to have been cancelled, the burden of proof lies on the party who

alleges that the cancellation was made unintentionally or under a mistake

or without authority.

Sec. 124. Alteration of instrument; effect of. - Where a negotiable

instrument is materially altered without the assent of all parties liable

thereon, it is avoided, except as against a party who has himself made,

authorized, or assented to the alteration and subsequent indorsers.

But when an instrument has been materially altered and is in the hands of

a holder in due course not a party to the alteration, he may enforce

payment thereof according to its original tenor.

Sec. 125. What constitutes a material alteration. - Any alteration which

changes:

(a) The date;

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

(c) The time or place of payment:

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

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

(f) Or which adds a place of payment where no place of payment is

specified, or any other change or addition which alters the effect of theinstrument in any respect, is a material alteration.

BILLS OF EXCHANGE

IX. FORM AND INTERPRETATION

Sec. 126. Bill of exchange, defined. - A bill of exchange is an unconditional

order in writing addressed by one person to another, signed by the person

giving it, requiring the person to whom it is addressed to pay on demand or

at a fixed or determinable future time a sum certain in money to order or

to bearer.

Sec. 127. Bill not an assignment of funds in hands of drawee. - A bill of itself

does not operate as an assignment of the funds in the hands of the drawee

available for the payment thereof, and the drawee is not liable on the bill

unless and until he accepts the same.

Sec. 128. Bill addressed to more than one drawee. - A bill may be

addressed to two or more drawees jointly, whether they are partners or

not; but not to two or more drawees in the alternative or in succession.



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Sec. 139. Kinds of acceptance. - An acceptance is either general or

lifi d A l t t ith t lifi ti t th d

indorsers are discharged from liability on the bill unless they have expressly

i li dl th i d th h ld t t k lifi d t



qualified. A general acceptance assents without qualification to the order

of the drawer. A qualified acceptance in express terms varies the effect of

the bill as drawn.

Sec. 140. What constitutes a general acceptance. - An acceptance to pay ata particular place is a general acceptance unless it expressly states that the

bill is to be paid there only and not elsewhere.

Sec. 141. Qualified acceptance. - An acceptance is qualified which is:

(a) Conditional; that is to say, which makes payment by the acceptor

dependent on the fulfillment of a condition therein stated;

(b) Partial; that is to say, an acceptance to pay part only of the amount for

which the bill is drawn;

(c) Local; that is to say, an acceptance to pay only at a particular place;

(d) Qualified as to time;

(e) The acceptance of some, one or more of the drawees but not of all.

Sec. 142. Rights of parties as to qualified acceptance. - The holder may

refuse to take a qualified acceptance and if he does not obtain an

unqualified acceptance, he may treat the bill as dishonored by non-

acceptance. Where a qualified acceptance is taken, the drawer and

or impliedly authorized the holder to take a qualified acceptance, or

subsequently assent thereto. When the drawer or an indorser receives

notice of a qualified acceptance, he must, within a reasonable time,

express his dissent to the holder or he will be deemed to have assented

thereto.

XI. PRESENTMENT FOR ACCEPTANCE

Sec. 143. When presentment for acceptance must be made. - Presentment

for acceptance must be made:

(a) Where the bill is payable after sight, or in any other case, where

presentment for acceptance is necessary in order to fix the maturity of the

instrument; or

(b) Where the bill expressly stipulates that it shall be presented for

acceptance; or

(c) Where the bill is drawn payable elsewhere than at the residence or

place of business of the drawee.

In no other case is presentment for acceptance necessary in order to

render any party to the bill liable.

Sec. 144. When failure to present releases drawer and indorser. - Except as

herein otherwise provided, the holder of a bill which is required by the next

preceding section to be presented for acceptance must either present it for



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(d) The demand made and the answer given, if any, or the fact that the

drawee or acceptor could not be found



Sec. 151. Rights of holder where bill not accepted. - When a bill is

dishonored by nonacceptance, an immediate right of recourse against the

drawer and indorsers accrues to the holder and no presentment for

payment is necessary.

XII. PROTEST

Sec. 152. In what cases protest necessary. - Where a foreign bill appearing

on its face to be such is dishonored by nonacceptance, it must be duly

protested for nonacceptance, by nonacceptance is dishonored and where

such a bill which has not previously been dishonored by nonpayment, it

must be duly protested for nonpayment. If it is not so protested, the

drawer and indorsers are discharged. Where a bill does not appear on itsface to be a foreign bill, protest thereof in case of dishonor is unnecessary.

Sec. 153. Protest; how made. - The protest must be annexed to the bill or

must contain a copy thereof, and must be under the hand and seal of the

notary making it and must specify:

(a) The time and place of presentment;

(b) The fact that presentment was made and the manner thereof;

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

drawee or acceptor could not be found.

Sec. 154. Protest, by whom made. - Protest may be made by:

(a) A notary public; or

(b) By any respectable resident of the place where the bill is dishonored, in

the presence of two or more credible witnesses.

Sec. 155. Protest; when to be made. - When a bill is protested, such protest

must be made on the day of its dishonor unless delay is excused as herein

provided. When a bill has been duly noted, the protest may be

subsequently extended as of the date of the noting.

Sec. 156. Protest; where made. - A bill must be protested at the place

where it is dishonored, except that when a bill drawn payable at the place

of business or residence of some person other than the drawee has been

dishonored by nonacceptance, it must be protested for non-payment at the

place where it is expressed to be payable, and no further presentment for

payment to, or demand on, the drawee is necessary.

Sec. 157. Protest both for non-acceptance and non-payment. - A bill which

has been protested for non-acceptance may be subsequently protested for

non-payment.

Sec. 158. Protest before maturity where acceptor insolvent. - Where the

acceptor has been adjudged a bankrupt or an insolvent or has made an

assignment for the benefit of creditors before the bill matures, the holder

may cause the bill to be protested for better security against the drawer

and indorsers.

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Sec. 163. When deemed to be an acceptance for honor of the drawer. -

Where an acceptance for honor does not expressly state for whose honor it



Sec. 159. When protest dispensed with. - Protest is dispensed with by any

circumstances which would dispense with notice of dishonor. Delay in

noting or protesting is excused when delay is caused by circumstances

beyond the control of the holder and not imputable to his default,

misconduct, or negligence. When the cause of delay ceases to operate, the

bill must be noted or protested with reasonable diligence.

Sec. 160. Protest where bill is lost and so forth. - When a bill is lost or

destroyed or is wrongly detained from the person entitled to hold it,

protest may be made on a copy or written particulars thereof.

XIII. ACCEPTANCE FOR HONOR

Sec. 161. When bill may be accepted for honor. - When a bill of exchange

has been protested for dishonor by non-acceptance or protested for better

security and is not overdue, any person not being a party already liable

thereon may, with the consent of the holder, intervene and accept the bill

supra protest for the honor of any party liable thereon or for the honor of

the person for whose account the bill is drawn. The acceptance for honor

may be for part only of the sum for which the bill i s drawn; and where

there has been an acceptance for honor for one party, there may be a

further acceptance by a different person for the honor of another party.

Sec. 162. Acceptance for honor; how made. - An acceptance for honor

supra protest must be in writing and indicate that it is an acceptance for

honor and must be signed by the acceptor for honor.

Where an acceptance for honor does not expressly state for whose honor it

is made, it is deemed to be an acceptance for the honor of the drawer.

Sec. 164. Liability of the acceptor for honor. - The acceptor for honor is

liable to the holder and to all parties to the bill subsequent to the party forwhose honor he has accepted.

Sec. 165. Agreement of acceptor for honor. - The acceptor for honor, by

such acceptance, engages that he will, on due presentment, pay the bill

according to the terms of his acceptance provided it shall not have been

paid by the drawee and provided also that is shall have been duly

presented for payment and protested for non-payment and notice of

dishonor given to him.

Sec. 166. Maturity of bill payable after sight; accepted for honor. - Where a

bill payable after sight is accepted for honor, its maturity is calculated from

the date of the noting for non-acceptance and not from the date of the

acceptance for honor.

Sec. 167. Protest of bill accepted for honor, and so forth. - Where a

dishonored bill has been accepted for honor supra protest or contains areferee in case of need, it must be protested for non-payment before it is

presented for payment to the acceptor for honor or referee in case of

need.

Sec. 168. Presentment for payment to acceptor for honor, how made. -

Presentment for payment to the acceptor for honor must be made as

follows:

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(a) If it is to be presented in the place where the protest for non-payment

was made it must be presented not later than the day following its

Sec. 173. Declaration before payment for honor. - The notarial act of honor

must be founded on a declaration made by the payer for honor or by his



was made, it must be presented not later than the day following its

maturity.

(b) If it is to be presented in some other place than the place where it was

protested, then it must be forwarded within the time specified in Sectionone hundred and four.

Sec. 169. When delay in making presentment is excused. - The provisions of

Section eighty-one apply where there is delay in making presentment to

the acceptor for honor or referee in case of need.

Sec. 170. Dishonor of bill by acceptor for honor. - When the bill is

dishonored by the acceptor for honor, it must be protested for non-

payment by him.

XIV. PAYMENT FOR HONOR

Sec. 171. Who may make payment for honor. - Where a bill has been

protested for non-payment, any person may intervene and pay it supra

protest for the honor of any person liable thereon or for the honor of the

person for whose account it was drawn.

Sec. 172. Payment for honor; how made. - The payment for honor supra

protest, in order to operate as such and not as a mere voluntary payment,

must be attested by a notarial act of honor which may be appended to the

protest or form an extension to it.

must be founded on a declaration made by the payer for honor or by his

agent in that behalf declaring his intention to pay the bill for honor and for

whose honor he pays.

Sec. 174. Preference of parties offering to pay for honor. - Where two ormore persons offer to pay a bill for the honor of different parties, the

person whose payment will discharge most parties to the bill is to be given

the preference.

Sec. 175. Effect on subsequent parties where bill is paid for honor. - Where

a bill has been paid for honor, all parties subsequent to the party for whose

honor it is paid are discharged but the payer for honor is subrogated for,

and succeeds to, both the rights and duties of the holder as regards the

party for whose honor he pays and all parties liable to the latter.

Sec. 176. Where holder refuses to receive payment supra protest. - Where

the holder of a bill refuses to receive payment supra protest, he loses his

right of recourse against any party who would have been discharged by

such payment.

Sec. 177. Rights of payer for honor. - The payer for honor, on paying to theholder the amount of the bill and the notarial expenses incidental to its

dishonor, is entitled to receive both the bill itself and the protest.

XV. BILLS IN SET

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Sec. 178. Bills in set constitute one bill. - Where a bill is drawn in a set, each

part of the set being numbered and containing a reference to the other

Sec. 183. Effect of discharging one of a set. - Except as herein otherwise

provided where any one part of a bill drawn in a set is discharged by



part of the set being numbered and containing a reference to the other

parts, the whole of the parts constitutes one bill.

Sec. 179. Right of holders where different parts are negotiated. - Where

two or more parts of a set are negotiated to different holders in duecourse, the holder whose title first accrues is, as between such holders, the

true owner of the bill. But nothing in this section affects the right of a

person who, in due course, accepts or pays the parts first presented to him.

Sec. 180. Liability of holder who indorses two or more parts of a set to

different persons. - Where the holder of a set indorses two or more parts

to different persons he is liable on every such part, and every indorser

subsequent to him is liable on the part he has himself indorsed, as if such

parts were separate bills.

Sec. 181. Acceptance of bill drawn in sets. - The acceptance may be written

on any part and it must be written on one part only. I f the drawee accepts

more than one part and such accepted parts negotiated to different

holders in due course, he is liable on every such part as if it were a separate

bill.

Sec. 182. Payment by acceptor of bills drawn in sets. - When the acceptor

of a bill drawn in a set pays it without requiring the part bearing his

acceptance to be delivered up to him, and the part at maturity is

outstanding in the hands of a holder in due course, he is liable to the holder

thereon.

provided, where any one part of a bill drawn in a set is discharged by

payment or otherwise, the whole bill is discharged.

XVI. PROMISSORY NOTES AND CHECKS

Sec. 184. Promissory note, defined. - A negotiable promissory note within

the meaning of this Act is an unconditional promise in writing made by one

person to another, signed by the maker, engaging to pay on demand, or at

a fixed or determinable future time, a sum certain in money to order or to

bearer. Where a note is drawn to the maker's own order, it is not complete

until indorsed by him.

Sec. 185. Check, defined. - A check is a bill of exchange drawn on a bank

payable on demand. Except as herein otherwise provided, the provisions of

this Act applicable to a bill of exchange payable on demand apply to a

check.

Sec. 186. Within what time a check must be presented. - A check must be

presented for payment within a reasonable time after its issue or the

drawer will be discharged from liability thereon to the extent of the loss

caused by the delay.

Sec. 187. Certification of check; effect of. - Where a check is certified by the

bank on which it is drawn, the certification is equivalent to an acceptance.

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Sec. 188. Effect where the holder of check procures it to be certified. -

Where the holder of a check procures it to be accepted or certified, the

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

to bearer;



Where the holder of a check procures it to be accepted or certified, the

drawer and all indorsers are discharged from liability thereon.

Sec. 189. When check operates as an assignment. - A check of itself does

not operate as an assignment of any part of the funds to the credit of thedrawer with the bank, and the bank is not liable to the holder unless and

until it accepts or certifies the check.

XVII. GENERAL PROVISIONS

Sec. 190. Short title. - This Act shall be known as the Negotiable

Instruments Law.

Sec. 191. Definition and meaning of terms. - In this Act, unless the contract

otherwise requires:

"Acceptance" means an acceptance completed by delivery or notification;

"Action" includes counterclaim and set-off;

"Bank" includes any person or association of persons carrying on the

business of banking, whether incorporated or not;

to bearer;

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

note;

"Delivery" means transfer of possession, actual or constructive, from one

person to another;

"Holder" means the payee or indorsee of a bill or note who is in possession

of it, or the bearer thereof;

"Indorsement" means an indorsement completed by delivery;

"Instrument" means negotiable instrument;

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

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

"Value" means valuable consideration;

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"Written" includes printed, and "writing" includes print.

Sec. 192. Persons primarily liable on instrument. - The person "primarily"

liable on an instrument is the person who, by the terms of the instrument,

is absolutely required to pay the same. All other parties are "secondarily"

liable.

Sec. 193. Reasonable time, what constitutes. - In determining what is a

"reasonable time" regard is to be had to the nature of the instrument, the

usage of trade or business with respect to such instruments, and the facts

of the particular case.

Sec. 194. Time, how computed; when last day falls on holiday. - Where theday, or the last day for doing any act herein required or permitted to be

done falls on a Sunday or on a holiday, the act may be done on the next

succeeding secular or business day.

Sec. 195. Application of Act. - The provisions of this Act do not apply to

negotiable instruments made and delivered prior to the taking effect

hereof.

Sec. 196. Cases not provided for in Act. - Any case not provided for in this

Act shall be governed by the provisions of existing legislation or in default

thereof, by the rules of the law merchant.

Sec. 197. Repeals. - All acts and laws and parts thereof inconsistent with

this Act are hereby repealed.

Sec. 198. Time when Act takes effect. - This Act shall take effect ninety days

after its publication in the Official Gazette of the Philippine Islands shall

have been completed.

Enacted: February 3, 1911

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mercantile law codal

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